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Elizabeth Warren’s Wake Up Call: Iran, Crypto & Controversy

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Senator Elizabeth Warren has raised significant concerns about the lack of anti-money laundering [AML] laws applicable to certain sanctioned countries potentially profiteering by participating as validators in cryptocurrency transactions. In her recent post, Warren posted a scenario to Deputy Secretary of the Treasury Wally Adeyemo inquiring about the possibility of sanctioned nations like Iran being involved in the validation of digital asset transactions.

After Adeyemo’s confirmation, the conversation explored the correlation between the growth of the crypto market with increased revenues for countries like Iran from such digital activities. Adeyemo implied there is a possibility. Following these revelations, Elizabeth Warren suggested implementing a regulatory framework for stablecoins to ensure users comply with AML laws.

Warren’s post received mixed responses with some blaming her insights as exaggerated or misplaced, especially considering the broader and more direct ways in which sanctioned countries might gain financially from interactions with the United States and other nations. Others took on a more nuanced approach.

XRP lawyer John E Deaton acknowledged Elizabeth Warren’s call for a regulatory framework for stablecoins that would bring users under AML laws. However, he proposed that the responsibility of complying with these laws should primarily lie with the stablecoin issuers rather than the users.

By concentrating on the issuer, it will guarantee the presence of necessary safeguards such as FDIC insurance, collateral, and capital prerequisites, limitations on the issuer’s investment of user funds, risk management standards for issuers operating within the US banking system to prevent systemic risk, and additional measures.

Elizabeth Warren’s Post Reflects Over-Scrutiny Of Crypto- Senator Scott

On the other side, Senator Tim Scott argued that digital assets frequently face an excessive level of scrutiny from the current administration, implying that this focus detracts from larger concerns regarding illicit financing. He pointed out the hypocrisy of blaming cryptocurrencies for cradling illicit transactions, citing the U.S. government’s history of transactions with sanctioned nations, such as the $6 billion cash transfer to Iran, which was not facilitated by cryptocurrency.

Elizabeth Warren
Elizabeth Warren's Wake Up Call: Iran, Crypto & Controversy 2

Echoing Senator Scott’s sentiment, Coinbase’s chief lawyer Paul Grewal believed that the debate over digital assets might be hiding larger issues of illicit financing that goes beyond the realm of cryptocurrencies.

Russia’s Sberbank Carry Out First Crypto Transaction On Its Platform

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Russia’s major lender Sberbank announced that it has initiated the first digital financial asset transaction on its own platform, with its subsidiary SberFactoring executing a 1-billion rouble [$16 million] issue with a three-month maturity.

Sberbank’s platform will soon be available to all the bank’s corporate clients, it said.

In early 2022, the lender was forced to withdraw from the European markets due to sanctions imposed by the US and its allies over the invasion of Ukraine.

The sanctions were meant to arrest cash outflows from Russian industries and its Europe-based units.

The country’s largest retail bank which received its license in March said in a statement that “digital assets are issued on its platform using blockchain technology and smart contracts”.

Notably, the permit was granted just two months after the Russian central bank had advocated a complete ban on trading, mining and using digital assets.

A long-time crypto skeptic, The Bank of Russia has warmed up to accommodate other digital assets and gave blockchain platform Atomyze Russia its first license to exchange cryptocurrencies.

Meanwhile, on the legislative front, Russia is working towards improving its monitoring of cryptocurrency transactions and will introduce regulation of the industry later this year, officials said this week. 

Crypto draft regulation will be put in Russia’s lower house during Autumn

Anatoly Aksakov, head of the finance committee in Russia’s lower house of parliament, recently said draft legislation on regulating cryptocurrencies would be introduced in the house by autumn.

Aksakov also expects a cryptocurrency mining law to be brought soon, an area the government is mulling tax.

On 8 July, its financial monitoring agency, Rosfinmonitoring, revealed that it was tracking cryptocurrency transactions using the software as Moscow grapples to counter the frenzy that has gripped the nation with what one lawmaker remarked “cryptomania”.

Besides that, the nation has already identified specific criminal cases involving cryptocurrencies, said Rosfinmonitoring’s head Yuri Chikhanchin, adding that the agency wants to improve its capabilities and identify transactions and blockchains that are currently hidden.

Chikhanchin however stated that it is not currently possible to cover everything, partly because not all nations are eager to regulate the industry.

