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India’s Crypto Bill Hearing Postponed by Supreme Court

The Indian Supreme Court has set a new date to hear the crypto case, which was originally scheduled for July 23. The purpose of the hearing was to address the writ petitions against the central bank’s crypto restriction. On July 24, the court announced a tentative date postponed to Aug 2, however, they later updated it to July 25 for all the crypto writ petitions.

The Reserve Bank of India issued a circular regarding the banning of regulated financial institutions from providing services to cryptocurrency-related businesses. Since the ban, which was effective since July 2018, banks were obliged to close accounts of all cryptocurrency exchanges in India. Many crypto exchanges including Coindelta, Koinex, and Cryptokart all shut down due to unclear regulations. One of the largest crypto exchanges in India, Zebpay shut down its exchange operations in India. After the ban, stakeholders in the industry filed writ petitions to challenge the ban. The Indian supreme court was scheduled to hear all crypto-related petitions in September 2018 but postponed the hearing repeatedly.

Subhash Chandra Garg

The draft bill was released to the public this week, by the interministerial committee led by the Chairman Subhash Chandra Garg also known as India’s Secretary of Economic Affairs and finance secretary. This bill has officially been submitted to the government, which also contains the “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill 2019.” The bill specifies, “No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use cryptocurrency in the territory of India.”

Although Indian banks are not allowed to offer their services to cryptocurrency-related businesses, cryptocurrencies are currently not banned in India. The interministerial committee has proposed the ban through the draft bill but will need to take many steps before it becomes law.

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Unlicensed Bitcoin Exchange Operator Faces Up to 5 Years in Prison in the US

William Green, a 46-year-old American citizen of New Jersey has been indicted on one count of operating an unlicensed money transmitting business through his website, Destination Bitcoin.

In a press release by the Department of Justice stated that Green was involved in the business of selling over $2 million worth of Bitcoin through his unlicensed money transmitting business. He received money from his customers, which he then deposited into bank accounts under his name. Green later converted the money he received into Bitcoin and charged his customers for a fee.

According to the US federal law, any individual who owns or controls money transmitting business must register with the Secretary of Treasury including when Bitcoin is sold for cash. This applies to all involved businesses whether or not the business is licensed as a money transmitting business in any state in the U.S.

The charges for Green’s alleged crimes of operating an unlicensed money transmitting business carries a maximum penalty of 5 years in prison and a $250,000 fine. Green is set to appear before the U.S district judge but the date has not been set.

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Bitfinex and Tether's Appeal Rejected by New York Judge

Earlier this year, the New York Attorney General’s office has made allegations against Bitfinex of using up Tether’s cash reserves in April 2019. The accusations were made regarding the cryptocurrency exchange of losing $850 million, and thereafter taking funds from Tether’s reserves to cover the loss. The NYAG office started to investigate iFinex Inc, the company was registered in the BVI and owns both Bitfinex and Tether.

In a press release by New York Attorney General Letitia James, she stated:

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

The lawyers of Bitfinex and Tether asked Judge Joel Cohen of the New York Supreme Court to dismiss the case, the main argument is that both firms do not have any clients in the state of New York. It was later on revealed that on July 10, the Metropolitan Commercial Bank of New York shut down accounts associated with Tether.

Photo: Judge Cohen

Judge Cohen reportedly decided to give a 90-day extension to the case, which will give the New York Attorney General’s office to continue investigating. Judge Cohen also dismissed Bitfinex and Tether’s motion to appeal after the ruling.

The Government is Taking Action on Bitfinex, Who’s Next?

Judge Cohen image via Law.com, thumbnail image via Shutterstock

UK Court Recognized Cryptocurrency as Property in Freezing Order

The United Kingdom high court has granted a freezing order over £1.5 million worth Ethereum and Bitcoin against a crypto trading firm and its directors.

This is the second known incident where the UK court treated cryptocurrency as property. The case involved a legal dispute between Elena Vorotyntseva (crypto investor) and Nebeus cryptocurrency trading firm.

Robertson v Persons Unknown was the first-time case in which the UK high court had participated and determined cryptocurrency as property.

