regulation

Majority of crypto exchange leadership should be comprised of citizens, say Indonesian regulators

Officials with Indonesia’s Commodity Futures Trading Regulatory Agency could implement a rule for two-thirds of directors and commissioners at crypto firms to be citizens.

Jerry Sambuaga, the deputy minister of Indonesia’s Ministry of Trade, has proposed a rule that would require the leadership at the country’s crypto exchanges to be more representative of its citizens. 

In a Tuesday parliamentary meeting that included Indonesian regulatory officials, a letter submitted by Sambuaga suggested several policy changes in response to the “interesting year for the development of physical trading of crypto assets” in the country. Among the proposed rules is a requirement for two-thirds of directors and commissioners at crypto firms to be “Indonesian citizens and domiciled in Indonesia.”

Proposed changes to Indonesia’s Commodity Futures Trading Regulatory Agency on crypto. Source: YouTube

A Wednesday report from Bloomberg suggested that the proposed changes to the country’s crypto policy may have been influenced by the legal battle involving Terra co-founder Do Kwon. The South Korean national left the country for Singapore in April and his current whereabouts are unknown at the time of publication, despite officials issuing a warrant for his arrest and Interpol reportedly placing Kwon on its Red Notice list.

According to the report, Indonesia’s Commodity Futures Trading Regulatory Agency acting head Didid Noordiatmoko said the rule aimed to stop leadership at crypto firms “from fleeing the country if any problem arises.” In addition to the citizen rule, Sambuaga proposed crypto firms have a minimum capital requirement of 100 billion rupiah — roughly $6.7 million at the time of publication — and user funds be stored in third-party financial institutions or futures clearing houses.

Related: Indonesia plans to set up its crypto bourse by the end of 2022

With a population of more than 275 million people, roughly 11 million in Indonesia invested in crypto in 2021, according to Sambuaga. The country’s Commodity Futures Trading Regulatory Agency showed there were 25 registered crypto exchanges as of April 2022, including local branches of Zipmex and Upbit.

Tornado Cash is the latest chapter in the war against encryption

Government disdain for end-to-end encryption is nothing new. The effort to kill Tornado Cash is just the latest chapter in this age-old war.

The sanctions imposed by the United States government on Tornado Cash have reignited a public debate on privacy. For many in the relatively young crypto community, such an intervention by the federal government seems groundbreaking. However, tussles between the private sector and the state on the issue of privacy are far from new and can provide compelling insights on what we might expect next for privacy in the crypto industry.

In the 1990s, Phil Zimmermann released Pretty Good Privacy (PGP), one of the first openly available public-key cryptography applications that featured end-to-end (E2E) encryption. Zimmerman’s creation prompted a criminal investigation that was eventually dropped, resulting in federal court decisions that protect encryption under the U.S. Constitution’s First Amendment. This clash on personal privacy became dubbed the “encryption wars.”

Related: Tornado Cash shows that DeFi can’t escape regulation

The encryption wars rage on today, with officials from the U.S. and other countries urging major tech companies to forgo strong E2E encryption in their products. This would permit law enforcement to access an enormous spectrum of sensitive personal data.

The crypto wars

The next chapter in the encryption wars comes from the Office of Foreign Assets Control (OFAC) sanction of Tornado Cash. The OFAC sanction represents the first outright ban on an application itself, doing away with the line between “providers of anonymizing services” and “anonymizing software providers;” a distinction drawn by another department of the Treasury, the Financial Crimes Enforcement Network (FinCEN).

Identifying that software can be detached from an entity controlled by a group or an individual, Representative Tom Emmer sent a letter to Treasury Secretary Janet Yellen last month requesting clarification on the sanctions. This decision marks one of the most significant clashes on privacy since Snowden exposed the National Security Agency’s mass surveillance practices.

Does history repeat or rhyme?

The sanctions bear hallmarks of when PGP was used as a vehicle to justify an outright ban on encrypting data. Fortunately, the ultimate failure of the ban led to innovation on the web like internet commerce, personal communication and secure logins. Similarly, upholding the sanctions on Tornado Cash creates a dangerous precedent that would bury technological breakthroughs and any associated economic prosperity under a ball of red tape.

