Policy / Regulation - The Daily Encrypt

BOE Doesn’t Think DeFi Can Help Financial Risks

Felipe Rodriguez — Mon, 21 Nov 2022 14:45:00 +0000

Cunliffe, Deputy Governor of Bank of England warns that decentralized finance protocols are not reliable in mitigating risk.

Cunliffe stated that code can only be as good as the people, rules and processes that created it. Next year, the BoE will be consulting on a new regulatory framework to regulate digital assets.

The Bank of England deputy governor warned Monday that decentralized finance protocols are not yet an effective way of managing risk.

Jon Cunliffe stated that DeFi’s claim that a code can manage risks rather than intermediaries is not supported. He spoke to a crowd at Warwick Business School. He stated that he was still not convinced that finance’s risks can be managed effectively from the perspective of both a financial regulator and financial stability authority.

Cunliffe said that DeFi protocols were like driverless cars.

He claimed they are only as good and reliable as the rules, programs, and sensors that organize them.

He added that it was not clear how decentralized these platforms are. “These protocols often have firms and stakeholders that derive revenue from their operations. It is not always clear who controls the governance of these protocols.

Cunliffe stated that the Bank of England will host a consultation next spring on the regulatory framework for a digital asset payment scheme, which includes the use of services such as wallets.

Once the Financial Services and Markets Bill is passed through parliament and becomes law, the central bank and Financial Conduct Authority will be able to supervise stablecoins and other crypto related technologies.

Cunliffe stated that the UK Treasury will also consult on ways to increase investor protection, market integrity, and other regulatory frameworks to cover the promotion and trade of financial products to entities and activities involving crypto assets.

He added that at the moment, anti-money laundering legislation does not apply to these activities.

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$40 Million In Crypto Used For Illegal Gambling Seized by Turkish Authorities

Vitalik Ivanov — Fri, 21 Oct 2022 23:11:00 +0000

An alleged crypto gambling ring has been implicated in the murder of Halil Falyali, the head of a Turkish Cypriot casino and tycoon involved in crypto gambling. As part of an investigation into illegal gambling rings, the Turkish authorities have taken $40 million worth of cryptocurrency.

Turkey has strict regulations regarding gambling. Online gambling has been prohibited in Turkey since 2006, when casinos were outlawed.

According to Daily Sabah, 46 suspects were also detained on charges that they participated in illegal betting operations in eight provinces.

Turkey’s Office of the Chief Public Prosecutor and the Smuggling and Organized Crime Investigation Bureau claimed that the suspects were involved in the transfer of funds from the illegal gambling operation to the crypto addresses.

There is no information available about the cryptocurrency seized.

Suleyman Soylu, Turkish Minister of Interior, stated that the operation was carried out in Turkish Cyprus and was linked to the assassination of Halil Falyali.

Halil Falyali was a Turkish Cypriot businessman. He was driving close to his home in Catalkoy and Kyrenia, in the Turkish Republic of Northern Cyprus, in February 2022.

Two men, M. Faysal Soylemez & Mustafa Soylemez were convicted of the incident and sentenced to aggravated life imprisonment.

Falyali was not a stranger to money laundering investigations and is wanted in the United States on charges of money laundering or drug trafficking.

According to Turkish authorities, the $40 million that was confiscated could just be the tip.

Authorities claim that the incident was also accompanied by a transfer of about 2.5 billion Turkish Lira (roughly $134.3 million) of money.

Turkish authorities appear to be determined to continue the investigation. Soylu told The Daily Sabah that “this is only the beginning.”

In a separate meeting, he told journalists that he had provided these files to the nations to prevent illegal betting from occurring anywhere in the world, even Europe.

He stated that the “allegories that Turkey makes its money from crime and gambling are false” and that Turkey is working with all its institutions to stop organized crime from using cryptocurrency.

