The end of the U.S. federal government's fiscal year brought a cascade of major announcements from agencies.
Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.
Editor's note
In a tweet
late last night, President Trump said that he and Melania had tested
positive for COVID-19. If you weren’t already aware of that, you may
want to catch up on a deluge of wishes for life and death, alongside
speculation as to Trump’s announcement being a hoax, before sitting down
to this week’s Law Decoded. Or possibly not.
Every week leading
up to the presidential election features more amplified headlines. Law
Decoded is likely not the ideal place to keep up with that news. By
nature, this newsletter is not apolitical, but it is decidedly wonkish
in its focus on politics, even as Brian Armstrong may have stigmatized the concept of a “mission focused” entity.*
*Although Law Decoded dogmatically opposes the crypto community’s overriding ignorance of proper hyphen usage.
Lost
in the mix of the whole election cycle is the end of the U.S. federal
government's fiscal year this week. Paying attention to fiscal years is
not the most glamorous of pursuits, but the consequences have been huge.
Government agencies fall under pressure to wrap up work that landed in a
previous year’s budget. Crypto has seen an overload of news from U.S.
agencies, but this week none upstaged the Commodity Futures Trading
Commission.
The CFTC regulates derivatives markets in the U.S.
Its authority derives from the Commodity Exchange Act of 1936, but the
commission itself dates to 1974, making it 40 years younger than the
related regulator, the Securities and Exchange Commission.
The
nature of what is defined as commodities is that their value derives
from a wider market. Securities depend on a third party to do their job
right. Consequently, the CFTC is generally a less aggressive regulator,
primarily interested in monitoring exchange markets themselves. Recent
trends have put increasing authority over crypto markets in the CFTC’s
hands. This week’s leading stories are chronologically reversed,
backtracking the commission’s recent moves to bring crypto markets to
heel, beginning with the driving story of yesterday.
Kollen Post, Policy Editor, @the_postman_
Bitmex gets rekt
Massive crypto exchange and derivatives platform Bitmex sees landmark charges in the U.S.
The
CFTC and the Department of Justice filed joint complaints against
Bitmex and its founders and an early employee. The CFTC charges that
Bitmex knowingly offered derivatives trading to U.S. investors without
registering as a commodities exchange. The commission demands a return
of customer funds, as well as an as-of-yet undetermined penalty.
The
DoJ, on the other hand, accuses the exchange of deliberately
facilitating money laundering as part of its business model. The alleged
violations of the Bank Secrecy Act carry with them hard time in federal
prison.
Authorities arrested one of the four Bitmex executives
named, but the other three remain on the lam. You’d imagine that
tech-savvy billionaire money launderers would be well-equipped to lead
the FBI on a Hollywood-worthy cat-and-mouse chase. As always, we will
see.
One theme that the Bitmex case will certainly explore
extensively is defining an exchange’s duty to establish itself as
outside the U.S. Bitmex, with its 100x leveraged trading and its
founder, Arthur Hayes, joking about bribing Seychelles authorities with
coconuts, may well have drawn the ire of authorities out of hubris. To
Bitmex’s point, it seems the exchange did indeed block U.S. IP
addresses, but crypto investors are quite VPN-forward. Block.one faced a
similar issue before the SEC with its initial coin offering for EOS.
But it’s clearly a challenged to keep crypto from crossing borders. The
question is, will every company that handles crypto ultimately have to
register with the most stringent regulatory regimes?
PaxForex: An appetizer for Bitmex
On Monday, the CFTC publicized a complaint against PaxForex that, in retrospect, looks like a warm-up for the subsequent Bitmex bombshell.
The
case against PaxForex parent firm Laino Group did not include criminal
charges. As with the Bitmex case, the CFTC is alleging that PaxForex
deliberately solicited U.S. retail investors in its futures and swaps
trading on Bitcoin, Litecoin, Ether, gold and foreign currencies without
registering with the CFTC.
PanForex is registered in St. Vincent
and the Grenadines — like the Seychelles where Bitmex resides, a
famously opaque jurisdiction for company registration. The CFTC may have
been especially interested in PanForex because its derivatives
offerings included both crypto and more traditional commodities already
established as within the CFTC’s purview, providing a clear bridge.
The
overall message is fairly clear. The CFTC is actively corralling crypto
platforms offering U.S. persons investments that the CFTC handles,
regardless of where in the world they claim to be.
More info on commodity classification
Alongside
the CFTC’s push in the courts, earlier new bills before the House
Financial Services Committee and the Agriculture Committee look to
establish national registration for crypto exchanges with the CFTC.
Law
Decoded has previously written about the new legislation and, as a
matter of principle, hates retreading old ground, especially given the
ready availability of new and exciting stories. But given recent news as
well as new commentary
from the Ranking Member of the Agriculture Committee who introduced the
bill, a new big picture is coming into focus. That is, we may be
witnessing a pretty broad move to corral a wider range of crypto
business in the CFTC’s stable.
Many people in crypto are
sympathetic to, say, Bitmex, especially in light of perceived
ineffectual AML controls on government-approved institutions that came
out in last week’s FinCEN leak. And, as always, many are just suspicious
of government control over finance. But given that this time last year,
as Facebook’s Libra faced a drubbing before the House Financial
Services Committee and the SEC seemed free to lay claim to basically
everything tokenized, Law Decoded would like to affirm that — as a bleak
year trudges to its end — this is actually progress.
Further reads
Lawyers from Polsinelli lay out the new steps for the simplified settlement of digital securities laid out in the SEC’s newest crypto-linked no-action letter.
Writing for Reason, Andrea O’Sullivan objects to the media’s seeming emphasis on FinCEN not spying on transactions enough.
The Wall Street Journal’s David Uberti and Jack Hagel break down the Treasury’s warning against ransomware payouts, which OFAC says may well violate sanctions.
source link : https://cointelegraph.com/news/law-decoded-the-year-of-the-crypto-futures-trading-commission-sept-25-oct-2
