Crypto Firms Expand Offerings; FATF publishes virtual asset update; CFTC Continues Crypto Enforcement; Israeli Agency Seizes Hezbollah Crypto

In this issue:

• Crypto Firms Expand Offerings in Stablecoins, Private Key Management

• FATF publishes targeted update on virtual assets

• Nevada Financial Regulator Tries to Place Crypto Custodian under Suspension of Payments

• CFTC announces multiple enforcement actions for alleged digital asset fraud

• Israeli Agency seizes Hezbollah Crypto; Illegal crypto report published

Crypto Firms Expand Offerings in Stablecoins, Private Key Management

The publisher of the Pax Dollar (USDP) stablecoin recently announced that USDP is now available to all Mexican customers of a major Latin American online payment platform. According to a press release, “Mexico is one of the most active digital asset marketplaces with millions of users tapping into the ecosystem to access key financial services.”

Another recent press release announced that Fireblocks, a provider of digital asset platforms for enterprises, has “expanded its highly secure MPC-CMP wallet and key management technology with support for HSMs and public and private cloud, including Thales, Securosys…GCP and Alibaba Cloud.” According to the press release, the expanded product offering includes: (1) enabling customers to host all MPC key shares on multiple servers in their data centers and cloud; (2) new cloud data centers in the EU, Switzerland and Hong Kong along with current Fireblocks cloud data centers in the US; and (3) a dedicated single-tenant cloud environment.

In other payment news, the Bank for International Settlements (BIS) recently released an interim report on Project Mariana, which takes a closer look at the large-scale experimentation of Central Bank Digital Currency (wCBDC) “with the aim of improving the effectiveness, security and transparency of FX trading and settlement.” According to the interim report, Project Mariana is borrowing from decentralized finance technology, among other things, by exploring “joint trading and settlement in wCBDCs using a so-called automated market maker,” “testing a common standard for fungible wCBDC tokens,” and “examining asset mobility between different blockchain-based networks using so-called bridges.”

For more information, please refer to the following links:

FATF publishes targeted update on virtual assets

The Financial Action Task Force (FATF) recently released a report titled Focused update on the implementation of the FATF standards for virtual assets and virtual asset service providers. According to a FATF press release, the targeted update “provides an update on a country’s compliance with FATF Recommendation 15 and the Interpretative Note (R.15/INR.15), including the Travel Rule, and updates on emerging risks and market developments, including on decentralized finance (DeFi), peer-to-peer transactions (P2P), and non-fungible tokens (NFTs), non-hosted wallets, and stablecoins. Among other things, the report discusses the following main findings:

  • Based on 98 FATF mutual evaluation and follow-up reports since the revised R.15/INR.15 was adopted, 75% of jurisdictions are only partially or not compliant with FATF requirements regarding VAs and VASPs.
  • Of the 151 jurisdictions that responded to the 2023 FATF survey, more than half have still not taken steps to implement the Travel Rule with respect to VAs.
  • While DeFi and non-hosted wallets do not account for a large portion of VA transactions, they are at risk of abuse, including by sanctioned actors.

According to the report, the FATF will publish another Targeted Update report in 2024, along with “a table showing what steps FATF member jurisdictions … have taken to implement R.15 (e.g. supervisory inspection, etc.) .).”

For more information, please refer to the following links:

Nevada Financial Regulator Is Trying to Put Crypto Custodian into Trusteeship

The Financial Institutions Division (NFID) of Nevada recently filed a petition in state court to place a Nevada-registered crypto custodian into receivership. A press release from the NFID explains that the petition “asks the court to appoint a trustee to take over the day-to-day operations of the company and thoroughly examine all of its finances” to determine the best option to protect the company’s customers. to protect the custodian, “either by rehabilitating and returning the company to private management or by liquidating the company.” Earlier this month, NFID had filed a cease and desist order alleging that the custodian had “deteriorated significantly to a critically deficient level” and was in a position “where it was in an unsafe or unfit condition to conduct business.” moratorium provides more details and specifies that the custodian owes customers more than $85 million in fiat but only has $3 million on hand, similarly, the custodian reportedly owes $69.5 million in crypto and only has $68 6 million in crypto on hand, according to the petition, at least part of the custodian’s position is the result of miscommunication between the old and new management, which prevented access to numerous customer accounts. Notably, the bankruptcy comes days after another crypto custodian reportedly called off its bid to acquire its troubled competitor.

