The tangled network of proposed crypto regulation | CPAs and Foodman Consultants


Don’t expect consistent rules to line up anytime soon

Many U.S. government enforcement agencies agree that the $ 2.5 trillion crypto industry is in need of regulation. And the heads of the biggest crypto companies have told Congress they agree. But that’s where the catch lies: The government has yet to define what crypto is, let alone how it will be regulated and taxed.

A litany of questions remains

Is crypto a commodity or a security? Is crypto the financial system of the future or the hub for money laundering criminals? Will the regulations be overseen by OFAC, the new DOJ National Cryptocurrency Implementation Team, the Financial Action Task Force, the Securities and Exchange Commission, FinCEN, state and local governments or the system? judicial? They all have reports, proposals, and recommended enforcement resources.

Who will sue the bad actors? Will the focus be on the crypto-criminals themselves or on the “catalysts” that help foreign clients hide assets in the US financial system. These can be trust companies, lawyers, accountants, notaries, real estate agents, metal and precious stone dealers, art dealers, casinos and even public relations firms.

As lawmakers grapple with definitions, the digital currency industry is growing exponentially, with 21 bitcoin and blockchain leaders making the coveted Forbes 30 Under 30 list for 2021. There is no doubt that the crypto industry and its holdings are on the rise.

Hearings, lobbying and a hint of despair

During a congressional hearing on December 8, Charles Cascarilla, CEO and co-founder of Paxos Trust Co., which provides financial services to crypto companies, said, “We need clear standards and government support. to create a new, more secure, more competitive financial system. The benefits of doing it right are huge, but so are the consequences of making a mistake. “

The subtext throughout the hearing: If the regulations on virtual currency are too strict, players will simply leave the United States to operate at sea.

Banks want Congress to apply the same level of regulatory oversight to crypto startups as it does to traditional lenders. The American Bankers Association said in a letter to the congressional committee that businesses offering banking-type services should benefit from bank-like regulation.

Can’t we all get along?

At the Chainalysis conference, Assistant Secretary of the US Treasury Wally Adeyemoremarks said, “Digital assets are another potentially transformative innovation. … We don’t know how this new technology will evolve, but we do know that, like other innovations, they have the potential to unlock new opportunities. He said the US government seeks to create a regulatory environment “that fosters responsible innovation, by writing clear rules of conduct that mitigate these risks while preserving the economic opportunities created by this technology.”

“You see cryptocurrency and related fintech innovations as ways to make it easier for everyone to navigate the global economy. And I want you to know: we share that aspiration. He added: “As I said before, ransomware is not a cryptocurrency problem in the same way that online fraud is not the Internet’s fault.” And he noted, “Rather, this is a reason to treat the misuse of virtual currencies for what it is – a cybercrime and national security issue – and it’s a problem we can solve together.”

But then there are the penalties, fines, taxes and regulations that exist and are offered by a myriad of agencies.

Proposed regulations

Final regulations seem far away, given the confusing and repetitive world of those proposed. Here are the main players.


Enter on the left: the Department of Justice’s National Cryptocurrency Enforcement Team (NCET), which focuses on directing enforcement resources to the financial ecosystem that enables ransomware and threats like to thrive. The NCET is made up of federal prosecutors from the Anti-Money Laundering Asset Recovery Section (MLARS), Computer Crime and Intellectual Property Section (CCIPS), and deputy U.S. attorneys from the offices of American lawyers across the country.

It plans to “investigate, support and prosecute cases against cryptocurrency exchanges, infrastructure providers and other entities that allow the misuse of cryptocurrency and related products to commit or facilitate criminal activity “.

Additionally, NCET will provide training, advise government agencies, and support coordination and information sharing between federal, state, local, tribal and international law enforcement agencies.

This announcement represents a shift in focus from the criminal actors themselves towards the companies that provide the services and technology in the crypto space to make crimes possible.


Then there is the bipartite law establishing new authorities for the laundering of companies and the authorization of security risks (Enablers). It would also update the 51-year-old bank secrecy law, which requires banks to investigate their customers and the source of their wealth. This is because the new provisions would extend FinCen’s anti-money laundering law of 2020.

During the Chainalysis conference, Assistant Secretary of the Treasury Wally Adeyemoremarks drew on the government’s perception that the misuse of virtual currencies leads to cybercrime and is a national security concern.

Secretary Adeyemo said the US government wants to create a regulatory environment “that fosters responsible innovation, by writing clear rules of conduct that mitigate these risks while preserving the economic opportunities created by this technology.”


The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), through their respective enforcement directors, recently highlighted their focus on the app targeting the cryptocurrency industry.

October 2021 also saw the Office of Foreign Asset Control (OFAC) release updated sanctions compliance guidelines for the virtual currency industry. Then, on November 8, 2021, FinCEN released a new ransomware advisory, reiterating that disrupting the payment mechanisms used by cybercriminals to stop ransomware attacks is a high priority for the federal enforcement establishment. the law. It also reminds companies to implement appropriate compliance programs to identify and report suspicious cyber activity.

The issues identified in his remarks that need to be addressed by the US government center on national security risks and issues related to AML, terrorist financing, and ransomware.


In addition, the Treasury recently released the Bank Secrecy Act report on ransomware trends. It provides an industry overview of the suspicious activity reports FinCEN received in the first half of 2021.

The Financial Action Task Force (FATF) released an update to the virtual currency guidelines in October 2021. Stating that it wants to clarify its recommendations on virtual assets, it goes on to 109 pages which are anything but clear.

Its main recommendation is that the crypto industry shouldn’t wait for the Treasury to act and monitor its own platforms for compliance.


When it comes to government regulation of the burgeoning virtual currency industry, there is currently no clear direction. Don’t expect a rule alignment anytime soon.

While we await decisions on whether crypto is a currency, security, commodity, utility, or a new tulip craze, my best advice is to go ahead and stay calm.


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