Cryptocurrency Dispute

Elena Vorotyntseva transferred a significant quantity of Ethereum and Bitcoin to be held on Nebeus cryptocurrency trading firm. During that time, the cryptocurrency was valued at about £1.5 million.

Elena and crypto firm directors agreed that Nebeus cryptocurrency trading company would hold and trade the cryptocurrencies on behalf of Elena.

But after some time, Elena concerned that the cryptocurrency had been squandered. She then sought confirmation from the crypto trading company.

But there was no such confirmation from the crypto firm. Elena, therefore, applied a short notice to the court for a freezing order against the cryptocurrency trading company and its directors.

Cryptocurrency as Property

Both Elena and the crypto company directors attended the court hearing. The directors had screenshots and emails indicating that funds were still with the crypto trading firm.

The court identified that the amount of Bitcoin in the balance was inadequate of what Elena held. Furthermore, the Ethereum screenshot was more problematic because it seemed to have been altered to make it look like Elena’s name appeared on the screenshot, when in reality did not.

The judge confirmed that there was a risk of embezzling the cryptocurrency.

The judge noticed that the company directors did not dispute Elena’s proprietary claim to the funds. The judge also noted that the directors did not argue that cryptocurrency was not a form of property.

The judge was, therefore, fully satisfied to grant a freezing order against the directors not to trade the relevant amount of Bitcoin or Ethereum.

Meanwhile, the English law recognizes cryptocurrency as property; the law confirms that cryptocurrency has all the indices of property and should be treated as such.

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China Gears Up for its Digital Currency and Implements New Crypto Law

As a part of its plans for releasing its central bank digital currency (CBDC) soon, China has implemented a law to govern cryptographic password management.

According to China Money Network, the new “Password Law” has been implemented on Jan. 1, aiming to foster blockchain technology and provide legal grounds for the issue of digital Renminbi (RMB) on the blockchain.

The crypto law was passed on Oct. 26, by the Standing Committee of the 13th National People’s Congress in China. Dividing passwords into three categories, including passwords, common passwords, and commercial passwords, will help to facilitate the country’s transition to blockchain technology.

The report from the China Money Network read, “China is likely to adopt blockchain technology. In order to prevent data from being tampered with, it is necessary to protect each data with a password.”

It was also suggested that the development of blockchain technology would be in sync with the progress of cryptography, as Chinese leaders will be proposing policies to accelerate the development of blockchain technology.

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US Law Firms Had Data Stolen and Encrypted by Hackers Demanding Crypto Ransoms

There has been a recent report of an online breach in five United States law firms as it has been compromised by hackers demanding two 100 Bitcoins (over $933,000 at the time of this report) from each firm. The ransom demanded by the hackers was expected to be paid in parts, one to allow access to the data and another to delete the hackers’ copy of the data instead of selling it.

From the information coming from cybersecurity firm Emsisoft, Maze, the hacker group had already begun to execute their threat as they had started publishing some of the data they had stolen from the firms in parts. Two of the five firms had already been hacked on Feb.1.

The articles containing the stolen data had already been published on two sites, which remain undisclosed to protect the firms involved. Maze group has said that they would continue to reveal the stolen data as proof in increasing order of sensitivity with time until a response has been made from the firms before the leaks would stop.

Callow had said that the group had gone ahead to make the published data in Russian hacker forums with a note saying that the information should be used in any nefarious ways that they want. As a result of this, he believes that more data will be released with time unless the hacked firms pay. He also explained, “It seems highly unlikely that a criminal enterprise would delete what it may be able to monetize at a later date.”

Callow went further in his explanation to state that not only had the ransomware group been responsible for just encrypting data in the past, they had also been stealing them while exploiting their victims in the process.

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How the New Crypto Law in India Could Play Out

After the celebration seen in India’s Supreme Court as the verdict was given against the Reserve Bank of India (RBI) in its action of restricting financial institutions from providing banking services to cryptocurrency-based businesses, interested parties are wondering how the recent news will play out. Although the decision is not yet final and enforced as the law.

Concerned parties are still wary of a draft bill already in place since Feb. 28, 2019, to ban cryptocurrency, this is because it could still move through the parliament. With this bill in place, some analysts are of the opinion that the recent victories for cryptocurrency in India’s Supreme Court could be short-lived.