Related: Coinbase is fighting back as the SEC closes in on Tornado Cash

To put it another way, criminals have leveraged technological developments throughout history for illicit activity, and banning the technology would be more detrimental than constructive. Should the Tornado Cash sanctions go unchallenged, so many things we take for granted could be jeopardized while inhibiting future advancements and breakthroughs we can’t even imagine today.

Society is well aware of how big tech exploits our personal data en masse under a “surveillance capitalism” paradigm. The reality is that many citizens are willing to consensually forfeit data privacy in exchange for free tech products. However, invasions of privacy mandated by law are another step entirely. For example, newly proposed legislation in the European Union would effectively outlaw E2E encryption.

While the goals behind these policies are usually well intentioned, legislation forcing the development of “backdoors” for E2E encryption will do more harm than good and inevitably be exploited by malevolent actors.

The future of privacy

E2E encryption infused with Web3 identity standards is the solution, not the problem. Big Tech companies have come to function as centralized identity providers, representing a massive bullseye for cybercriminals of every kind. Advances in decentralized infrastructure and cryptography illustrate that this does not have to be the case. Self-sovereign identity tools that strike a balance between privacy, accountability and regulation are being built on Web3.

Humanity has a habit of resisting technological development. As described by Calestous Juma, early Motorola cell phones were written off as toys for rich people. Now, mobile devices have developed beyond what anyone imagined. Juma posits that people tend to display reluctance to technological advancements when the perceived benefit accrues to a small minority. Similarly, the prospects of E2E encryption are being cast aside because privacy is for criminals.

Related: Tornado Cash sanctions will undermine the US and strengthen crypto

The multichain future of the web will see users managing their identifying data without sacrificing personal privacy or security. In this way, communities could participate in ethical self-regulation rather than relying on digital service providers and authorities. Moral behavior could be easily incentivized, allowing ethical coding and the wisdom of the majority to police ecosystems.

After all, programming is just another form of speech. Some people use their words for good and others for bad. Unsavory or hateful use of the English language should not preclude anyone else from writing. As such, the OFAC sanctions are unconstitutional and should not go unchallenged. Humanity deserves better.

Chad Barraford is the technical lead at THORChain, a noncustodial decentralized liquidity protocol that enables decentralized exchanges and users to transfer their digital assets across blockchains seamlessly.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

US Treasury official says crypto mixers are a ‘concern’ in enforcing sanctions

Assistant Secretary at the Treasury Department Elizabeth Rosenberg said sanctioning crypto mixers could help deter money laundering from entities in Russia, Iran and North Korea.

Elizabeth Rosenberg, the assistant secretary for terrorist financing and financial crimes at the United States Department of the Treasury, suggested sanctioning cryptocurrency mixers could help strengthen the government’s response to foreign entities looking to use digital assets for illicit means. 

In a Tuesday hearing of the Senate Banking Committee, which covered sanctions on Russia, Rosenberg said having the Treasury Department add crypto mixers like Blender.io or Tornado Cash to its list of Specially Designated Nationals could be an effective way of signaling the U.S. government was acting to prevent entities from circumventing sanctions.

“When [sanctions] can serve as a deterrent to any criminal that would seek to use a mixer in order to launder their funds […] that’s an effective avenue we can use in order to signal that we cannot tolerate money laundering,” said Rosenberg. “Whether that’s for a Russian criminal actor, an Iranian, a North Korean or wherever they may come from.”

She added:

“Anonymity-enhancing technology such as mixers […] are indeed a concern for understanding the flow of illicit finance and getting after it.”

Elizabeth Rosenberg addressing the U.S. Senate Banking Committee on Tuesday

Rosenberg responded to questions from Massachusetts Senator Elizabeth Warren, who said some in the crypto space were “furious” about Treasury sanctioning mixers and suggested Russian oligarchs could use digital assets to avoid efforts aimed at economically impacting individuals and entities tied to the war on Ukraine. Many in the space have criticized the Treasury’s actions, including Coinbase — the crypto exchange announced on Sept. 8 that it would be bankrolling a lawsuit against the government department challenging the sanctions on Tornado Cash.