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Indian Authorities Freeze 44.5 Bitcoins From Gaming App E-Nuggets

Elena Argyros — Fri, 21 Oct 2022 18:30:00 +0000

India’s Enforcement Directorate has said it has frozen 44.5 additional bitcoins in its ongoing money laundering investigation into E-nuggets, a mobile gaming app. Nearly 86 bitcoins have been frozen at Binance crypto exchange in connection to the same investigation.

India’s Enforcement Directorate declared that it had frozen 44.5 bitcoins in violation of the country’s Prevention of Money Laundering Act. The ED is India’s economic intelligence and law enforcement agency.

ED conducted a search operation at two locations in Kolkata, seized Rs 1.65 Cr cash, and frozen 44.5 bitcoin (equivalent to Rs 7.12 Cr & other incriminating documentation under PMLA). This was in connection with an investigation into the mobile gaming app Enuggets.

According to the authority, “Aamir Khan, s/o Nesar Ahmad Khan, launched E-Nuggets, a mobile gaming app that was intended for defrauding the public. It was discovered that more than 300 accounts were used to launder money.”

Before Thursday’s announcement, the ED had already frozen cryptocurrencies related to its investigation into E-nuggets multiple times.

The ED stated that it had seized 77.62710139 Bitcoins on Binance’s cryptocurrency exchange. Further Bitcoins were also frozen by the authorities. The ED announced that it had seized a total amount of 85.91870554 Bitcoins, which is USD $1674255.7 (equivalent in value to Rs 13.56 Cr). As per market rates), Binance Exchange’s balance was frozen on Sept. 30. In addition, the ED also stated that there were “85.91870554 bitcoins equivalent to USDT), stablecoins, and Wazirx accounts related to the activity.

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Binance US Creates Investigation Team and Hires Former FBI Member to Lead

Vitalik Ivanov — Fri, 21 Oct 2022 17:09:00 +0000

BJ Kang, a former FBI Special Agent, has been assigned to Binance US. He will lead a new investigative unit that is responsible for stopping and detecting illegal activities in the crypto market. United States crypto exchange Binance US created an “investigations Unit” and appointed a former FBI Special Agent as its head. The unit’s goal is to find and stop illegal activity on the platform.

Cointelegraph confirmed that the “investigations” unit is a new unit within the U.S. cryptocurrency exchange. Krishna Juvvadi (head of legal), said that the unit has seen BJ Kang, a former FBI agent, become the first “head of investigation.

Kang will partner with regulators, law enforcement and other exchanges to stop and seek out illegal activity on the platform. Kang will also create an “investigations infrastructure” for Binance US.

Binance US stated in an Oct. 20 statement that it had strengthened its legal and compliance risk operations by increasing its department headcount to 145% and committing over one-fifth of its total workforce to these functions.

Kang is well-known for his high-profile investigations of securities fraud during his almost 20-year tenure at the FBI.

After being photographed with Bernie Madoff, a former FBI agent, and Raj Rajaratnam (a former manager of a hedge fund), the former FBI agent was dubbed “the most feared man in Wall Street” by Reuters.

He was previously a member of the FBI Washington Field Office’s Cybercrime Squad, investigating cyber-enabled money laundering and extortion.

Kang’s appointment comes at a time when the exchange is under investigation by the Securities and Exchange Commission. The Commission reportedly sought information about two companies that were allegedly market makers on the platform. It is now investigating whether Binance US might have revealed its possible links to these companies to users.

Binance operates independently from the US arm and has had to defend itself against two Reuters exposes in the last year. These exposes accused Binance of processing at most $2.35 Billion worth of transactions involving hacks, investment frauds, and narcotics sales, between 2017 and 2021.

On Oct. 17, claimed that the platform had “swept scrutiny” from regulators in the U.S.A and United Kingdom. They cited two separate proposals, submitted either by employees or affiliates.

The U.K allegation was based on the proposal that Binance backdate its service agreements in order to obtain a financial registration exemption. In the U.S., a proposal was made to direct authorities’ attention towards a U.S. entity and not Binance.

