Have there been any governmental or regulatory enforcement actions concerning blockchain in your jurisdiction?
There have not been any governmental or regulatory enforcement actions taken specifically against the use of blockchain in Australia. However, regulators have moved from observational positions to enforcement with respect to fintech solutions more generally (some of which may involve the use of blockchain). This has predominantly occurred in the context of ICOs where ASIC has undertaken multiple actions against issuers where they have attempted to offer a regulated product outside of the financial services framework or have materially failed to appropriately disclose important information to retail investors.
While not specifically related to blockchain, the ATO has established a special taskforce that actively investigates potential tax evasion arrangements that are facilitated through blockchain-based cryptocurrency transactions. Aligning with this approach, AUSTRAC requires digital currency exchanges to register, monitor and report on transactions occurring on these platforms. However, at the time of writing, no public information has been released regarding any enforcement actions that may have been taken against entities by these agencies.
As discussed above, ASIC has released extensive and regularly updated guidance on ICOs and blockchain implementations, which outline how arrangements may be treated and the steps that ASIC will expect entities to undertake to comply with applicable obligations. This represents an overall pre-emptive mitigation approach by the regulators, rather than after the fact enforcement strategy.
No, as far as we are aware.
To our knowledge, there have not been any governmental or regulatory enforcement actions concerning Blockchain (e.g. verdicts regarding enforcement in Blockchain), even though there are voices who speculate on how an enforcement could take place.
Therefore, the question of how to execute an enforcement order in Bitcoins under current German legislation arises. Lacking of material and monetary characteristics, consequently a seizure or transfer in accordance with sec. 808 of the German Code of Civil Procedure, (Zivilprozessordnung, (“ZPO”), or respectively secs. 829, 835 of the ZPO, would have to be withdrawn. Hence, solely the acquisition of a non-fungible act in accordance with sec. 888 para. 1 of the ZPO would remain conceivable.
As per question 9, cryptocurrency worth €25,000, held by a man serving a prison sentence for drugs offences, was held to be the proceeds of crime by the Irish High Court. Other than this, we are not aware of any enforcement actions in Ireland specifically relating to blockchain activities or cryptoassets.
Due to several warnings by the supervisory authorities and the limited use of the blockchain to date, specific governmental or regulatory enforcement actions concerning blockchain have yet to occur. However, Consob has issued several resolutions concerning companies that offer investments in cryptocurrencies, and its general approach has been quite restrictive.
As a result of the leakage of users’ Crypto Assets with a value of approximately USD 530 million from a cyber-attack on one of the biggest Exchange Providers, the FSA conducted sweeping on-site inspections on registered and provisional Crypto Asset exchange service provider. This was followed by the FSA's announcement, on March 8, 2018, of the imposition of business suspension orders on two provisional exchanges, and business improvement orders on two registered exchanges and three provisional exchanges. After further review, the FSA on June 22, 2018, also imposed business improvement orders on six additional major registered exchanges.
In addition, on June 21, 2019, the FSA imposed a business improvement order on one of the Exchange Providers for the inadequacy of their business management, anti-money laundering and counter terrorist financing, and risk management systems, among other things.
In Liechtenstein, the Blockchain Act represents the foremost way in which blockchain is being regulated in this jurisdiction. More generally, being a member of the European Economic Area (EEA), Liechtenstein law must be in line with European Regulations and European Directives. Thus, regulatory acts such as MiFID II (incorporated through the Banking Act and Asset Management Act in Liechtenstein), or the Prospectus Directive, are applicable and can have an impact on blockchain based projects.
When the Blockchain Act enters into force 2020/01/01, and if a permit has to be granted, the authority which is specifically in the position to enforce actions pertaining to blockchain is the Financial Market Authority (FMA) of Liechtenstein. it is the official body authorized to grant financial market licenses upon application, if all regulatory requirements are met. Additionally, under the so-called regulatory lab, it is possible to receive a ruling from the FMA stating whether or not a business model and token structure is regulated. Other than that the Liechtenstein courts have jurisdiction.
There have been warnings issued by the FMA with regard to blockchain-based undertakings claiming to operate under license by the FMA, while in fact the FMA was not even the competent authority, or they were operating without any financial market license.
The passing of the Blockchain Act could provide more legal certainty in this respect and thus in the future bring to light cases of governmental and regulatory enforcement actions.
Apart from enforcement actions related to fraudulent cryptocurrency activities, we are not aware of any governmental or regulatory enforcement actions concerning blockchain in the Netherlands.
We have no information on such actions.