Related: US Treasury sanctions Iran-based ransomware group and associated Bitcoin addresses

In addition to blenders including Blender.io and Tornado Cash, the Treasury targeted specific Bitcoin (BTC) addresses allegedly tied to individuals in a Russian neo-Nazi paramilitary group and an Iran-based ransomware group in September. Amid criticism and uncertainty among crypto users, the Treasury later clarified that no one was prohibited from sharing Tornado Cash’s code on websites or publications.

CFTC commissioner visits Ripple offices as decision in SEC case looms

The outcome of the SEC v. Ripple lawsuit could influence whether the CFTC or SEC will play a greater role in handling the XRP token as a commodity or security.

Caroline Pham, one of five commissioners at the United States Commodity Futures Trading Commission, or CFTC, met with Ripple CEO Brad Garlinghouse ahead of a court decision that could affect how regulators handle XRP tokens.

In a Monday tweet, Pham said she visited Ripple Labs’ offices as part of a “learning tour” involving crypto and blockchain. Garlinghouse later tweeted that the commissioner’s visit was related to “public-private engagement” — likely referring to a privately funded company like Ripple engaging with U.S. regulators.

The timing of Pham’s visit had many on social media reacting to the CFTC’s approach to engaging with crypto firms and token projects when compared to that of the Securities and Exchange Commission, or SEC. On Saturday, the SEC and Ripple both filed motions for summary judgment in a case alleging the firm’s XRP sales violated securities laws. The case has been ongoing since December 2020.

The outcome of the SEC case could influence which federal regulator might play a greater role in handling the XRP token as a commodity or security. Garlinghouse claimed on Saturday that the SEC wasn’t “interested in applying the law” and alleged the regulator sought to “expand their jurisdiction far beyond the authority granted to them by Congress.”

Related: The SEC vs. Ripple lawsuit: Everything you need to know

Under chair Gary Gensler, the SEC has pursued many enforcement actions against crypto projects and related areas. The regulatory body labeled nine tokens as “crypto asset securities” falling under its purview in July complaint against a former Coinbase product manager, prompting criticism from Pham at the time.

Cointelegraph reached out to the CFTC, but did not receive a response at the time of publication.

US Treasury plans to ask public if crypto-related regulations are ‘no longer fit for purpose’

The public has until Nov. 3 to submit comments on the Treasury addressing ransomware attacks, the illicit finance risks of cryptocurrency mixers and DeFi, and coordinating AML/CFT policy.

The United States Department of the Treasury will be calling for comments from the public on digital assets, including their views on how regulations may address the illicit uses of crypto.

In a document set to be published in the Federal Register on Tuesday, the U.S. Treasury requested public comment on “digital-asset-related illicit finance and national security risks as well as the publicly released action plan to mitigate the risks” related to President Joe Biden’s executive order on crypto from March. The department invited the public to share their thoughts on the regulatory obligations the U.S. government had imposed that were “no longer fit for purpose as it relates to digital assets” as well as offer suggestions for alternative regulations addressing illicit finance risks and vulnerabilities.

“Illicit activities highlight the need for ongoing scrutiny of the use of digital assets, the extent to which technological innovation may impact such activities, and exploration of opportunities to mitigate these risks through regulation, supervision, public-private engagement, oversight, and law enforcement,” said the Treasury.

Specifically, the U.S. Treasury asked for potential additional steps it might take in regard to addressing ransomware attacks, illicit finance risks of cryptocurrency mixers and DeFi, and how the government could coordinate Anti-Money Laundering and Combating the Financing of Terrorism policy at the state and federal levels. The public has until Nov. 3 to submit comments.

