By Odelia Nikfar and Alexandra Levin Kramer
The following is a survey of recent legal developments globally that are significant to the blockchain industry.
SEC: On July 10, 2019, The Securities and Exchange Commission (“SEC”) qualified the token sale of Blockstack, which is building a decentralized computing network and app ecosystem. The $28 million token offering was given the green light by the SEC under Regulation A+. Regulation A (Tiers 1 & 2) is an exemption from the registration of the offering and sale of securities that was first introduced under Title IV of the Jumpstart Our Business Startups Act (the “JOBS Act”) in 2015 as a means for startups to crowdfund in the U.S. up to a maximum of $50 million in a 12 month period from anyone, not just “Accredited Investors”. Additionally, Props, a spinoff of live-streaming app YouNow, also received formal clearance for its consumer token. Users can earn or ‘mine’ Props by engaging with multiple apps, watching videos, creating broadcasts, and tipping creators. Props has reportedly raised $21 million in a pre-sale of its token. The company is currently working to have Props on alternative trading systems that work like cryptocurrency exchanges. These two Regulation A+ qualifications are important precedents in this space, as SEC approval of these two token sales are likely to open the floodgates for compliant token sales in the future.
White House: In a series of tweets on July 11, 2019, President Donald Trump expressed his disapproval of cryptocurrencies. “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....” said the President. This comes after news broke last week that the White House is supporting the use of blockchain technology as a tool in solving the Israeli-Palestinian conflict (see CKR Blockchain Blog).
New York: The New York State Attorney General (the “NYAG”) filed suit against crypto-exchange Bitfinex this past April for, among other things, allegedly misleading their clients about an apparent loss of $851 million (see CKR Blockchain Blog). On May 22, 2019, Bitfinex won on a partial block on demands for information from the NYAG while it seeks to dismiss the suit. Ahead of a hearing date set for July 29, 2019, the NYAG has submitted new evidence in its Affirmation filed on July 8, 2019 to prove that Bitfinex and Tether had served New York customers for longer than they claimed.
North Carolina: The Lieutenant Governor of North Carolina, Dan Forest, announced on July 2, 2019 the formation of the North Carolina Blockchain Initiative, to study the unique attributes and benefits of blockchain technology. According to the Lieutenant Governor, this initiative will develop a stronger economy and lead to technical innovation in North Carolina. “It is my hope to provide a strategy to share with our General Assembly, Department of Insurance, Department of the State Treasurer, and other state agencies that will increase awareness, streamline regulatory oversight, and modernize state government,” said the Lt. Governor.
Facebook: On June 10, 2019, U.S. Federal Reserve Chairman Jerome Powell said that development of Facebook’s Libra must halt until serious issues are addressed. In his semi-annual testimony on monetary policy before the House Financial Services Committee, Powell expressed his concern for the issues related to Libra – privacy, consumer protection, and money laundering. In other Facebook news, on July 8, 2019, Libra’s CEO, David Marcus, sent a letter to the Senate Committee on Banking, Housing, and Urban Affairs, in response to their May 9, 2019 letter questioning Libra and asking for a moratorium on further development. The letter addressed each question in the Committee’s letter, touching on privacy, data security, consumer information, and the effect of Libra on consumer’s credit. A Senate hearing on Libra is set for July 16, 2019 while the House of Representatives will hold a hearing on Libra on July 17, 2019.
On July 10, 2019, Canada updated its anti-money laundering rules to include both Canadian and foreign crypto platforms as money servicing businesses (MSBs) and requiring them to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Additionally, any entity that receives least CA$10,000 (US$7,667) or more must record the details of the transaction, including but not limited to the date of receipt, the amount received from the sender, the sender’s information, the method of receipt.
Police in Spain said on July 11, 2019 that bitcoin ATMs may provide a gap in the European Union’s money laundering rules. 89 out of the 5,400 bitcoin ATMs in the world are located in Spain. The lack of clarity in Spain regarding the legal relationship between the ATMs and cryptocurrency has made it difficult for police to prove a connection between the two in a recently announced takedown of a money laundering scheme. In another case, Spain’s Supreme Court issued its first decision on cryptocurrency, ruling that bitcoins are assets (not electronic money) and any repayment of fraud must be in euros. New legislation is set to take effect next year, which aims to include cryptocurrency exchanges in current anti-money laundering rules.
According to European Central Bank Executive Board member, Benoit Coeure, financial regulators must act fast to prepare for the effects of Libra and other U.S. tech giants on the financial system. Governor Mark Carney said that the Bank of England approaches Libra “with an open mind but not an open door.” However, according to Nigel Green, CEO of deVere Group, cryptocurrencies could provide the solution to the country’s struggles with Brexit, as a free form of European Legislation would allow the country to stand out from other European countries in embracing the emerging industry.
