Crypto news & regulatory update: May 5 – May 20, 2024

Editor’s note: Our Regulatory Updates series highlights the latest regulatory, legal, and policy happenings relevant to builders in web3 and crypto, as tracked and curated by the a16z crypto regulatory team. The roundups are based on recent news, guidance, legislation, and frameworks released by regulators, industry consortia, professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include select resources such as talks, posts, or other commentary — from us or from others — with the updates.

🧠 tl;dr

1. The House of Representatives and the Senate passed a bipartisan Congressional Review Act resolution that would undo the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121, which directed firms that safeguard consumer crypto to track the funds as liabilities on their balance sheets. The President must sign the resolution for it to take effect.
2. The Department of Justice (DOJ) charged two brothers with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering in connection with a scheme to exploit a flaw in MEV-Boost, an open-source software that enables validators to outsource block production. The exploit allowed the brothers to fraudulently obtain $25 million worth of cryptocurrency.
3. President Joe Biden ordered the closure of MineOne, a cryptocurrency mining facility that is majority owned by Chinese nationals and located near the Warren Air Force Base in Wyoming, on the basis that it poses risks to U.S. national security.

🌽 Commodity Futures Trading Commission

• The Commodity Futures Trading Commission (CFTC) settled charges against Falcon Labs for failing to register with the CFTC as a futures commission merchant (FCM). This is the CFTC’s first action against an unregistered FCM that inappropriately facilitated access to digital asset exchanges.
• The CFTC’s Office of Customer Education and Outreach issued a customer advisory warning to students and other job seekers urging them to watch out for “money mule” scams in which individuals receive money into their bank accounts, digital wallets, or spot-market crypto trading accounts, either as part of their job duties or at the direction of others, that came from victims of fraud. 
• CFTC Chair Rostin Behnam said that the CFTC will probably see “another cycle of enforcement actions” in the next 6 to 18 months in light of renewed interest in the crypto markets.

🦅 Congress

• As mentioned in “tl;dr,” the House of Representatives and the Senate passed a bipartisan Congressional Review Act resolution that would undo SEC SAB 121, which directed firms safeguarding consumer crypto to track the funds as liabilities on their balance sheets. The President must sign the resolution for it to take effect. 
• House Representative Wiley Nickel (D-N.C.) wrote to SEC Chair Gary Gensler encouraging him to withdraw SAB 121 and accusing the SEC of turning crypto regulation into a “political football” that forces President Biden to “choose sides on an issue that matters to many Americans.”
• House Representative Sean Casten (D-Ill.) and others introduced the “Blockchain Integrity Act,” which would temporarily prohibit financial institutions from transacting with funds that have gone through digital asset mixers while the Department of the Treasury conducts a study on the illicit uses of such mixers.
• Senators Cynthia Lummis (R-Wyo.) and Ron Wyden (D-Ore.) wrote to U.S. Attorney General Merrick Garland to express concerns about the DOJ’s recent interpretation of the federal prohibition on operating unlicensed money-transmitting businesses in the Department’s actions against the founders of Samourai Wallet and the founders of Tornado Cash. 

⚖️ Department of Justice

• As mentioned in “tl;dr,” the DOJ charged two brothers with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering in connection with a scheme to exploit a flaw in MEV-Boost, an open-source software that enables validators to outsource block production. The exploit allowed the brothers to fraudulently obtain $25 million worth of cryptocurrency.
• The DOJ charged a Russian national for his alleged role as the creator, developer, and administrator of the LockBit ransomware group, which has targeted more than 2,000 victims and stolen more than $100 million in ransomware payments.
• A New York resident pleaded guilty to charges relating to a fraudulent scheme in which he solicited more than $1.3 million in investments for a fake cryptocurrency “virtual wallet” and other fictitious business ventures, but in fact converted the investments to his own benefit and expenses and to pay earlier victims and business associates.
• Two Chinese nationals were arrested for allegedly managing an international syndicate that laundered at least $73 million through shell companies tied to so-called cryptocurrency “pig butchering” investment scams.

💵 Department of the Treasury

• The Department of the Treasury issued its 2024 National Strategy for Combating Terrorist and Other Illicit Financing, which provides a blueprint of the U.S. government’s goals, objectives, and priorities to disrupt and prevent illicit financial activities, including with respect to virtual assets.

📈 Securities and Exchange Commission

• The SEC delayed making a decision on the proposed Invesco Galaxy spot Ethereum ETF.

🏛️ White House

• As mentioned in “tl;dr,” President Joe Biden ordered the closure of MineOne, a cryptocurrency mining facility that is majority owned by Chinese nationals and located near the Warren Air Force Base in Wyoming, on the basis that it poses risks to U.S. national security.

🇺🇸 State

🦬 Oklahoma

• Oklahoma passed a bill that protects individuals who use digital assets to purchase legal goods and self-custody digital assets using a self-hosted wallet or a hardware wallet. The bill also includes provisions to protect home digital asset mining and mining businesses.

🌍 International

💰 Bank for International Settlements

• The Bank for International Settlements published a report on the “Digitalisation of Finance,” which describes emerging financial technologies, including crypto.

🇨🇦 Canada

• Canada’s Financial Transactions and Reports Analysis Centre, the country’s financial intelligence unit, fined Binance CAN$6 million ($4.3 million) for failing to register as a foreign money services business and failing to submit large virtual-currency transaction reports with prescribed information.

🇫🇷 France

• The Autorité des Marchés Financiers issued a notice reminding the public that crypto exchange ByBit is not registered as a digital asset service provider and is therefore not authorized to provide its services in France.

🇮🇩 Indonesia

• The Commodity Futures Trading Regulatory Agency, the Indonesian government agency that oversees cryptocurrencies, formed a dedicated committee to monitor the industry. 

🇭🇰 Hong Kong

• The Hong Kong Monetary Authority and the People’s Bank of China expanded the scope of the e-CNY (China’s digital yuan) pilot in Hong Kong to facilitate the use of e-CNY wallets by Hong Kong residents.

🇳🇱 Netherlands

• A panel of Dutch judges found Tornado Cash developer Alexey Pertsev guilty of money laundering and sentenced him to 64 months in prison.

🇵🇭 Philippines

• Crypto exchange Coins.ph announced that the Philippines’ central bank had given it approval to pilot a Philippine Peso-backed stablecoin called PHPC.

🇬🇧 United Kingdom

• UK Economic Secretary Bim Afolami said that he is confident that the UK government will have enough time to implement stablecoin and staking secondary legislation in the coming weeks.

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