The request for public comment followed the White House releasing a regulatory framework on digital assets on Sept. 16. Many in the space, including crypto advocacy groups, criticized the administration for seemingly focusing on the illicit uses of crypto rather than its potential benefits. As part of the framework’s requirements, the Treasury Department will create an “illicit finance risk assessment on decentralized finance” by February 2023.

Related: Illicit crypto usage as a percent of total usage has fallen: Report

Biden’s executive order also had the Treasury Department and Federal Reserve exploring policy objectives and a U.S. central bank digital currency, or CBDC. On Sept. 17, the Office of Science and Technology Policy released a report on 18 different design choices for potentially implementing a digital dollar in the United States.

South Korean authorities ask Interpol to issue ‘Red Notice’ for Do Kwon: Report

According to Interpol, there are currently 7,151 individuals publicly named on the agency’s Red Notice list out of 69,270.

South Korean prosecutors have reportedly requested Interpol intervene in their case against Terra co-founder Do Kwon by issuing a “Red Notice” — suggesting global law enforcement agencies may attempt to find and detain him.

According to a Monday report from the Financial Times, the Seoul Southern District prosecutors’ office said it had “begun the procedure” to place Kwon on Interpol’s Red Notice list following steps to revoke the Terra co-founder’s passport while he was in Singapore. Interpol’s website states that a Red Notice is requested by authorities “locate and provisionally arrest a person pending extradition, surrender, or similar legal action,” but the agency cannot compel local law enforcement to arrest the subject of such notice.

“We are doing our best to locate and arrest [Kwon],” a spokesperson for the prosecutors’ office reportedly said. “He is clearly on the run as his company’s key finance people also left for the same country during that time.”

Kwon has continued to be active on social media amid potential arrest and prosecution. Cointelegraph reported on Sunday that the Terra co-founder claimed he was “not ‘on the run’ or anything similar” but did not reveal his location — his Twitter account still showed him in Singapore at the time of publication. Reuters reported on Saturday that authorities in Singapore said Kwon was no longer in the country, having relocated there from South Korea in April.

The ongoing saga with Kwon and Terra started in May when the project’s algorithmic stablecoin TerraUSD Classic (USTC) — originally TerraUSD (UST) — depegged from the U.S. dollar and dropped to almost zero within weeks. The price of Terra (LUNA) — now Terra Classic (LUNC) — also crashed amid liquidity issues reported at platforms including Celsius.

Kwon, certain Terra employees and the company were the target of an investigation by South Korean financial authorities, who reportedly raided the offices of crypto exchanges Upbit, Bithumb, Coinone, Korbit and Gopax in July. On Sept. 14, a South Korean court reportedly issued a warrant for the arrest of Kwon and five individuals connected to Terra for allegedly violating capital markets laws. However, South Korea has no extradition agreement with Singapore.

Related: South Korean prosecutors apply to revoke Do Kwon and other Terra employees’ passports

According to Interpol, there are currently 7,151 individuals publicly named on the agency’s Red Notice list out of 69,270. At the time of publication, Kwon was not among them and the only South Korean national so named was 59-year-old Lee Changhwan, wanted by Indian authorities.

Blockchain Association calls White House’s crypto framework a ‘missed opportunity’

Critics claimed the Biden administration’s reports focused on environmental concerns over crypto’s energy consumption and illicit uses rather than the technology’s benefits.

Members of the crypto space and advocacy groups reacted to United States President Joe Biden’s administration releasing a regulatory framework on digital assets, with many suggesting the White House focused on the potential negative aspects of crypto.

In a Friday announcement, the White House said that federal agencies and departments had submitted nine reports as required by Biden’s executive order on crypto from March. Among the information in the fact sheet included policy objectives for a U.S. central bank digital currency, ways to mitigate the possible impact of crypto’s energy usage on the climate, regulatory aims for enforcement actions, rules to address risks and consumer protection.

The Biden administration said that the Treasury Department will report on an “illicit finance risk assessment on decentralized finance” by February 2023, adding federal agencies will “continue to expose and disrupt illicit actors and address the abuse of digital assets.” In addition, the White House said it would support payment systems akin to FedNow, which the Federal Reserve planned to launch in 2023.