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Group of Russian and Venezuelans Are Charged For Sanction Violations

Elena Argyros — Fri, 21 Oct 2022 02:09:00 +0000

U.S. authorities have charged a group of Russian and Venezuelan citizens with their involvement in a scheme to bypass Western sanctions and allow money laundering on a global scale. They were accused of procuring military technology from American companies, smuggling crude oil and concealing money flows to Russian oligarchs via shell companies and crypto transactions.

Russians in Europe Arrest for Shipping Oil and Dual-Use Technology Violations of Sanctions

Two Venezuelans and five Russian citizens were charged with violations in connection to the purchase and sale of U.S.-made dual-use and military equipment for Russian buyers. They also shipped Venezuelan oil in violation of restrictions. Federal prosecutors claim that some of the electronic parts ended up in Russian weapons systems taken on the battlefield in Ukraine.

The U.S. Department of Justice announced Wednesday that a 12-count indictment had been filed in Brooklyn federal court.

Yury Orekhov and Artem Uss are facing charges of money laundering and global procurement.

The United States is currently seeking the extradition of Orekhov (‘Juanfe Serrano’) and Uss (‘Juanfe Serrano’), who were detained in Germany or Italy. Juan Fernando Serrano Ponce, ‘Juanfe Serrano,’ and Juan Carlos Soto, both Venezuelans were also arrested. As part of the scheme, the two were accused of brokering illicit oil deals for Petroleos de Venezuela S.A. (PDVSA), a Venezuelan state-owned oil firm. Breon Peace, U.S. attorney for the Eastern District in New York, elaborated on the charges:

The defendants are accused of being criminal enablers of oligarchs. They orchestrated a complex scheme for illegally obtaining U.S. military technology, Venezuelan sanctioned crude oil, and a multitude of transactions involving cryptocurrency and shell companies.

Jonathan Carson, Special Agent-in-Charge at the U.S. Department of Commerce Office of Export Enforcement stated that “We will continue enforcing the unprecedented export controls in response to Russia’s illegal war on Ukraine”

U.S. officials claim that the defendants used a German registered entity to transport the goods. Yury Orekhov was part owner and chief executive at Nord-Deutsche Industrieanlagenbau GmbH GmbH (NDA) in Hamburg, whose main activity was commodity trading and industrial equipment.

NDA was used as a front company by the Russians to source and acquire sensitive technologies, such as microprocessors for fighter aircraft, smart munitions and radar systems. These items were then sent to Russian Federation end users, which included sanctioned companies that work with Russia’s defense sector.

Orekhov and Uss also used the same entity to smuggle hundreds of millions of barrels of oil from Venezuela for Russian and Chinese customers. The aluminum company of a Russian oligarch, subject to sanctions, and a Beijing-based oil & gas conglomerate, are two examples.

Venezuelans brokered the deals between PDVSA & NDA. Millions of dollars worth of transactions were routed through various shell companies and bank accounts. According to the DOJ, the participants used crypto transfers and cash drops in Russia and Latin America to carry out the transactions and laundering the proceeds. The announcement stated that the defendants could be sentenced to up to 30 years imprisonment if convicted.

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Crypto Exchange Kraken Agrees to EU Sanctions Against Russia

Elena Argyros — Thu, 20 Oct 2022 20:01:00 +0000

Kraken joins a long list of crypto-exchanges that have been forced to leave the country by increasingly harsh EU sanctions. The crypto exchange Kraken has confirmed that it will adhere to the European Union’s newly introduced sanctions package.

A spokesperson for Kraken told Decrypt via email that Kraken complies with all legal and regulatory requirements in every jurisdiction where it operates. “We have been working since the EU’s announcement to make the necessary changes to comply with the most recent package of sanctions against Russia.”

The spokesperson declined to comment on whether Russian users were banned from the platform.

Kraken’s announcement came after the EU activated its latest sanctions package. This package was intended to punish Russia for its aggression towards Ukraine on October 6.

These sanctions are a blanket ban on all payments from the EU to Russia.

Previous EU sanctions only capped transactions at EUR10,000 ($9 800).

