Congress has become increasingly interested in the current state of knowledge about potential links between terrorist financing and money laundering.  In the House of Representatives, the Financial Services Committee’s Subcommittee on Terrorism and Illicit Finance held a hearing on June 8, 2017, titled “Virtual Currency: Financial Innovation and National Security Implications.”  In the Senate, Senator Grassley (R-IA), along with Senators Feinstein (D-CA), Cornyn (R-TX), and Whitehouse (D-RI), recently introduced Senate Bill 1241, titled “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017.” The bill, which generally aims to strengthen criminal money laundering statutes, is specifically aimed at fighting terrorism and terror finance.

Of particular relevance with respect to S. 1241 are the potential implications of the bill on blockchain and digital currencies.
Continue Reading Implications of S. 1241, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017

An appellate decision from a provincial high court in northeastern China may help to shed some additional light on the Chinese government’s regulation of virtual currency exchanges in China, the anti-money laundering (AML) and know-your-customer (KYC) expectations placed on these exchanges, and the liability that might accrue to exchanges in the event of criminal activity involving virtual currencies.

The Lekuda (OKCOIN trading platform) case was initially filed in the civil division of the intermediate court of the municipality of Suihua (绥化) in northeastern China, Heilongjiang Province. Coincidentally, China’s northeastern region is also known for Bitcoin mining.  In China, there are three types of litigation (三类诉讼), each with their own set of procedural rules and jurisprudence, and the Lekuda case filed in Suihua was styled as a tort case, a type of civil litigation.  While characterized and classified as a civil tort case, the case also implicates certain criminal and administrative issues at its periphery.

The decision that was recently made publicly available was the July 2016 decision of the second instance court (an appellate decision). The underlying Suihua intermediate court decision has not yet been made publicly available, but may eventually become so.  That said, from the appellate decision, we can learn the basic facts.


Continue Reading Perils in Hosting Virtual Currency Exchanges in China: The Lekuda (OKCOIN Trading Platform) Case

Anyone who has tried to explain bitcoin around their kitchen table knows that it is not easy to put your finger on what exactly the technology is.  Because of their innovative nature, digital currencies don’t have obvious analogs or fit easily into existing categories.  Bitcoin is part currency, part digital payment system, and part immutable ledger.

This confusion is not merely academic.  How digital currencies are defined determines how they are regulated.  For instance, the Internal Revenue Service (IRS) determined that bitcoin is a form of property, not currency, for tax purposes.  The Commodity Futures Trading Commission (CFTC) labeled bitcoin a commodity.  Could the Securities and Exchange Commission (SEC) decide that bitcoin is a form of security?


Continue Reading Are Bitcoin and Other Digital Currencies Securities?

Following the attacks in Paris and San Bernardino, polls show that Americans identify terrorism—more than any other issue—as the most important problem facing the US.  In this environment, some media outlets have predicted a pending “crackdown” on digital currencies, particularly by European governments, because of the risk that the technology could be used to fund terrorism.

But do digital currencies like bitcoin actually pose a unique threat when it comes to funding terrorist networks?  Jason Weinstein published a post on Medium earlier this week—“Combating Bitcoin Use by Terrorists?”—that seeks to answer this question.


Continue Reading Bitcoin and Terrorist Financing

This week featured interesting remarks from two of the most influential thought leaders in Bitcoin and the blockchain – Blythe Masters and Brian Forde.

During SourceMedia’s Convene conference, Masters, the CEO of Digital Asset Holdings, observed that while we are in the early days of development for Bitcoin and the blockchain, similar to where we were with the Internet in the early 1990s, “[t]he potential addressable markets for these types of technologies are gigantic.” For instance, Masters noted that blockchain technology could transform the way we trade and settle transactions for stocks, bonds, and derivatives.


Continue Reading What Does Donald Trump Think About Bitcoin?

On Thursday, April 23, I spoke at the Bretton Woods Committee seminar, “Digital Payments and Currencies: Global Threat or Opportunity?”  The panel discussed the changes digital currencies and payment systems have brought to the market and the disruptive potential of a future in which they may become more conventional.

An audio clip of the seminar

It’s only been about a week since New York’s outgoing Superintendent of Financial Services Ben Lawsky released the long-awaited “BitLicense” rules for digital currency businesses operating in New York, but it’s not too early to try to assess the potential impact of those rules on the development of Bitcoin-related businesses and emerging financial technologies.

The primary question on everyone’s mind: Are the BitLicense regulations – the product of a nearly two-year rulemaking process – good or bad for Bitcoin? The answer: A little of both. The truth is that the BitLicense rules are a mixed bag, and how you perceive them depends to some extent on whether your glass is half-full or half-empty.


Continue Reading Are New York’s BitLicense Rules Good or Bad for Bitcoin?

Last week the IRS announced that Bitcoin would be treated as property, rather than currency, for tax purposes.  That means the virtual currency will be subject to very real capital gains taxes when used to make purchases.  So is this good or bad for Bitcoin?  Well, that depends on whether you view the glass on Bitcoin as half-empty or half-full.

Continue Reading Is the New IRS Rule Good or Bad for Bitcoin?