Japan suspends crypto transactions with Russia and Belarus

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Authorities in Japan instructed its domestic cryptocurrency exchanges to cease transactions with Russian and Belarusian organizations and individuals sanctioned due to Moscow’s invasion of Ukraine. By this move, the East Asian nation joins the likes of Switzerland and Singapore in halting digital asset transactions further isolating Russia from the crypto market. 

In view of Belarus supporting Moscow’s aggression, 19 individuals, including President Alexander Lukashenko, and 15 organizations have been subjected to sanctions.

the latest development has its roots back in early March when Japan’s financial regulator and the country’s industry body announced that they were working on implementing restrictions to prevent Russia from bypassing sanctions through crypto. Japan’s Finance Minister at the time stated,

“We are closely watching the situations of settlements such as crypto assets and SPFS in order to secure the effectiveness of sanctions against Russia.”

Japan, along with the United States and other G7 nations, has frozen the assets of Russian President Vladimir Putin and certain other officials following the invasion.

According to a release, a few days ago, the G-7 leaders said, “We will ensure that the Russian state and elites, proxies, and oligarchs cannot leverage digital assets as a means of evading or offsetting the impact of international sanctions.”

Japan gov to take strict action against violators

As per sources, a total of 30 cryptocurrency exchanges based in Japan have been asked not to transfer assets targeting 44 Russian individuals. A report by Forkast further revealed that the Financial Services Agency and Ministry of Finance announced the penalties against violations.

In the joint statement, the agencies informed that crypto exchanges making unauthorized payments to sanctioned individuals could invite fines up to 1 million yen [$8,500], with individuals facing jail time of three years.

The government also asked the exchanges to monitor crypto-assets and report to financial authorities of any suspicious transactions that may involve those who are subject to the sanctions.

Last year, cryptocurrency transactions over exchanges in Japan jumped 51% in the first 11 months to 103 trillion yen [$900 billion], based on data compiled by the Japanese Virtual Currency Exchange Association. But even as the local industry kept growing, the country’s presence in global crypto markets has been waning and that has further affected due to the current situation. 

Supreme court of China rules out crypto transactions as illegal

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On Thursday, China’s supreme court declared cryptocurrency transactions to be unlawful, threatening violators with steep penalties and up to ten years in jail.

While top-level Chinese government authorities had previously declared crypto illegal in 2021, the measure now makes it technically illegal, allowing the government to pursue dealers in court.

In September of last year, following a severe energy deficit, the nation imposed restrictions on crypto mining and commerce. Several businesses were forced to relocate to Singapore or shut down entirely due to the migration.

China had previously been the world’s largest crypto miner. Following a similar restriction in Kazakhstan, markets now perceive Russia as a major, up-and-coming player in crypto mining.

What does China’s new rules mean for crypto investors?

For major transactions, the court’s new order now specifies jail terms of three to ten years and penalties of 50,000 yuan ($7918.28) to 500,000 yuan.

Fines for smaller transactions range from 20,000 to 200,000 yuan. The new law will take effect on March 1st.

The supreme court’s decision also puts an end to rumors that the country would not entirely ban crypto in the nation. Eastern Zhejiang province recently increased power costs for cryptocurrency miners, implying that the government attempted to discourage crypto mining through high bills rather than legal action.

The action did not affect the crypto market, though, as the attention remained on Russia-Ukraine tensions. Markets had recovered overnight as stocks confidence increased.

China’s stance on cryptocurrencies should not be misinterpreted as an indication that it is ready to ignore the fundamental technical revolution that blockchain technology and tokenization have brought about.

The country is nearing the end of its digital yuan tests, which have already begun in several pilot projects around the country.

During the second half of 2021, a digital form of the country’s national currency, the digital yuan, was utilized in over $8 billion in transactions.

China’s measures to control and restrict crypto usage on its land are likely aimed at reducing the number of citizens and organizations using decentralized blockchains to conduct business.

The Russia-Ukraine conflict and China’s cryptocurrency rules appear to have impacted the entire cryptocurrency market. However, cryptocurrency remains a lifeline in conflict situations.

Canada’s Govt. Emergencies Act Gives Power To Freeze Crypto Transactions Unilaterally

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In an effort to put an end to the ongoing trucker protests Canada‘s Prime Minister Justin Trudeau decided to invoke the 1988 Emergencies Act, for the first time in 50 years giving the power to freeze bank accounts and monitor “large and suspicious transactions” including funds used for crypto transactions without inviting any civil liability.

Under the above-mentioned act, crowdfunding platforms and payment services providers that cover crypto exchanges and other crypto financing platforms now must register with the Financial Transactions and Reports Analysis Centre of Canada [FINTRAC].