Crypto analyst Dylan LeClair and MicroStrategy co-founder Michael Saylor both criticized the administration’s stance on Twitter, claiming it was using environmental concerns as a pretext for extending its control over digital assets:

“If you don’t like how someone is using energy, pay a higher price than them […] No amount of hysteric screeching about climate change will stop the next block from being mined.”

“Today’s reports and summaries from the Biden administration’s executive order on digital assets are a missed opportunity to cement U.S. crypto leadership,” said Kristin Smith, executive director of the U.S.-based Blockchain Association. “While intended to be part of a broader government and stakeholder effort to bring better regulation to crypto assets, these reports focus on risks — not opportunities — and omit substantive recommendations on how the United States can promote its burgeoning crypto industry.”

Speaking to Cointelegraph, Sheila Warren of the Crypto Council for Innovation said the policy recommendations seemed to be based on an “outdated and unbalanced understanding” of crypto, which could leave the details to be determined by other lawmakers or the next administration:

“In the hearing yesterday [on regulating crypto], many seemed worried about other countries overtaking the US. Regulation by enforcement is not regulatory clarity. If we regulate by enforcement, it also gives other countries a clear runway to figure out how the tech works for their interests, which may be contrary to the US’.”

Related: Crypto policy advocacy group warns of ‘disastrous’ provision in a new US bill

The reports on establishing a comprehensive regulatory framework for cryptocurrencies in the U.S. were some of the first required since President Biden announced the order in March, but the work is far from over. The Treasury Department and Fed will continue to research the implications of releasing a digital dollar. The White House said the Financial Stability Oversight Council will publish a report in October on the financial-stability risks of digital assets and related regulatory gaps.

US Treasury sanctions 5 crypto addresses connected to Russian neo-Nazi paramilitary group

According to the Treasury Department, members of the sanctioned group fought alongside Russia’s military, including near territory Ukrainian forces reclaimed on Monday.

The United States Department of the Treasury added five cryptocurrency addresses tied to a neo-Nazi group involved in Russia’s war on Ukraine to list of entities sanctioned by the Office of Foreign Asset Control.

In a Thursday notice, the U.S. Treasury designated 22 individuals and two entities, including many the government department claimed had furthered the Russian government’s objectives in Ukraine, to its list of Specially Designated Nationals, effectively barring U.S. persons and companies from dealing with them. Included in the sanctions of one of the entities — a neo-Nazi paramilitary group called Task Force Rusich — were two cryptocurrency addresses for Bitcoin (BTC), two for Ether (ETH) and one for Tether (USDT).

Treasury Secretary Janet Yellen said the sanctions were imposed as part of the government’s efforts “to hold Russia accountable for its war crimes, atrocities and aggression,” financially isolate Russian President Vladimir Putin, and prevent the country from financing its military. On Monday, Ukraine’s military took back a section of the territory east of the city of Kharkiv that had been occupied by Russian forces for months.

According to the Treasury Department, Task Force Rusich fought alongside Russia’s military in Ukraine, including near the recently reclaimed territory, and had mercenaries accused of “committing atrocities against deceased and captured Ukrainian soldiers” in 2015 during the conflict in the Donbas region. The department claimed the neo-Nazi group was responsible or complicit in actions that “undermine the peace, security, political stability, or territorial integrity of the United States, its allies, or its partners” for the benefit of the Russian government.

Related: Ukraine has shown the value cryptocurrency offers to real people

Since Russia’s military started its invasion of Ukraine in February, the U.S. government and many officials in Europe have imposed sanctions aimed at weakening the country’s economy and penalizing wealthy individuals. On Wednesday, the Treasury Department also announced that it had sanctioned seven BTC addresses allegedly connected to wto Iranian nationals who were part of a ransomware group.

Singapore’s financial authority grants license to SBI’s digital asset arm

The firm planned to launch a digital asset securities platform in Singapore, as well as provide custody, capital markets products and corporate finance advisory services.