For more information, please refer to the following links:

CFTC announces multiple enforcement actions over alleged digital asset fraud

The US Commodity Futures Trading Commission (CFTC) recently issued multiple press releases announcing digital asset enforcement actions. The initial press release announced an enforcement action against William Koo Ichioka alleging that the defendant solicited and embezzled more than $21 million from more than 100 commodity pool participants in a fraud scheme that promised investments in bitcoin and ether with a deadline of “30 business days with a 10% yield.” According to a CFTC press release, the defendant embezzled funds from investors and used the money “to repay other participants, and for his personal use and expenses, such as luxury cars, jewelry, and rent payments.” According to a statement from CFTC Commissioner Kristin N. Johnson, “To hide losses, Ichioka falsified financial documents to inflate the amount of assets in the pool accounts and also provided false account statements to participants.” The US Department of Justice (DOJ) and the US Securities and Exchange Commission have both filed parallel claims. The DOJ action charged Ichioka with charges including wire fraud, filing false or fraudulent tax returns, and securities and commodities fraud.

A second CFTC press release announced an enforcement action against a defendant who allegedly “misappropriated more than $1.3 million in client funds earmarked for trading digital assets and forex.” The Defendant allegedly ran a “romantic scam” known as “Pig Butchering”, in which the Defendant built a romantic relationship with at least 29 clients before asking them to participate in a fraudulent financial opportunity. According to the CFTC press release, instead of using client funds for digital asset and forex trading, the defendant embezzled the funds for personal use and “transferred most of the money to bank accounts, digital wallets and digital asset trading platforms under control from other members of the fraudulent scheme.”

A third CFTC press release announced a default judgment against a defendant who “executed a fraudulent scheme that solicited and embezzled funds to allegedly trade digital commodities.” According to the CFTC press release, “more than 150 individuals and entities deposited at least $33 million” with the defendant, but “less than $10 million was used to trade digital trading assets and the remaining funds were embezzled for personal use or to defraud the fraudulent trading plan.”

For more information, please refer to the following links:

Israeli Agency Seizes Hezbollah Crypto; Illegal crypto report published

According to a recent blog post by blockchain analytics firm Chainalysis, “For the first time ever, the Israel National Counter-Terrorist Financing Agency (NBCTF) has seized cryptocurrency from Hezbollah, a heavily sanctioned terrorist group based in Lebanon, and from the Quds Force of Iran. , which finances Hezbollah and cooperates extensively.” The blog post notes that the Israeli agency “seized approximately $1.7 million in cryptocurrency and disrupted the cryptocurrency-based terrorism financing infrastructure jointly operated by the two organizations.” Among other things, the blog post details the methods Hezbollah uses to move funds “first from financial facilitators to hawala services and OTC brokers, then to Hezbollah-controlled addresses at regular [cryptocurrency] exchanges.”

Another blockchain analytics company, TRM Labs, recently launched its Illegal crypto ecosystem report. The report “covers more than 20 blockchains and covers all major known forms of crypto-mediated illicit financing, as well as the use of cryptocurrency to launder the proceeds of crime.” The first part of the report “maps criminal activities that generate crypto proceeds of crime, including illicit trade, illicit payments, fraud, and theft.” The second part “catalogues how the crypto ecosystem is used in laundering the proceeds of crime, be it fiat or crypto.” Among its many findings, the report notes that “the decline in the value of cryptos has not deterred criminals from using and exploiting crypto” and that “the different types of crypto crimes and their perpetrators do not operate in silos; rather, they are strongly intertwined.

For more information, please refer to the following links:

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