By Odelia Nikfar and Alexandra Levin Kramer
The following is a survey of recent legal developments globally that are significant to the blockchain industry.
U.S. Senate – The Senate Committee on Banking, Housing and Urban Affairs hosted a hearing on July 30, 2019, entitled “Examining Regulatory Frameworks for Digital Currencies and Blockchain”. The witnesses invited to testify included Mr. Jeremy Allaire, Co-Founder, Chairman and CEO of Circle, on behalf of The Blockchain Association; Dr. Rebecca M. Nelson, Specialist in International Trade and Finance, Congressional Research Service; and Professor Mehrsa Baradaran, University of California, Irvine School of Law. The hearing began by Committee Chairman [Insert 1st name] Crapo [Insert party and state] restating the importance of U.S. leadership in the cryptocurrency and digital asset space, while considering the regulatory implications of such. Other Senators expressed concerns that were discussed in last week’s Libra hearings (see CKR Blockchain Law Blog), such as privacy considerations implicated by big tech’s involvement in digital currencies. Mr. Allaire began his testimony by explaining the challenges of the current financial system, including the frequency of money-laundering and data breaches, and limited access to capital for small businesses. Allaire continued to describe how blockchain and digital assets will be more impactful than modern banking, emphasizing that with blockchain, digital forms of identity will improve, and privacy protection will advance. Allaire’s central point was that Congress should consider new legislation that protects consumers and defines cryptocurrency as a new asset class. Dr. Nelson stressed that “cryptocurrencies are international in nature, but they are regulated by governments at the national level.” In her opinion, countries that have favored this new industry include Malta, Singapore and Switzerland while countries like China, Egypt, India and Taiwan have been negative. Some countries are creating cryptocurrencies to avoid sanctions and others are “concerned about government control of the financial sector, financial stability and consumer protections.” Professor Baradaran advocated that our current financial system needs to be fixed rather than view cryptocurrency as a replacement. According to Baradaran, nothing about cryptocurrencies prevents them from being susceptible to the same issues as the current financial system (fraud, insider trading, bubbles, etc.).
SEC and FINRA – The U.S. Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) issued a joint statement on broker-dealer custody of digital asset securities on July 8, 2019. The statement warns that entities seeking to participate in the marketplace for digital asset securities must comply with relevant securities laws. According to the statement, an "entity that buys, sells, or otherwise transacts or is involved in effecting transactions in digital asset securities for customers or its own account is subject to the federal securities laws, and may be required to register with the Commission as a broker-dealer and become a member of and comply with the rules of a self-regulatory organization ('SRO'), which in most cases is FINRA.” Additionally, “if the entity is a broker-dealer, it must comply with broker-dealer financial responsibility rules including, as applicable, custodial requirements under Rule 15c3-3 under the Securities Exchange Act of 1934, which is known as the Customer Protection Rule.”
Bitfinex – The hearing date for the New York State Attorney General case against Bitfinex, a spot trading platform for major digital assets & cryptocurrencies, was held on July 29, 2019 with the New York Supreme Court Judge Joel M. Cohen stating that he needs more time to make the final decision on whether to dismiss the case or reject Bitfinex’s motion to dismiss. The preliminary injunction that was filed in May was extended until the final ruling is made available.
BTC-e – BTC-e, a cryptocurrency trading platform, and one of its owners, Alexander Vinnik, are facing damages of $100 million in a civil lawsuit in California for allegedly violating the Bank Secrecy Act. The Treasury Department’s Financial Crimes Enforcement Network filed the suit on July 25, 2019. Federal prosecutors charged Vinnik with stealing Bitcoins from other virtual exchanges in 2017. On January 17, 2017 he was indicted on 21 counts of operating an unlicensed money services business, money laundering and conspiracy to commit money laundering, and engaging in unlawful monetary transactions. Vinnik is currently in a Greek prison, from which U.S., French, and Russian authorities have sought his extradition.
Libra – In Facebook’s latest quarterly report to the U.S. Securities and Exchange Commission, the company stated that it may never launch Libra. According to the report, “there can be no assurance that Libra or our associated products and services will be made available in a timely manner, or at all” Due to regulatory scrutiny and uncertain laws.
The Iranian government has reportedly approved cryptocurrency mining as an official industrial activity. In the decision, cryptocurrency users were warned by the government to accept risks, and to recognize that government banking systems would not provide any guarantees. Using cryptocurrencies in Iranian domestic transactions is not permitted. Additionally, the decision stated that cryptocurrency mining is taxable unless individuals export cryptocurrencies and return the revenues to the country. Many experts believe that cryptocurrency use in Iran is a means to avoid U.S. imposed sanctions.
The U.K. Financial Conduct Authority (“FCA”) announced its new guidelines on digital assets on July 31, 2019. The guidelines define security tokens and categorize them as a “specified investment”, causing them to be under the jurisdiction of the FCA. Utility tokens do not fall under this category and are regulated as financial instruments by the [insert name of regulator], not by the FCA.
 Examining Regulatory Frameworks for Digital Currencies and Blockchain, United States Committee on Banking, Housing, and Urban Affairs, https://www.banking.senate.gov/hearings/examining-regulatory-frameworks-for-digital-currencies-and-blockchain.
 Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities, SEC, (July 8, 2019), https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-securities.
 Nikhilesh De, Judge Punts on Decision in New York Case Against Bitfinex and Tether, Coindesk (July 29, 2019), https://www.coindesk.com/judge-punts-decision-nyag-bitfinex-tether.
 Joel Rosenblatt and Olga Kharif, Russian Bitcoin Theft Suspect Sued for $100 Million by U.S., Bloomberg (July 26, 2019), https://www.bloomberg.com/news/articles/2019-07-26/digital-exchange-btc-e-vinnik-sued-for-100-million-by-u-s.
 Leo Jakobson, US Sues BTC-e Exchange Owner Alexander Vinnik for $100 Million, Modern Consensus. (July 31, 2019), https://modernconsensus.com/regulation/united-states/us-sues-btc-e-exchange-owner-alexander-vinnik-for-100-million/?fbclid=IwAR3x_u1ZbefB-PC8eTCVhn2WTtZmM82tAZKTv2JRY95H3yU_HEkc6DsBW60.
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019, Facebook Inc., https://d18rn0p25nwr6d.cloudfront.net/CIK-0001326801/69ea7934-e26b-499f-85ca-eb67cd2a9fc1.pdf.
 Iranian Govt. Authorizes Crypto Mining, Mehr News Agency (July 29, 2019), https://en.mehrnews.com/news/148195/Iranian-govt-authorizes-crypto-mining.
 FCA, Guidance on Cryptoassets Feedback and Final Guidance to CP 19/3 (July 2019), https://www.fca.org.uk/publication/policy/ps19-22.pdf,
 Ian Allison, UK Finance Watchdog Issues Guidance on Regulation for Bitcoin and Crypto Assets, Coindesk (July 31, 2019), https://www.coindesk.com/uk-financial-watchdog-issues-full-guidance-on-crypto-assets.