This ban follows a wave of crypto firms moving to deny users access in the country. Joined Blockchain.com, Crypto.com and Local Bitcoins, all of which announced last week that they would close access.

This news contradicts previous statements Kraken made earlier in the year. They stated that it would keep Russian accounts open and called a ban “unfair” for average Russians who might be opposed to the war in Ukraine.

co-founder and Kraken CEO Jesse Powell stated that depriving Russian users of account access was “a pretty extreme step” that goes beyond denying them access to their music streaming services or photo sharing apps.

According to CoinGecko Kraken is currently fourth-largest cryptocurrency exchange, with around \$356million in trading volume over the last 24 hours.

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Moola Market Hacker Has Returned 93% of The Stolen $8.4 Million

Vitalik Ivanov — Thu, 20 Oct 2022 02:02:00 +0000

Money taken from the Moola Market lending protocol has been returned by an unknown hacker. Currently, protocol activity has been halted.

The majority of the funds stolen through an exploit by the hacker at Moola Market have been returned to their owners.

On Tuesday, Moola Market was hacked to $8.4million. The attacker returned 93.1% ($7.8m) of the stolen funds to Moola’s account hours later.

The In response to today’s incident, 93.1% of funds have been returned to Moola governance.

The attacker retained 700,000 CELO tokens as a bounty. ($518,000).

The low liquidity of MOO, a native token on Moola’s lending protocol on Celo blockchain, was exploited by the attacker. They used the MOO token on Ubeswap to inflate its value and then leveraged the tokens to take user assets from the protocol. Igor Igamberdiev is the research director for data at The Block.

The attacker had 243,000 CELO tokens ($182,000) in their Celo address. Next, the attacker borrowed 1.8 million MOO tokens and deposited 60,000 CELO tokens onto Moola. To quickly inflate MOO’s price, the attacker used the remaining CELO tokens.

The perpetrator used the MOO tokens’ increased value as collateral to obtain other assets in a loop. They were able to use the increased value of their MOO tokens as collateral to borrow other assets in a loop.

The majority of the project’s funds have been recovered, but lending protocol activity remains suspended. The team stated that the lending service will not be resumed until community discussions are held on the next steps. Moola Market raised $1.4 Million during a seed round that was led by Flori Ventures and Polychain Capital in March 2021.

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NFTs Will be Treated as Cryptocurrencies in New IRS Tax Guidelines

Vitalik Ivanov — Thu, 20 Oct 2022 00:38:00 +0000

The IRS has released updated tax guidelines that will allow NFT holdings to be subject to the same tax regime as cryptocurrencies and stablecoins. NFT investors have new clarity from the U.S. Internal Revenue Service about how assets will be taxed.

According to the IRS’ 2022 tax year guide all “digital assets,” which include stablecoins and non-fungible tokens, as well as cryptocurrencies, will be subject to the same tax rules.

This is a departure form 2021 guide, which used the less specific term “virtual currency” and only defined the rules governing cryptocurrency and stablecoins.

Taxpayers who “disposed of any digital assets in 2022” by selling, exchanging, gifting, or transferring them will need to report the event and pay capital gains taxes.

Anyone who has received NFTs in compensation for services, or sold any digital assets they owned for profit will have to declare it as income.

The IRS seems to have carefully drafted the document, which allows for future taxation of any new class of digital assets. According to the IRS, if a particular asset is classified as a digital asset, it will be taxed for federal income tax purposes.

It’s worth noting the IRS also made the decision not to classify NFTs as “collectibles”–alongside assets like collectible art, antiques, or gems–which are taxed at a different rate than stocks or bonds.

Collectables are subject to 28% tax, while assets like stocks, bonds or cryptocurrency are subject to 0%, 15% or 20% tax depending on the seller’s income.

Crypto investors are now seeing tax loopholes closing. At least, this is the case in many countries. As more countries clarify how digital assets will be taxed, it seems that these loopholes are being closed.

Portugal was once considered a safe haven by crypto investors. In October 2022, 28% capital gains tax was introduced on cryptocurrency gains within one year.

