Law Decoded: New Administration and continued Justice Department action on cryptomonies, October 30 – November 6

Every Friday, Law Decoded offers an analysis of the week’s critical stories in the areas of policy, regulation and law.

Editor’s note

Are you over the election? I’m already over them. But you can bet that as soon as I finish writing this week’s Law Decade, I will compulsorily go and check what is happening in Georgia and Pennsylvania. And I think I’m not the only one.

Although the elections hijacked all news cycles, cryptomonies were not abandoned on a street corner. Probably the most remarkable thing is that Bitcoin Millionaire scam is reaching highs that I haven’t seen since January 2018. Given that the price of BTC often reacts positively to fears of political instability, this is not entirely surprising.

The most specific interactions of regulators with cryptosystems are the ongoing enforcement measures. The US Department of Justice has taken the lead in this internationally. Law Decoded has spoken extensively about the Justice Department over the past month, and for good reason. They have taken huge steps to address what they perceive to be the illegal use of crypto coins since a framework was issued in early October to bring digital coins into compliance.

While we may be seeing some legal tantrums and vote counting, Biden appears to have won the White House. The Department of Justice is headed by the Attorney General, Bill Barr is the current Attorney General and it was Trump. While the regulatory lobby is unlikely to reverse its new capabilities to monitor crypto currencies, Barr has been at the forefront of that fight, as well as other anti-technology measures to ban end-to-end encryption and Section 230. The attitude of any nominee for Biden who intends to replace Barr will therefore be very important.

A deal with the Department of Justice

The Department of Justice filed a request to seize a huge amount of tokens that had originated on Silk Road, following an IRS and Chainalysis investigation.

The pile of crypto coins has a total value of USD 1 billion and was under the control of an unknown hacker, who is referred to enigmatically as „Individual X“ in the Justice Department’s file. Mr. X had apparently handed over these tokens to the Justice Department on November 3, which was the same day that the funds were moved.

According to the complaint, in 2013 Individual X stole at least 69,471 Bitcoin from Ross Ulbricht, the founder of Silk Road who is currently serving a double life sentence. Since then, apart from a transfer of 101 BTCs to the defunct BTC-e exchange, these currencies had remained mostly intact, going through a series of forks and increases in value.

Some speculation suggests that the hacker in question made a big deal to keep himself out of jail. The complaint specifies that Ross Ulbricht knew his identity online, which may mean that Ulbricht gave up his information to get some leniency for his own sentence. USD 1 billion can probably persuade the justice system to be very merciful.

Visa’s purchase of Plaid is heavily criticised

Last week, Cointelegraph reported in a news series that the Department of Justice was investigating Visa’s acquisition of USD 5.3 billion Plaid, which had initially been announced in January. This week, the agency filed a formal complaint, initiating an antitrust suit that, if successful, would cancel the acquisition.

Antitrust considerations have taken on great importance recently because of concerns that the use of data has been a new means of illegal market domination, something that the Sherman Act of 1890 was hardly prepared for. Major technology companies have to answer questions about how they prioritise content and share consumer information.

Plaid is a highly regarded mediator, allowing interoperation between the digital systems that handle financial information, the kind of personal information that people are somewhat susceptible to keeping private. The Department of Justice claims that Visa is trying to swallow a potential competitor. But, regardless, Plaid is facing a series of class action lawsuits for its own misuse of customer data, which is especially egregious because most people who send their data through Plaid don’t even know they are doing so. Perhaps that is what caught Visa’s attention.

Is the Cayman Islands returning from exile?

New legislation in the Cayman Islands has begun to tighten anti-money laundering controls in the country’s crypto currency market and, in particular, to increase registration of local crypto currency exchanges.

The Cayman Islands legislature initially began considering a comprehensive review of cryptomonies in April, but the first provisions are only now being implemented.

Like many other British territories and Crown dependencies overseas, the Cayman Islands has a long history as a hotbed for tax evasion, relocation and money laundering. They seem to be trying to change that image, at least in part. The European Union did not remove the country from its blacklist until October, although it is not yet on the white list. The US still identifies the jurisdiction as „most at risk“.

The problem is that most of these tax havens derive much of their income from hosting financial services that the UK itself, the EU or the US would not allow. So how much motivation does the Cayman Islands have to clean up its act?

Further reading

Chris Giancarlo and Daniel Gorfine of the Digital Dollar Project gave their opinion on a cashless future for MarketWatch.

Volkov Law Group completed its analysis of the Department of Justice’s cryptomoney enforcement framework published last month.

Brookings‘ Techstream collected the misinformation seen during the week of the presidential election.