Blockchain Takes Over Episode 229 of the Cyberlaw Podcast

On September 4th, Alan Cohn hosted the 229th episode of The Cyberlaw Podcast.  We took a deep dive into all things blockchain and cryptocurrency discussing recent regulatory developments and best practices for users of exchanges.   Our episode begins with Charles Mills discussing the landmark decision coming out of the New York Eastern District Court in favor of the Commodity Futures Trading Commission (CFTC) against Cabbage Tech, Corp.  Claire Blakey presents a timeline of the U.S. Securities and Exchange Commission’s (SECs) recent actions regarding ETFs.  Evan Abrams highlights the four takeaways from the Department of Treasury’s Financial Enforcement Network (FinCEN) Director Kenneth Blanco’s, speech on cryptocurrency. In addition, Evan discusses the Office of the Comptroller of the Currency (OCC) proposed charter for online lenders and other FinTech companies in the coming months.  Maury Shenk covers the recent reports about the EU finance ministers plan to discuss the possibility of cryptocurrency regulation. In addition, Maury discusses the European Blockchain Partnership, describing it as an integrated effort for a great blockchain future.  The Steptoe team was joined by Sarah Compani, Legal Counsel at Bitfinex, who provides listeners with takeaways as she responds to Alan’s questions regarding the future of exchanges, the Bitfinex platform, and potential security challenges going forward.

You can read the full summary and listen to the podcast here.

National Law Journal Names Weinstein, Cohn Trailblazers in Cryptocurrency, Blockchain & FinTech

Steptoe partner Jason Weinstein and of counsel Alan Cohn have been named to The National Law Journal’s list of Trailblazers in Cryptocurrency, Blockchain and FinTech. The list of 50 lawyers is featured in a special supplement in the September issue of the legal publication.

Weinstein and Cohn co-chair Steptoe’s global Blockchain and Cryptocurrency practice and are recognized for their leadership on the legal and regulatory issues surrounding cryptocurrency and blockchain technology. Together, they have represented nearly every type of participant in the blockchain ecosystem – including investors, funds, entrepreneurs, exchanges, transaction processors, retailers, and both early stage and more established companies.

See the full press release here.

4 Key Takeaways from FinCEN Director’s Speech on Cryptocurrency

The Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has principal responsibility for issuing and enforcing federal anti-money laundering (AML) regulations applicable to US financial institutions, including money services businesses (MSBs) operating as “money transmitters” in the cryptocurrency space.  Followers of cryptocurrency regulation have been eager for additional FinCEN guidance clarifying the agency’s approach to a number of significant industry developments.  FinCEN principally relies upon its 2013 guidance, subsequent administrative ruling letters, and other written correspondence such as the agency’s 2018 letter to Senator Ron Wyden confirming that initial coin offerings (ICOs) fall within FinCEN AML regulations.  However, the rapid pace of development in the blockchain and cryptocurrency sector has left many in the industry with questions regarding how to apply FinCEN’s regulations to new business models and technological advances.

On August 9, 2018, FinCEN Director Kenneth Blanco delivered a speech regarding the agency’s approach to cryptocurrency.  The speech offered helpful clarifications and insights, but also left a number of important questions unanswered.  Continue Reading

FINRA Encourages Firms to Report Involvement in Activities Related to Digital Assets

In a Regulatory Notice published July 6, 2018, the Financial Industry Regulatory Authority (FINRA) encourages its members to promptly notify FINRA if they, or their associated persons or affiliates, engage in activities related to digital assets such as cryptocurrencies and other virtual coins and tokens.  The Notice also encourages firms to inform FINRA of changes in the event the firm, or its associated persons or affiliates, intends to begin or in fact begins engaging in activities relating to digital assets not previously disclosed, on a continuing basis through July 31, 2019. Continue Reading

IRS Turning up the Heat on Cryptocurrency Transactions

The Internal Revenue Service (IRS) made a pair of announcements on July 2 that it is increasing its focus on taxpayers who avoid their tax obligations using cryptocurrency.

Background

By way of background, in April 2014, the IRS issued Notice 2014-21, which generally provided that “convertible virtual currency” is treated as property, not currency, for tax purposes and explained, in question and answer format, the application of existing general tax principles to transactions using convertible virtual currency.  The Notice defines virtual currency as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.”  It further provides that convertible virtual currency is “[v]irtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency,” citing bitcoin as one example of a convertible virtual currency.

The Notice describes some of the tax consequences of receiving or exchanging virtual currency for property or services.  If a taxpayer receives virtual currency in payment for goods or services, he or she has taxable income equal to the fair market value of the virtual currency.  If the taxpayer uses virtual currency to acquire goods or services, and the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, then the taxpayer has taxable gain.