A quick breakdown of the legal battle

Reviewing the 180 paged judgments, it clearly shows that the premises on which the final verdict was made are not in line with what the industry has assumed to offer.

In reality, the whole verdict tilted on the violations of one of the fundamental rights of the Indian constitution—Articles 19(1)(g), which guarantees the freedom to practice any profession. The Supreme Court came to the conclusion that the action employed by the RBI’s violated the above-mentioned article for virtual currency exchanges, and that such action by RBI is tantamount to a threat. The verdict also concluded the central bank had not provided sufficient data or credibly examined alternative measures to deal with the situation.

Despite the verdict, some believe the major reason the Supreme Court ruled in favor of the crypto industry was that there was no law that forbids the use of cryptocurrency in place, which implies the outcome could have been entirely different if such law was in existence.

To see a reversed verdict or favorable appeal, the central bank can only try to gather credible and valid evidence of a monetary risk from the use of cryptocurrency.

Crypto Industry savors its victory

Despite the potential of a reversal of the judgment or another lawsuit action spring up, many see the victory as a welcomed one long overdue, aside from the reality of financial regulators and legislators there have been many government voices speaking up for a more progressive approach to blockchain in India.

The action of the federal ministry for IT recently released draft on national strategy for blockchain, the state of Karnataka regarded as the equivalent of Silicon Valley and many other government bodies have shown a clear tilt towards embracing, and implementing the use of blockchain to solve day to day issues which also includes the use of cryptocurrency.

In the midst of all of these happenings, the verdict from the Supreme Court should be taken as a step in the right direction towards the adoption of blockchain and cryptocurrencies in the country and as such, all those who took the bold step to take on the RBI head-on deserves the right to a toast to victory.

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US Congressman Set to Implement the Cryptocurrency Act of 2020

A congressman from the United States of America recently stepped up the bid to clarify which regulatory agency is responsible for digital assets otherwise known as cryptocurrency.

Paul Gosar of the House of Representatives introduced the “Crypto-Currency Act of 2020,” on March 9, a bill that is set to choreograph a wide range of digital assets to be liable to the appropriate regulatory bodies and agencies assigned to it.

Purpose of the proposed regulatory bill

While speaking to the cryptocurrency news outlet, Gosar’s legislative assistant, Will Stechschulte stated that- “the bill looks to provide not only clarity but legitimacy to crypto assets in the United States.”

The proposal by Gosar partitioned digital assets into three categories which are, crypto-commodity, crypto-currency, and crypto-security. These three categories respectively, are to be controlled by the Commodity Futures Trading Commission (CFTC), the Secretary of the Treasury via the Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC).

Surprisingly, the language of the bill looks to cement the status of digital assets like Bitcoin as crypto-commodities instead of crypto-currencies. The classification of crypto-currency is now described as “representations of United States currency or synthetic derivatives” — more likely to mimic stablecoins like Tether (USDT).

The new bill is the updated version of the first one that was leaked to the public last December. The updated version of the bill features well-clarified definitions for terms like “Decentralized cryptographic ledger” and “smart contract” — concepts that U.S legislators have been struggling to deal with.

Related legislation

The year 2019 had seen a number of newly drafted bills, especially in response to Facebook’s Libra white paper. The fear of encountering regulations by the SEC most likely added to several changes to Libra’s initial version of a managed stablecoin based on a “basket of currencies.”

However, the closest bill to Gosar’s new bill is Warren Davidson’s Token Taxonomy Act, initially introduced in 2018 and later updated and re-introduced in April 2019.

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Russia’s Central Bank Will Ban Crypto Issuance and Trading in Upcoming “Digital Financial Assets” Bill

The head of the legal department at Bank of Russia, Alexey Guznov, revealed that the coming bill on “Digital Financial Assets” will ban the circulation and issuance of cryptocurrencies. He stated that Russia’s central bank does not believe that crypto trading and issuance should be legal in the nation in an interview with the Russian News agency Intrerfax on 16th March 2020.

