Blockchain Blog

Bright Future Ahead for Global Blockchain Legislation; FBI Cryptocurrency Investigations; Regulatory Guidelines Emerge

By Freeman Lewin and Alexandra Levin Kramer

USA:

Bloomberg news reported that the Federal Bureau of Investigation (“FBI”) has 130 pending cases which involve cryptocurrencies.[1] Kyle Armstrong, a supervisory special agent with the FBI, made the comments on June 27, 2018, at the “Crypto Evolved” conference in New York City. According to Armstrong, while the cases represent a small sliver of cases in the thousands of cases they are working on, the agency nonetheless has noticed an increase in illegal activity facilitated by cryptocurrencies. Armstrong, who manages the Bureau’s Virtual Currency Initiative, said that while the underlying blockchain technology makes it easier for investigators to trace cryptocurrencies than cash, the relative anonymity of transactions can prove an obstacle, though it has not stopped the FBI in its tracks. Indeed, Ross Ulbricht, the 31-year-old American who created Silk Road, a Bitcoin market facilitating the sale of $1 billion in illegal drugs, was sentenced to life in prison in February 2015.[2] On June 28, 2018, the Supreme Court announced that it would not reconsider his conviction or life sentence.[3] Further, with the help of the FBI, a Russian national, Alexander Vinni, was charged on January 17, 2017, in a 21-court indictment for allegedly laundering funds from the now shuttered Bitcoin currency exchange Mt. Gox.[4]

Michigan:

 Michigan Representative Curtis VanderWall (R) introduced House Bill 6257 on June 12, 2018, which would make it a crime in the state to illegally alter a blockchain record.[5] According to the bill, which tweaks the state’s penal code pertaining to anyone who “falsely makes, alters, forges or counterfeits a public record,” the legislation would extend to persons who accomplish the above violations “by altering a record made utilizing distributed ledger technology.” The adoption of this bill would raise the possibility that courts would have to rule on the nature of “falsity,” particularly where changes to a public record, recorded on a public blockchain, were adopted through on-chain consensus. State bills regarding blockchain have been all the rage in 2018. Thus far, over 50 bills containing the words “Blockchain” and “Cryptocurrency,” have been introduced in state legislatures since the start of 2018, according to LegiScan.[6]

Bermuda

Long known to be the global center for the financial services industry, the Bermudian government is seeking to implement a comprehensive regulatory framework for digital assets. This comes at the heels of actions by local banks in Bermuda who were previously uncooperative in providing banking services to companies in the emerging FinTech sector. The Bermudian Premier and Minister of Finance said that the banks’ behavior “[c]annot be allowed to frustrate the delivery on our promise of economic growth and success for Bermudians.”[7] The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act, 2018 (the “ICO Act”), as previously reported,[8] passed through Parliament on May 18, 2018 and regulates offerings of digital assets which include various types of digital coins and tokens, including equity, security, and utility tokens.[9] Under the ICO Act, Initial Coin Offerings (“ICOs”) are a “restricted activity” that requires the consent of the Minister of Finance prior to a public offering, which is the sale to more than 35 investors. Thus, a company wishing to launch an ICO can incorporate within the typical timeframe of 24 to 48 hours using Bermuda’s usual incorporation procedures. However, it will not be able to commence its ICO offering without first obtaining the Minister’s approval. That said, the regulatory framework is helpful as it gives significant guidance to companies wishing to do an ICO in the country.

Malta

On June 26, 2018, Silvio Schembri, Malta’s Junior Minister for Financial Services, announced that the Maltese Parliament had unanimously approved three distributed ledger/blockchain bills, as follows:[10] [11]

  1. Bill No 43, the Innovation Technology Arrangements and Services Bill (the “ITAS”), provides guidance on registration and certification of technology service providers, with a specific focus on registering exchanges in Malta;
  2. Bill No 44, the Virtual Financial Assets Bill, regulates virtual currency offerings and requires new companies raising capital through ICOs to provide white papers that outline their project and detail their technology offerings; and
  3. Bill No 45, the Malta Digital Innovation Authority Bill, establishes the Malta Digital Innovation Authority, which will serve as the regulatory body for the industry.

Following the passing of this legislation, Malta’s Prime Minister told Forbes contributor Rachel Wolfson that “blockchain technology, DLT, and cryptocurrency is where innovation is happening right now and we are very glad that Malta can offer the first jurisdiction in the world to regulate this sector. We are excited about what this will lead to in the future.”[12]

China:

Evidence authenticated with blockchain technology can be admitted in legal disputes according to a court in China’s Hangzhou city. Coindesk reported on June 28, 2018, that the Hangzhou Internet Court “decided that the use of blockchain technology in evidence deposition can be legally viable on a case-by-case basis.”[13] The case stems from a copyright infringement dispute wherein the plaintiff, Huatai Yimei, had encoded images used by a Shenzhen-based technology company, onto a blockchain-based evidence deposition platform and then attempted to use that evidence in the proceedings. The court asked whether blockchain could be used in a similar method to that of a traditional notarization service. The court decided that the evidence stored on the blockchain has sufficient legal stature to be accepted by the court. The Hangzhou Internet Court went into operation in August 2017, is a leader in legal technology innovation. It processes cases purely through the web and has a dedicated electronic evidence platform that offers access to both traditional notarization services and authorized third parties.