Not only tax authorities could be looking to take NFTS investors’ profits.

Apple made the decision to allow in-app NFTs on its platform in September. These transactions would, however, be subject to a 30% commission fee. This was much to the dismay of many NFT communities.

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JPMorgan Hire Ex Celcius Executive as Crypto Policy Head

Vitalik Ivanov — Wed, 19 Oct 2022 23:05:00 +0000

Previously, he was the head of policy, regulatory affairs and the chief executive officer of the bankrupt cryptocurrency lender Celsius, where he was the head of policy, regulatory affairs. Jamie Dimon, CEO of JPMorgan, may call cryptocurrencies like Cryptographic “decentralized Ponzi Schemes,” but that hasn’t stopped the world’s biggest investment bank from hiring a head of regulatory policy for digital assets.

Aaron Iovine was a similar employee at the now bankrupt crypto lending company Celsius. He joined JPMorgan according to a Bloomberg Law Report.

Iovine’s LinkedIn Profile states that he worked for Celsius from February to September, after a nearly three-year stint at Cross River, a New Jersey-based financial service company.

According to reports, he will work with JPMorgan’s regulatory affairs team headed by Sharon Yang. Sharon Yang was previously a deputy assistant secretary for foreign financial markets at the Treasury Department.

Decrypt We reached out to JPMorgan as well as Iovine to get their comments. However, we have yet to hear back from them at the time this article was written.

Iovine was appointed less than a month after JPMorgan CEO Jamie Dimon lashed out at cryptocurrency, saying most people are skeptical of crypto tokens […] similar to Bitcoin” and comparing the new asset category to a “decentralized Ponzi scheme.”

Bitcoin was first mentioned by the 66-year-old billionaire in January 2014.

This was not long after Mt. Gox stated that Bitcoin was the largest digital asset in the world and “a terrible store of value”, and that it “can be duplicated over and over.

Dimon has repeatedly called Bitcoin a fraud and fool’s gold over the years. However, JPMorgan launched JPM Coin in 2019 as a U.S. dollar pegged stablecoin.

The bank allows wealth management clients to purchase Bitcoin, Ethereum and Bitcoin Cash. It also offers shares in Grayscale Bitcoin Trust ( GBTC).

JPMorgan also posted an opening earlier this month for a digital asset counsel position with its corporate investment bank in New York. The successful applicant will be responsible for a broad range of duties including advising on regulatory compliance and daily business support, and documentation issues related to the bank’s digital asset initiatives.

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‘Hacktober’ Continues With DeFi Platform Moola Market Losing $8.4 Million

Elena Argyros — Wed, 19 Oct 2022 08:10:00 +0000

Following an exploit, Celo network-based Decentralized Finance (DeFi), lending protocol Moola Market was forced to halt operations. The attacker earned 8.8 million CELO ($6.5million), 765,000 EUR ($700,000.000), 1.8 Million MOO ($600,000.000) and 644,000 USD ($600,000.000).

After an $8.4 Million exploit, the Celo network-based decentralized financing lending protocol Moola Market was forced to suspend operations.

An analysis by Igor Igamberdiev of The Block Research shows that the exploiter used 243,000 CELO tokens originating in Binance. He then loaned 60,000 CELO from Moola to obtain 1.8 million MOO as collateral. The exploiter used the CELO remaining to pump the price of MOO, and then borrowed tokens through a number of DeFi lending protocols using the collateral.

The attacker received 8.8 million CELO ($6.5million), 765,000 EUR ($700,000.000), 1.8 Million MOO ($600,000.000) and 644,000 USD ($600,000.00) for his efforts.

Moola Market stated that its team is currently investigating the incident and that all activity has been halted on the platform. Moola Market advises users not to trade mTokens in the interim.

“To the exploiter we have contacted law enforcement, and taken steps to make liquidation difficult.” Tweeted Moola Market: “We are open to negotiating a bounty payment in return for the funds being returned within the next 24hrs.”

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