As per reports, the Tallycoin bitcoin fundraiser had raised more than 20 bitcoin [BTC] which comes close to $1 million for the truckers. The organizers have since shut down the fundraising page, and have asked to “stay tuned” about the next steps.

Interestingly Jesse Powell, CEO of crypto exchange Kraken, was one of 5,000 donors to the HonkHonkHodl crowdfunding page on the Tallycoin platform. The issue escalated after GoFundMe blocked $10 million in donations meant for the Canadian truckers protesting vaccine mandates.

During a press conference, Canada’s Deputy Prime Minister and Minister for Finance, Chrystia Freeland revealed that the government is working to increase the scope of Canada’s anti-money laundering, monitoring, and terrorist financing laws to include crowdfunding platforms and the payment service providers they use.

“These changes cover all forms of transactions, including digital assets such as cryptocurrencies,” she announced during a press conference on Monday night

More about Canada’s rare Emergency Act

The act that was passed in the Canadian parliament back in 1988, also authorizes the federal government to take temporary additional powers in the event of public welfare, public order, international and war emergencies.

Adopted as a direct response to cut off the funding of the ongoing trucker blockades, which the administration alleged have caused major disruption to cities including the capital Ottawa, the act is seeking to counter “illegal” protests over Canada’s COVID-19 restrictions.

At present, blockades across Canadian cities have been reported caused by huge trucks lined up in the nation’s highways as well as major trading corridors with the US. As per Gov. allegations, the blockades are upsetting the supply-chain network which in turn puts a great deal of stress on the economy.

Texas Man Indicted after Securing COVID-19 Relief Loan to Invest in Crypto

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The United States Department of Justice (DoJ) has indicted a Texas man with securing a double relief loan of $1.1 million from the Paycheck Protection Program (PPP) of COVID-19. Conversely, Joshua Thomas Argires, as per the DoJ, has invested a portion of the funds in digital assets.

The acting Assistant Attorney General, Brian C. Rabbitt, claimed that the accused had been detained on the accounts for deceitfully securing over $1.1 million in PPP loans. The 29-year-old allegedly applied for two fake loans, one on behalf of an entity dubbed Texas Barbecue, and the other on behalf of a company named Houston Landscaping.

The accused claimed that the two entities had a lot of staff working and a high salary outlay. According to the complaint, neither of the two entities has staff, nor does it pay salaries in the amount specified by the applicant.

Argires channeled COVID-19 relief loan to Coinbase

The court filing states that on May 17, the accused had opened a Coinbase account under the name of Texas Barbecue, without any physical address. He is registered as the account’s single owner. On May 19, he began to transfer $956,250 of the COVID-19 relief loan into the Coinbase account.

The court document asserts some of the funds had to be used to invest in digital currency and yielded some profits. The document also states that none of the funds had been transferred from the Coinbase account.

Small businesses qualify for PPP loans

On the other hand, the COVID-19 relief loan secured through Houston Landscaping was retained in a bank account. Argires gradually withdrew the funds through over ATM dispensers, according to the DoJ.

The pandemic relief fund, or the CAREs Act was signed into law back on March 29, to offer contingency to Americans negatively affected by the pandemic crisis. Furthermore, the Small Business Administration provides PPP loans under this act; making small entities eligible for loans with a 1 percent interest.

Ethereum User Loses $5.2M After Two Grave Mistakes

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Over the last day, the Ethereum user has fortuitously spent about $5.2 million on transaction fees to make just two ETH transactions. On June 10, the user-initiated a transfer of only $130 to ETH, accidentally incurring a cost of $2.6 million.

A few hours later, the same Ethereum user started another transaction. This time round, however, the transaction involves a much higher amount of Ethereum worth $86,000. The problem is that users still spend the same amount of transaction fees, another $2.6 million error. Oh, Ouch!

Mining pools’ reaction to the $5.2 million Ethereum user mistake

In the two cases, the mining companies have frozen the funds and are exploring the option to give them back to their original owner. Spark Pool, which mined the first transaction, issued a public statement instantly after block number 10237208 was extracted, noting that it has launched investigations on the matter.

Moreover, Spark Pool noted that the mining firm has the experience of handling similar issues. Notably, the firm saw a similar incident more than a year ago when block number 7238290 was mined more than a year ago. The transaction involved a transfer of 0.1 ETH, at the cost of 2,100 ETH in transaction fees.