The IRS became concerned that taxpayers were not reporting cryptocurrency transactions, and in November 2016, sought a court order to serve a John Doe summons on Coinbase, one of the world’s largest digital asset exchange companies.  The summons sought broad information on all U.S. customers conducting transactions in cryptocurrency from 2013-2015.  Although the court ultimately narrowed the scope of information that the summons could request, it did order Coinbase to comply with the summons.  Click here to read Steptoe’s blog post about the Coinbase summons.

New IRS Announcements

On July 2, the IRS Large Business and International division (LB&I) announced a new audit campaign to address tax noncompliance related to the use of virtual currency.  LB&I campaigns direct the IRS’s audit resources to specific areas the IRS believes have the greatest risk of noncompliance.  Virtual currency is one of 40 campaigns that have been announced by the IRS since January 2017.  The IRS’s announcement means that taxpayers who failed to report virtual currency transactions face an increased risk for audit. Continue Reading

Blockchain Takes Over the Cyberlaw Podcast

On May 21st, Alan Cohn hosted the 217th episode of The Cyberlaw Podcast. We took a deep dive into all things blockchain and cryptocurrency discussing recent regulatory developments and the current state of play of the industry. Jack Hayes discusses the status of regulation surrounding cryptocurrencies including anti-money laundering and sanctions compliance, the Department of Treasury’s letter regarding initial coin offerings (ICOs), and the New York Attorney General’s questionnaire for cryptocurrency exchanges. Lisa Zarlenga provides an overview of tax issues surrounding cryptocurrency from establishing basis to hard forks to airdrops. Lisa also highlights the changes in regulation surrounding like-kind exchanges due to the 2018 Tax Reform Bill and questions surrounding the taxation of tokens. Chelsea Parker discusses trends coming out of New York Blockchain Week 2018 and Consensus 2018, including a large international presence and a focus on regulation that still encourages innovation. The panelists also highlight where they see the industry going next in terms of adoption and regulation.

You can read the full summary and listen to the podcast here.

President Imposes First US Economic Sanctions Against Venezuelan Digital Currency

On March 19, 2018, US President Donald Trump issued Executive Order 13827 (the EO), which for the first time targets US economic sanctions against a virtual currency – namely, a digital currency colloquially known as the “petro” that has been issued by the Government of Venezuela (GOV). Specifically, the EO prohibits “all transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the [GOV] on or after January 9, 2018.”

As justification for these sanctions, the EO cited recent actions undertaken by the Maduro regime to circumvent US sanctions by issuing a digital currency. This alert discusses the key aspects and potential implications of the new GOV Digital Currency sanctions.

Click here to read more.

Information on 13,000 Coinbase Customers Turned Over to IRS – Was Your Information Among Them?

After a year-long fight with the IRS on turning over customer data, Coinbase both won and lost.  It won in that the court significantly narrowed the type of information that it was ordered to turn over to the IRS.  It lost in that it was still required to turn over data on approximately 13,000 customers.  For the 13,000 customers this means that the IRS may now be contacting you to let you know that you may owe additional tax. Continue Reading

Investing in Cryptocurrency: Tax Implications Workshop

On March 1, Steptoe is hosting a workshop in New York on the tax consequences of investing in cryptocurrency, as well as common methods of tax structuring for individuals and entities using, trading, and investing in cryptocurrency and tokens. The workshop will feature discussions on a range of topics from determining basis, income, and capital gains to common on-shore and off-shore tax structuring mechanisms.

In addition to hearing from Steptoe’s cryptocurrency tax specialists, you will hear from outside panelists, including:

  • Brian Kelly, Founder and CEO, BKCM LLC
  • James Morgan, General Counsel & Chief Compliance Officer at Genesis Global Trading
  • Houman B. Shadab, Professor of Law and Co-Director of the Center for Business and Financial Law, New York Law School

You can learn more and sign up for the workshop here.

Bitcoin Captures the Attention of Yet Another Regulator

The Federal Communications Commission (FCC or Commission) last week added itself to the list of regulators that have issued guidance or raised warnings about crytpocurrency when it sent a notification about interference with wireless broadband signals from a Bitcoin mining device.

The FCC is the independent agency that regulates communications in the United States, and it has responsibility for regulating spectrum and radio waves in the United States to ensure, among other things, that licensed users of spectrum do not suffer from interference.  While seemingly a remote concern from Bitcoin, the mission of the FCC collided with a miner in New York City.  Continue Reading

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