Tuesday, August 1, 2023

This Could Be An Issue

Allyson Versprille's Wall Street Banks Side With Nemesis Elizabeth Warren on Crypto Crackdown describes this improbable occurrence thus:
The Bank Policy Institute, a trade group for lenders that Warren often blasts, threw its weight behind bipartisan legislation that the Massachusetts Democrat and three of her Senate colleagues reintroduced this week. The bill aims to force the crypto industry to comply with tougher rules for combating money laundering and terrorism financing.

“The existing anti-money laundering and Bank Secrecy Act framework must account for digital assets, and we look forward to engaging in this process to defend our nation’s financial system against illicit finance in all its forms,” BPI said in a statement.
The three colleagues are Joe Manchin (D-WV), Roger Marshall (R-KS) and Lindsey Graham (R-SC). It is worth noting that Senators Warren and Graham also have a bill to tighten regulation of big tech, described in their "Guest Essay" for the New York Times entitled When It Comes to Big Tech, Enough Is Enough.

Follow me below the fold for the sting in this bill's tail

Among the things that Versprille reports is that:
The measure would require digital-asset wallet providers, miners and others that validate and secure transactions on a blockchain to keep tabs of their customers’ identities.
That sounds reasonable, doesn't it? So who are the customers of "miners and others that validate and secure transactions on a blockchain"?

Merriam-Webster's definition of "customer" is "one that purchases a commodity or service". When a transaction is submitted to a blockchain it must include a fee, which is paid by the submitter to the validator. This clearly represents a purchase of the service of validating the transaction. Thus the submitter of each transaction is a customer of the validator, and under the bill in question the validator must "keep tabs of" their identity.

It would seem that the bill would therefore require miners and validators within US jurisdiction to blacklist transactions that involve a wallet the identity of whose owner is unclear. Thus it appears that the bill implements Nicholas Weaver's proposal from two years ago in How to Start Disrupting Cryptocurrencies: “Mining” Is Money Transmission:
So a miner who creates a block is explicitly making decisions about which transactions to confirm. This successful miner ... is a money transmitter.
US law requires money transmitters to apply the Know Your Customer/Anti-Money-Laundering (KYC/AML) rules, thus Weaver argued that confirming transactions for wallets requires knowing the identity of the wallet owner. And he pointed out that miners could not argue that this was impossible because:
There is proof that one can attempt to produce a “sanctions-compliant” mining pool. Marathon Digital Holdings is a small mining pool (roughly 1 percent of the current mining rate). During the month of May, Marathon used a risk-scoring method to select transactions, intending to create Bitcoin blocks untainted by money laundering or other criminal activity. Yet they stopped doing this because the larger Bitcoin community objects to the idea of attempting to restrict Bitcoin to legal uses!
Perhaps the validators believe that because the Financial Crimes Enforcement Network hasn't enforced the KYC/AML rules against them, the DoJ wouldn't use this proposed law against them either. But it easy to see why the Wall Street banks are getting behind a law to subject their competitors to the same rules they have to obey.


David. said...

The crypto-crackdown continues. Allyson Versprille and Erin Slowey reports that Crypto Exchanges to Report Customer Data Under Treasury Proposal (my emphasis):

"Under the rules, platforms that facilitate the buying and selling of digital assets, also known as crypto brokers, would have to track and report key information, such as customers’ capital gains and losses—similar to existing requirements for stock and bond brokers.
Brokers will be required to report gross proceeds for sales of digital assets on or after Jan.1, 2025. Adjusted basis reporting will be required for sales on or after Jan. 1, 2026. These requirements will apply to both centralized and decentralized exchanges. The separate dates gives brokers more time to adjust to the new rules, a Treasury official said.

The IRS also will create Form 1099-DA for brokers to send to taxpayers to determine what they owe."

And Yueqi Yang reports that Mastercard, Visa Step Back From Binance Card Partnerships:

"Mastercard Inc. and Visa Inc. stepped back from their card partnerships with Binance Holdings, distancing themselves from the cryptocurrency platform that’s under threat from regulators worldwide.

Visa stopped issuing new co-branded cards with Binance in Europe as of July, a spokesperson for Binance said. Mastercard Inc., meanwhile, will end its card partnership with Binance entirely in September."

David. said...

A worthwhile cryptocurrency business model at last! A $700 Million Bonanza for the Winners of Crypto’s Collapse: Lawyers by David Yaffe-Bellany and Yiwen Lu starts:

"The collapse in cryptocurrency prices last year forced a procession of major firms into bankruptcy, triggering a government crackdown and erasing the savings of millions of inexperienced investors.

But for a small group of corporate turnaround specialists, crypto’s implosion has become a financial bonanza.

Lawyers, accountants, consultants, cryptocurrency analysts and other professionals have racked up more than $700 million in fees since last year from the bankruptcies of five major crypto firms, including the digital currency exchange FTX, according to a New York Times analysis of court records. That sum is likely to grow significantly as the cases unfold over the coming months."

David. said...

As usual, Michel de Cryptadamus's The Axos Of Evil is an entertaining read. Here is his list of the main cryptocurrency-friendly US banks:

"Silicon Valley Bank (SIVB, once ~$200 billion, now $0 billion)
Signature Bank (SBNY, once ~$100 billion, now $0 billion)
Silvergate Bank (SI, once ~$16 billion, now $0.01 billion)
Axos Financial (AX, ~$20 billion, still $20 billion)
Customers Bancorp (CUBI, ~$16 billion, still $16 billion)
Metropolitan Commercial Bank (MCB, ~$6 billion)
Cross River Bank8 (not publicly traded, ~$5 billion)"

Axos is getting attention because:
- It was the bank Binance.US used
- It claimed it had no exposure to cryptocurrencies
- Despite providing AxPay, a branded version of TassatPay's "not yet bank permissible" system enabling rapid transfers between customers, similar to those at Signature (RIP) and Silvergate (RIP)
- Axos' CEO greenlit a $225M loan to Donald Trump even Deutsche Bank wouldn't touch
- Axos' CEO is dumping his stock

Go read the whole post.