Law Decoded: New US Administration and DoJ’s Continuing Flexibility in Cryptoactives, October 30th – November 6th

With the election in focus on all the news, we see what new appointments can mean for the DoJ

Every Friday, Law Decoded provides analysis of the week’s critical stories in the fields of policy, regulation and law.

Editor’s note

Did you overcome the election? The election is over. But you can bet that as soon as I finish writing this week’s Law Decoded, I will compulsively check what is happening in Georgia and Pennsylvania. And it looks like I’m not alone.

Although the election hijacked the entire news cycle, the cryptomorphs were not entirely left out. Probably more remarkable, Bitcoin is reaching levels never seen since January 2018. Since the price of BTC usually reacts positively to fears of political instability, this is not entirely surprising.

More specific to regulators‘ interactions with cryptoactives are the continued enforcement measures. Taking the lead internationally is the US Department of Justice.

Law Decoded spoke a lot about the DoJ last month, and for good reasons. They have taken huge steps to address what they consider illegal use of cryptography since the launch of a framework for application in virtual currencies in early October.

Although we may be facing some legal tantrums and recounts, Biden seems to have won the White House. The DoJ is headed by the Attorney General – currently appointed by Trump, Bill Barr.

Although the regulator is unlikely to back down on his new crypto-monitoring capabilities, Barr has been at the forefront of this struggle, as have other anti-technology measures to ban end-to-end crypto and Section 230 crypto. The attitudes of any candidate that Biden will nominate to replace Barr will therefore be critical.

DoJ

The Department of Justice filed a request for the seizure of a large stock of tokens originating from Silk Road, after an investigation by the IRS and Chainalysis.

The stock of cryptomens is worth a total of $1 billion and was under the control of an unidentified hacker, whom the DoJ’s record enigmatically refers to as „Individual X“.

According to the case, in 2013 Individual X stole at least 69,471 Bitcoin from Ross Ulbricht, the founder of Silk Road currently serving a life sentence.

Since then, with the exception of a 101 BTC transfer to the now defunct BTC-e exchange, these coins have remained virtually untouched, passing through a series of divisions and firing in value.

Some speculation suggests that the hacker in question simply did a great deal to stay out of prison.

The lawsuit suggests that Ross Ulbricht knew his identity online, which may mean that Ulbricht surrendered his information in order to obtain some indulgence for his own sentence. $1 billion could probably persuade the judicial system to be extremely merciful.

Acquisition of Visa Plaid

Last week, the Cointelegraph reported that the DoJ was investigating Plaid’s $5.3 billion acquisition by Visa, initially announced in January. This week, the agency filed a formal lawsuit, initiating an antitrust suit that, if successful, would cancel the acquisition.

Antitrust considerations have grown dramatically lately due to concerns that the use of data was a new means of illegal market domination for which the Sherman Act of 1890 could hardly have been prepared. Leading technology companies are having to answer questions about how they prioritize content and share consumer information.

Plaid is a widespread mediator, allowing digital systems that deal with financial information to interoperate – the kind of personal knowledge people are sensitive to keeping private.

The DoJ claims that Visa is trying to swallow a potential competitor. But independently, Plaid is facing a series of class actions over the misuse of customer data, which is particularly blatant because most people who send their data through Plaid do not even know that they are doing so.

This may be part of what Visa was looking for.

The Cayman Islands

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

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

Like many other British Overseas Territories and Crown dependencies, the Cayman Islands have a long history as a focus of tax evasion, offshoring and money laundering. It seems to be trying to rehabilitate that image, at least a little.

The European Union only took the country off the black list in October, although it has not yet been added to the white list. The US still identifies the jurisdiction as „higher risk“.

The point is that most of these offshore paradises earn a large part of their revenues by hosting financial services that the UK, EU or US would not allow. So how much motivation do the Cayman Islands really have to adopt tougher rules?

Further reading

Chris Giancarlo and Daniel Gorfine of the Digital Dollar Project have their say on a no-money future for MarketWatch.

The Volkov Law Group concludes its analysis of the DoJ encryption application structure last month.

Brookings Techstream analyses the disinformation seen during presidential election week.