Russia’s Central Bank Warns on Crypto Risk

Although the original law on “Digital Financial Assets,” passed in 2018, stated that the trading of cryptos was legal in Russia, Guznov revealed that the amended bill would ban the issuance and selling of cryptocurrencies in the country. The amended document will prohibit almost everything about cryptocurrency except holding. Guznov stated that, so far, they have made consensus with market players and other government bodies that participate in the discussion. He mentioned that the consensus reached stipulates that nobody is going to ban holding (owning) of cryptos. He said that, in the end, owning cryptocurrency is not like owning arms or drugs.

But he stated that the legalization of issuance and circulation of cryptos pose an unjustified risk. This is the reason why the coming law will prohibit the circulation and issuance of cryptos and would introduce penalties for the violation of this law. Guznov said: “We believe there are big risks of legalizing the operations with the cryptocurrencies, from the standpoint of financial stability, money laundering prevention, and consumer protection.”

People will not face punishment for owning cryptocurrency if they make transactions in a jurisdiction, which does not prohibit that. But the upcoming bill would outlaw institutions that make cryptocurrency trading and usage.

Guznov identified that the bill might finally be passed during this spring session of the parliament (in November or December 2020).

Russia’s Cryptocurrency Law Taking A Confusing Shape

The latest statement about Russia’s upcoming crypto regulation came after several uncertainties and many delays in providing clarity to regulate digital assets. In early 2019, president Vladimir Putin urged the government to go for a more regulated crypto industry by adopting the bill on “Digital Financial Assets.” But the bill has not yet taken a practical shape to date.

While Russia’s finance ministry has been attempting to legalize cryptos in the nation, the central bank has been fighting to ban citizens from legally using cryptocurrencies. Russia’s central bank seems to associate crypto-related transactions with potential money laundering risk.

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Telegram Appeals Federal Court Injunction to Stop Gram Distribution

Telegram has filed an appeal to yesterday’s ruling by a United Stated federal court in favour of the US Securities and Exchange Commission (SEC) which has prohibited the issuance of Gram tokens for the time being.

Court Sides with SEC early

The SEC has won an important decision in their court case against Telegram over the legal status of the latter’s $1.7 billion Gram token offering in 2018. The SEC has maintained throughout that the tokens sold were unregistered securities and yesterday the US federal court granted the regulator an injuction to halt the distribution of Grams as the legal battle continues.

The injunction states, “For reasons that will be more fully explained, the Court finds that the SEC has shown a substantial likelihood of success in proving that Telegram’s present plan to distribute Grams is an offering of securities under the Howey test to which no exemption applies. The motion for a preliminary injunction will be granted.”

The SEC believes through its examination via the Howey test that the contracts governing the Telegram’s token issuance qualify Gram tokens as securities. Per the filing, ““Under the Howey test, the series of contracts and understandings centered on Grams are a security within the meaning of the Securities Act of 1933 (the “Securities Act”).”

Telegram immediately filed a notice of appeal with the Court of Appeals for the Second Circuit.

Former SEC Counsel Has Little Hope for Appeal

The evidence being presented to the court by the SEC’s Howey Test appears to have compelled them to act in favour of the regulator early in the legal proceedings – this cannot be a good sign for Telegram and their TON network.

On Feb. 18, Telegram’s lawyer, Alexander Drylewski had criticized the application of the SEC’s Howey Test, citing that a test designed to categorize securities does not apply to digital assets that are offered with a promise of managerial oversight, that will increase their value over time. The lawyer argued that when TON blockchain launches, Grams will not be securities but commodities.

Philip Moustakis, attorney at Seward & Kissel LLP and former SEC counsel told Blockchain.News that Telegram’s defense was not looking good and believes the SEC has applied the Howey test correctly.

Moustakis said,“Telegram argues the “interests in Grams” are one transaction and the “delivery of Grams,” another. However, the court, rightly in my view, held the Howey test requires it to examine the entire series of understandings, transactions, and undertakings at the time they were made, meaning the totality of the facts and circumstances underlying the economic reality of the investment, including at the moment in time when investors separated with their money.” He concluded, “In other words, an issuer cannot avoid application of the federal securities laws by separating in time the capital raise and the delivery of the digital representation of the investor’s interest in that capital raise. And, at delivery, in my view, the Grams would still represent the series of promises and understandings that led up to their distribution”

The case between the SEC and Telegram is ongoing and we will continue to bring you updates.