Thailand:

Thailand’s Securities and Exchange Commission (the “TSEC”) announced on July 4, 2018, that a new rule governing Thai ICOs will take effect July 16, 2018.[14]  The Secretary-General of the TSEC, Rapee Sucharitakul, stated that the sale of digital tokens in ICOs will be regulated under the Digital Asset Management Act (BE 2561) through a dedicated ICO portal. Applicants for TSEC approval will need to (a) be a business registered in Thailand, (b) have adequate resources to allow the TSEC to conduct due diligence, (c) provide a business plan, technical descriptions, and source code for review, and (d) have at least five million Thai Baht or approximately.$150,000 USD in registered capital.

 The Act follows a May 13, 2018, Royal Decree on the Digital Asset Business which was enacted to regulate the offering of digital assets and businesses undertaking digital asset related activities. Notably, the Decree provides that sellers of digital tokens who do not get registered with the regulator within 90 days may face fines, jail, or both.[15]

Please contact Alexandra Levin Kramer, the Chair of CKR Law’s Blockchain Technology & Digital Currency practice group if you have any questions. She can be reached at akramer@ckrlaw.com or +1 (212) 259-7300.



[1] FBI Has 130 Cryptocurrency-Related Investigations, Agent Says,” https://www.bloomberg.com/news/articles/2018-06-27/fbi-has-130-cryptocurrency-related-investigations-agent-says

[2] United States v. Ulbricht, 858 F.3d 71, 82 (2d Cir. 2017)

[3] “Order List: 585 U.S.,” https://www.supremecourt.gov/orders/courtorders/062818zr_k425.pdf

[4] “Russian National And Bitcoin Exchange Charged In 21-Count Indictment For Operating Alleged International Money Laundering Scheme And Allegedly Laundering Funds From Hack Of Mt. Gox,” https://www.justice.gov/usao-ndca/pr/russian-national-and-bitcoin-exchange-charged-21-count-indictment-operating-alleged

[5] "MI HB6257 | 2017-2018 | 99th Legislature." LegiScan. LegiScan LLC, 25 Jul. 2018. https://legiscan.com/MI/bill/HB6257/2017

[6]“Blockchain,” https://legiscan.com/gaits/search?state=ALL&keyword=blockchain; “Cryptocurrency,” https://legiscan.com/gaits/search?state=ALL&keyword=Crypto

[7] “Bermuda to create new class of banks to encourage fintech,”https://www.finextra.com/newsarticle/32339/bermuda-to-create-new-class-of-banks-to-encourage-fintech/vcurrency

[8] “Massachusetts Halts 5 Token Sales,” https://www.ckrlaw.com/blockchain-blog/2018/04/05/massachusetts-halts-token-sales-ofac-sdn-lists-bermuda-token-sales/

[9]“ Companies and Limited Liability Company (Initial Coin Offering) Amendment Act, 2018,” http://www.bermudalaws.bm/laws/Annual%20Laws/2018/Acts/Companies%20and%20Limited%20Liability%20Company%20(Initial%20Coin%20Offering)%20Amendment%20Act%202018.pdf

[10] SilvioSchembri,(June 26, 2018). Today Maltese Parliament unanimously approved 3 bills on DLT/blockchain, a 1st in the World. Honored to have driven these bills. Announced that Mr. Stephen McCarthy will be the CEO of the new #Malta Digital Innovation Authority. #BlockchainIsland –SS [Tweet]. https://twitter.com/SilvioSchembri/status/1011676472875081729

[11] Plenary Session. Sitting No: 136, https://parlament.mt/en/13th-leg/plenary-session/ps-136-26062018-0600-pm/

[12] “Maltese Parliament Passes Laws That Set Regulatory Framework For Blockchain, Cryptocurrency And DLT,” https://www.forbes.com/sites/rachelwolfson/2018/07/05/maltese-parliament-passes-laws-that-set-regulatory-framework-for-blockchain-cryptocurrency-and-dlt/#4b55542a49ed

[13] “Blockchain Can Legally Authenticate Evidence, Chinese Judge Ruleshttps,” https://www.coindesk.com/blockchain-can-legally-authenticate-evidence-chinese-judge-rules/

[14]“SEC Issues ICO Support,” https://www.sec.or.th/th/Pages/News/Detail_News.aspx?tg=NEWS&lg=th&news_no=73&news_yy=2561

[15]Summary of the Royal Decree on the Digital Asset Businesses B.E. 2561, https://www.sec.or.th/TH/SECInfo/LawsRegulation/Documents/Act_Royal_Enactment/enactment_digital_2561_summary_en.pdf