On Tuesday, August 13, 2019, the cryptocurrency intelligence firm CipherTrace released its Q2 2019 Cryptocurrency Anti-Money Laundering Report, which analyzes cryptocurrency-related crime and countries’ efforts to regulate the cryptocurrency economy.
The firm reported that over $4.26 billion in cryptocurrency holdings were lost worldwide in the first half of 2019. Over $3.1 billion of these losses were due to “exit scams”—Ponzi-style schemes in which those who purport to run a legitimate cryptocurrency business loot customers’ funds and disappear with the money. Thefts through cyberattacks scored hackers over $200 million in the first 6 months of the year, while the cryptocurrency exchange Bitfinex purportedly lost $851 million when it moved funds to an overseas bank.
According to CipherTrace, the acceleration of cryptocurrency hacks, frauds, and related money laundering, as well as abuses of cryptocurrency by countries seeking to evade sanctions, have led regulatory bodies to increase oversight of “virtual assets.” For example, the Financial Action Task Force (“FATF”), an inter-governmental body whose purpose is to establish international standards and promote polices to combat money laundering and the financing of terrorism, issued a regulation known as the “travel rule” in June 2019. This rule, supported by the G20, requires cryptocurrency exchanges to share sender and receiver information for transactions over a $1,000 threshold.
The report explains that there has been some legislative movement on this front in the U.S. as well, with several bills aimed to reform regulations that will affect cryptocurrency. For example, the Senate’s Illicit Cash Act, which aims to modernize the Bank Secrecy Act (“BSA”), would place “additional obligations on crypto related businesses subject to the BSA and requir[e] companies to disclose to FinCEN[,]” the U.S. Treasury’s Financial Crimes Enforcement Network, “the identity of their beneficial owners for a new federal database.” CipherTrace also highlighted FinCEN’s May guidance, which “aggregated existing regulations and explained how they apply to the cryptocurrency industry.”
CipherTrace’s report also discussed the significance of Facebook’s announcement of its own digital token, Libra, on June 18, which “ignited a fury of debate in global capitals regarding the risks and rewards of these new financial tools.” According to CipherTrace, “[t]he chairman of the federal reserve noted that Facebook’s sheer size means Libra would immediately have systemic implications for the global financial system.”
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About Katherine M. Lenahan
Katherine M. Lenahan is a Partner in the New York office of Faruqi & Faruqi, LLP and focuses her practice on securities litigation.