In anticipation of Facebook’s Libra and the challenges to cross border payments, monetary policy, and financial sovereignty, China could create its own digital currency according to a People’s Bank of China official. According to Wang Xin, director of the People’s Bank of China research bureau, the role of the U.S. dollar in Libra’s development is suspicious, as the consequences can reach both the economy and international politics.
 Offering Circular, Blockstack PBC, Securities and Exchange Commission (July 11, 2019) https://stackstoken.com/static/offering-circular-20190711.pdf.
 Paul Vigna, SEC Clears Blockstack to Hold First Regulated Token Offering, The Wall Street Journal (July 10, 2019), https://www.wsj.com/articles/sec-clears-blockstack-to-hold-first-regulated-token-offering-11562794848?shareToken=stc9d0bf95c1fb4b0d885b4a67673bbbeb.
 Offering Circular, YouNow, Inc., Securities and Exchange Commission (July 10, 2019), https://propsproject.com/static/offering/OfferingCircular.html
 Josh Constine, SEC Approves 1st Consumer RegA+ token Props for Cross-app Rewards, TechCrunch (July 11, 2019), https://techcrunch-com.cdn.ampproject.org/c/s/techcrunch.com/2019/07/11/props-reg-a-token/amp/.
 See also Odelia Nikfar and & Alexandra Levin Kramer, Sec Files Complaint Against Kik; Lichtenstein Announces Token and Trusted Technologies Law; Philippine Central Bank Warns of Cryptocurrency Risks; Global Crackdown in Response to Tax Avoidance and Cryptocurrency Abuse, CKR Blockchain Blog (June 14, 2019), https://www.ckrlaw.com/blockchain-blog/2019/06/14/sec-files-complaint-against-kik;-lichtenstein-announces-token-and-trusted-technologies-law;-philippine-central-bank-warns-of-cryptocurrency-risks;-global-crackdown-in-response-to-tax-avoidance-and-cryptocurrency-abuse/.
 “NYAG Filing” (July 8, 2019), https://www.scribd.com/document/416240547/NYAG-AFFIRMATION#download&from_embed.
 Lt. Governor Forest announces North Carolina Blockchain Initiative, (July 2, 2019) https://ltgov.nc.gov/news/2019/07/02%20/lt-governor-forest-announces-north-carolina-blockchain-initiative
 Pete Schroeder & Trevor Hunnicutt, Fed Chief Calls for Facebook to Halt Libra Project until Concerns Addressed, Reuters (July 10, 2019), https://www.reuters.com/article/us-usa-fed-powell-libra/facebook-digital-currency-plan-raises-serious-concerns-fed-chief-idUSKCN1U51VE?utm_medium=Social&utm_source=Twitter.
 House Will Hold Hearing on Project Libra on July 17 (June 24, 2019), https://dcebrief.com/house-will-hold-hearing-on-project-libra-on-july-17/
 Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019: SOR/2019-240, Canada Gazette, Part II, Volume 153, Number 14, (June 25, 2019) http://www.gazette.gc.ca/rp-pr/p2/2019/2019-07-10/html/sor-dors240-eng.html.
 Statement by First Vice-President Timmermans, Vice-President Dombrovskis and Commissioner Jourovà on the adoption by the European Parliament of the 5th Anti-Money Laundering Directive (April 19, 2019), http://europa.eu/rapid/press-release_STATEMENT-18-3429_en.htm.
 Todd White and Charlie Devereux, Bitcoin ATMs Show Gap in EU’s Money Laundering Rules, Police Say, Bloomberg (July 11, 2019; 4:11AM), https://www.bloomberg.com/news/articles/2019-07-11/bitcoin-atms-show-gap-in-eu-s-money-laundering-rules-police-say.
 Angeline Benoit & James Regan, Facebook's Cryptocurrency Plan Draws ECB Warning on Regulation, Bloomberg (July 7, 2019), https://www.bloomberg.com/news/articles/2019-07-07/facebook-s-cryptocurrency-plan-draws-ecb-warning-on-regulation.
 Lucy Ingham, Cryptocurrencies Key to Post-Brexit Economy: deVere CEO, Verdict (July 9, 2019), https://www.verdict.co.uk/brexit-cryptocurrencies/.
 Frank Tang, Facebook’s Libra Forcing China to Step up Plans for its own Cryptocurrency, Says Central Bank Official, South China Morning Post (July 8, 2019), https://www.scmp.com/economy/china-economy/article/3017716/facebooks-libra-forcing-china-step-plans-its-own.