Blockchain Legal Resource

On October 28, 2019, staff in the SEC’s Division of Trading and Markets provided a no-action letter to Paxos Trust Company, LLC permitting it to pilot a blockchain-based clearance and settlement platform for a limited number of U.S.-listed equity securities for 24 months. The staff’s action enables the further development and commercialization of a blockchain platform for clearing and settling U.S. securities trades.

In the wake of the recent controversy surrounding the proposed Libra cryptocurrency, two members of Congress have begun circulating draft bills that would tighten federal regulation of certain stablecoins.

A recent speech by Fed Governor Lael Brainard entitled “Digital Currencies, Stablecoins, and the Evolving Payments Landscape” discusses a number of topics of interest to the crypto community, including the development of stablecoins and their potential impact on the global payments system. In particular, Governor Brainard opined that the widespread adoption of stablecoins could have implications for the role of central banks and monetary policy.

On October 3, 3019, the Liechtenstein Parliament unanimously approved the Token and TT Service Provider Act (the Act). The Act, sometimes referred to as “TVTG” based on its German acronym, provides a comprehensive framework regulating the issuance, storage and conveyance of blockchain tokens in Liechtenstein. According to Liechtenstein’s embassy in Washington, Parliament’s approval began a 30-day public comment period that runs through November 8, 2019. If there is no adverse public comment by the citizens of Liechtenstein, the embassy anticipates that the Act will take effect soon thereafter.

Today the CFTC, SEC and FinCEN issued a joint statement on digital assets. In particular, the joint statement reminds persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). The entire joint statement is available here.

On October 9, 2019, the Internal Revenue Service (Service) released Revenue Ruling 2019-24. The revenue ruling considers whether taxpayers should realize gross income under two common scenarios involving cryptocurrency and includes a number of illustrative examples. The Service concluded that a so-called “hard fork” on a cryptocurrency blockchain does not create taxable income if a taxpayer does not subsequently receive new units of cryptocurrency, but taxable ordinary income is generated by “airdrops” following a hard fork that delivers new units of cryptocurrency to a taxpayer.

On September 19, 2019, the House of Representatives by voice vote approved H.R. 2613, a bipartisan bill entitled the “Advancing Innovation to Assist Law Enforcement Act.” The bill instructs the director of FinCEN to study and prepare a report to Congress on emerging technologies, including blockchain, in an effort to combat money laundering and other forms of illicit finance. Though somewhat modest in scope, the bill is among the first to be approved by one of the chambers of Congress on the topic of blockchain.

On September 24, 2019, the House Financial Services Committee held an oversight hearing entitled “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat.” The format of the hearing was somewhat unusual in that the sole witnesses were the five sitting SEC commissioners. Though it is common for the SEC chair to testify before Congress, the other commissioners testify very infrequently, and the assembly of all five at a single hearing is extremely rare, with the last such joint testimony coming back in 2007. While the hearing covered a wide range of issues related to securities regulation and enforcement, it also touched on a number of topics of particular interest to crypto and blockchain businesses, including the application of the securities laws to digital assets.

On September 13, 2019, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions targeting three North Korean state-sponsored malicious cyber groups responsible for North Korea’s malicious cyber activity on critical infrastructure. As part of the sanctions, OFAC alleges that the entities conducted successful operations targeting more than 16 organizations across 11 countries, including the SWIFT messaging system, financial institutions and cryptocurrency exchanges.

Effective September 1, 2019, lawmakers in Texas passed legislation clarifying the ability of businesses organized under Texas law to incorporate blockchain technology into their entity recordkeeping and communications. In doing so, Texas joins the ranks of several other states that have similarly amended their corporate formation statutes.