The Monetary Authority of Singapore, or MAS, has granted SBI Digital Markets, a subsidiary of the digital asset arm of Japan-based financial giant SBI Holdings, a license to conduct certain regulated activities in the country.

In a Thursday announcement, MAS said it had awarded SBI Digital Markets a Capital Markets Services license following the firm receiving in-principle approval in May. The firm, whose parent company offers digital asset custody and trading, will be providing custodial services, capital markets products and corporate finance advisory services in Singapore as a regulated business. It also plans to launch a digital asset securities platform.

“This is an exciting milestone for SBI Digital Markets, which will play a major part in SBI DAH’s core mission to re-imagine and transform capital markets and banking value chains through the deployment of digital technology,” said SBI Digital Asset Holdings CEO Fernando Luis Vázquez Cao.

SBI Digital Markets is a subsidiary of SBI Digital Asset Holdings, the digital asset arm of one of the largest financial institutions in Japan, SBI Holdings. The company recently ceased all mining operations in Russia due to the crypto winter and the country’s role in the war on Ukraine. SBI Holdings also reported in August that one of its investees, Clear Markets, received approval from the U.S. Commodity Futures Trading Commission to offer over-the-counter crypto derivatives products with a physical settlement.

Related: Singapore MAS examines crypto firms ahead of new regulations: Report

As the principal financial regulator in Singapore, the MAS has the authority to grant licenses to companies aiming to offer crypto-related services to the country’s residents — the area is currently home to crypto exchange Crypto.com and the founder of the Terraform Labs, Do Kwon. Filecoin service provider RRMine Global announced on Tuesday that it planned to relocate its headquarters to Singapore in response to “tightened restrictions on cryptocurrency usage” in China.

Merge is ‘a step in the right direction’ to address crypto’s energy usage — Rostin Behnam

The CFTC chair said that the Ethereum blockchain’s transition to proof-of-stake, despite reducing energy usage by more than 99%, may not go far enough in resolving the problem.

Rostin Behnam, chair of the United States Commodity Futures Trading Commission, or CFTC, said the Ethereum blockchain’s transition to proof-of-stake may help reduce crypto’s energy usage, but hinted legislation would likely still be needed to address the problem.

Speaking at a Thursday hearing before the Senate Agriculture Committee, Behnam addressed a question from Minnesota Senator Amy Klobuchar, who brought up the environmental impact of the “significant energy” required of mining cryptocurrencies. Without mentioning the Merge by name, the CFTC chair said the crypto bill currently being considered by lawmakers would require a report on energy usage that could lead to future policy discussion and “incentives to move away from carbon-intensive energy sources.”

“We’ve all heard the statistics about the amazing amount of energy used to mine coins,” said Behnam. “I would say that an event occurred last night with Ethereum which is going to reduce energy consumption — a step in the right direction, but certainly not resolving the problem.”

CFTC chair Rostin Behnam addressing the Senate Agriculture Committee on Thursday

In his written testimony, Behnam said he was in favor of passing the Digital Commodities Consumer Protection Act, legislation aimed at expanding the CFTC’s authority over the crypto market, adding the regulatory body had the “expertise and experience” to be the “regulator for the digital asset commodity market.” According to the CFTC chair, many of the criticisms around the crypto space — focusing on fraud and scams — could be addressed by giving the agency “a lens into the trading platform” rather than relying on users to bring enforcement cases.

“[The bill] would provide the authority to the CFTC to regulate markets. This volatility, the fraud, the manipulation — much of it would probably go away because we now have a regulator, a cop on the beat, and this would deter activity by bad actors.”

Related: Crypto bill needs clarification on ‘digital commodity’ — Sheila Warren

The Ethereum Merge took place on Thursday, marking the blockchain’s transition from proof-of-work to proof-of-stake and effectively cutting the network’s energy consumption by an estimated 99.95%. The price of Ether (ETH) fell under $1,500 in the hours following the event, with Cointelegraph reporting many crypto-minted nonfungible tokens with a Merge theme.