On the other hand, the second transaction involving block number 10241999 was mined by a different mining firm by the name Ethermine. Similarly, the firm reacted instantly to the incident and tweeted that the original owner to contact their customer support to settle the matter.

 

 

A bad mistake or a money laundry strategy?

Some people are contemplating that the two transactions could have been a money-laundering tactic. Theoretically, an Ethereum miner could turn illegally earmarked ETH into legitimate by miner’s reward by including a vast transaction fee and mining the block themselves. This is practically possible since ETH miners decide which transactions to include in their blocks.

Nevertheless, this does not seem to be the case in the two incidents. The strongest point of view against the argument is that two different transactions ended up in two separate mining pools, which uses thousands of ETH miners scattered globally, to find new blocks. This means that the funds were not being sent to one receiving entity; since they would be eventually divided among the thousands of miners that make up the pool.

South Korean Officials Proposes Taxing Cryptocurrency Profits

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South Koreans may soon see their cryptocurrency proceeds slashed by the tax man.Earlier this week, South Korean officials in the Ministry of Strategy and Finance proposed taxing profits made through crypto-fiat transactions, including tokens sold by mining firms through ICO offerings. 

The regulator anticipates to submit the complete proposal in July and hand in the tax amendment to the South Korean regular assembly in September, according to a report by a local media outlet by the name Edaily. South Korea has long attempted to settle on a regulatory framework for cryptocurrencies. The proposed amendments could bring much needed clarity in the country’s cryptocurrency industry.

Currently, the South Korean law does not tax the revenue generated from cryptocurrency transactions, unlike the likes of the US, Japan, Germany, and many others who tax profits obtained from cryptocurrency dealings. Moreover, Singapore also exercises a Value added tax (VAT) on digital currency transactions, however, the South Korean officials made it clear they do not intend to go that far.

South Korean officials to tax revenue generated from crypto transactions

The South Korean lawmakers are now looking to invoke the usual ‘taxation where income is located’ rule to cryptocurrency transactions that make a profit. Furthermore, the tax will not apply if the transaction results in a net loss, but will equally tax both South Korean citizens and foreign residents.

Following G20’s recommendations, digital currencies are expected to be classified as assets as opposed to currencies. Nevertheless, not everyone is not okay with the proposed changes and the ability to effectively enforce taxation. According to a researcher at the Korea Local Tax Institute, Young Jeong:

“If you do a P2P transaction without going through an exchange, there is a possibility of avoiding taxation. Even with IP tracking, if there are a large number of targets, administrative costs will increase and it will be difficult to track each day.”

Furthermore, South Korean lawmakers are also suggesting to ban the country’s residents from using decentralized finance (DeFi) products, labeling digital currencies as high-risk assets.

US Lawmakers Again Proposes Bill to Exempt Small Crypto Transactions from Taxes 

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While the crypto community stresses the mainstream adoption of cryptocurrency or bitcoin, such as the ability to use Bitcoin to buy a slice of pizza or cup of coffee – this is considered to be taxed in the U.S just like stocks are being taxed on such use-cases.

Bill to Exempt Taxes for Everyday Crypto Transactions

As an attempt to make bitcoin everyday currency such as US dollars where people don’t pay capital taxes, US lawmakers re-introduced a bill intending to exempt personal crypto transactions from taxation for capital gains. Noticeably, a bill dubbed “Virtual Currency Tax Fairness Act 2020” was introduced on Thursday by the Congresswoman Suzan Delbene of Washington and the Congressman David Schweikert of Arizona.

The crux of the matter is that the Bitcoin and Cryptocurrency transactions existed without having any particular rule made for it. Such transactions were treated equally as a commodity that can be transacted similarly to other currencies. Consequently, this scenario created a problem at the time of paying the annual taxes. As such, every time you spend some Cryptocurrency, there is a possibility of a tax event to occur. So, every user had to keep information about every single Bitcoin being transacted with its value which might have appreciated or depreciated.

“Gross income of an individual shall not include capital gain, by reason of changes in exchange rates, from the disposition of virtual currency in a personal transaction (as such term is defined in section 11 988(e)). The preceding sentence shall not apply if the capital gain which would otherwise be recognized on the transaction if it exceeds $200.”

If approved, the bill will cover all the transactions that have taken place after 31st December 2019.

Coin Center, which was equally involved in pushing for the de minimis exemption said on Thursday; 

“This easy solution to an obvious problem with today’s tax treatment of Cryptocurrencies would help level the playing field for this technology.”

That said, now it is time for us to wait and watch until the bill is approved and the new amendments are brought into the action.