The government actively investigates cryptocurrency-related fraud and criminal acts. Criminal penalties have been imposed on multilevel fraud schemes, investment fraud related to cryptocurrency mining, and concealment of criminal proceeds through money laundering under the Criminal Act, which governs criminal fraud, and the Civil Act, which governs civil fraud. For instance, in May 2018, the head of AirBeat Club, a multilevel scheme that claimed to guarantee profits by selling Bitcoins in countries with higher prices, was convicted of fraud and sentenced to seven years in prison. The court stated that the company took advantage of investor sentiment and lack of investor expertise to defraud them even though there was no guarantee of recovering the invested amounts. In August 2019, the head of AllstarBit, a cryptocurrency exchange with more than 26,000 investors, was convicted of fraud and manipulation of cryptocurrency prices/transaction records. AllstarBit’s own cryptocurrency, in addition to Bitcoin and Ethereum, was also listed on the exchange and the company was found to have defrauded customers through gift giveaway schemes.
In 2015, Högsta Förvaltningsdomstolen (the Supreme Administrative Court) of Sweden requested a preliminary ruling from the ECJ (C-264/14) concerning the interpretation of Articles 2(1) and 135(1) of directive 2006/12/EC on the common system of value added tax (the “VAT Directive”). The request had been made in proceedings between the Swedish Tax Authority and an individual concerning a preliminary decision given by Skatterättsnämnden (the “Swedish Revenue Law Commission”) on whether transactions to exchange traditional currency for bitcoin or vice versa, which the individual wished to perform through a company, were subject to value added tax.
The Swedish Revenue Law Commission had found in a preliminary decision sought by the individual that purchase and sale of Bitcoin was exempt from VAT under the Swedish VAT Act. Their decision was however appealed by the Tax Authority to the Supreme Administrative Court arguing that the exchange should not be covered by the exemption, referring to Article 135(1) of the VAT Directive. The question was referred by the Supreme Administrative Court to the ECJ for a preliminary ruling, which ultimately found that the exchange of traditional currencies for units of bitcoin, at least under the specific circumstances at hand, should be exempt from VAT within the meaning of Article 135(1)(e) under the VAT Directive.
In July 2018, FINMA e.g. launched an enforcement proceeding against envion AG, an ICO issuer that had allegedly aimed to develop mobile mining units for crypto currencies. The proceeding was concluded in March 2019. In a press release dated 27 March 2019, FINMA announced that the company had accepted deposits (in the meaning of Swiss banking regulation) from at least 37,000 investors without a relevant financial market licence and had thereby severely violated supervisory law. The deposits amounted to over CHF 90 million Swiss francs. No supervisory measures by FINMA were considered necessary as the Cantonal Court of Zug had in the meantime opened bankruptcy proceedings over the company on grounds of organisational deficiencies (see also question 2).
Previously, in 2017, FINMA had conducted enforcement proceedings against an association and two companies that had developed and marketed a "fake" crypto currency under the name "E-Coin". They were found to have operated a commercial deposit-taking business without a relevant financial market licence (as later confirmed by the Swiss Federal Administrative Court). As a consequence, FINMA ordered them to be liquidated (see also question 2).
No such issues have arisen as yet in Uganda.
In June 2019 Europol announced the arrest of six people who were suspected of a Bitcoin scam worth $27 million, a theft that affected over 4,000 victims over 12 different countries. The investigation was carried out as a joint operation by the UK South West Regional Cyber Crime Unit, the UK's National Crime Agency, and the Dutch police.
The UK authorities have acknowledged the need, and have shown willingness, to take measures to protect consumers from harm arising from the deployment of blockchain technologies. In May 2019, the FCA estimated that over £27 million was lost to crypto and forex investment scams in 2018/19, with victims on average losing over £14,600. As noted above, the FCA has proposed to ban the sale, marketing and distribution to all retail consumers of all derivatives and ETNs that reference unregulated transferable cryptoassets, with final rules expected early next year.
The Cryptoassets Taskforce’s final report noted that UK law enforcement authorities have increasingly identified cases of cryptoassets being used to launder proceeds of offline crime. Europol estimates that £3-4 billion is laundered using cryptoassets each year in Europe.
The UK’s Economic Crime Plan 2019-2022, published in July 2019, contemplates taking action to ensure cryptocurrencies are not used for money laundering and other illicit activity and will involve going “beyond the requirements set out in 5MLD, bringing all relevant cryptoasset businesses into AML/CTF regulation in January 2020. This will aim to not only meet the latest international standards but provide one of the most comprehensive responses globally to the use of cryptoassets for illicit activity.”
HMRC has reportedly requested that digital currency exchanges provide it with information about customers’ names and transactions aiming to identify cases of tax evasion.
We are not aware of any other significant examples of formal UK Government or regulatory enforcement actions concerning blockchain. An expansion of the UK’s legal and regulatory regimes to cover a broader range of blockchain applications (further described at question 3 above) may, however, result in an increase in enforcement activity.
Please also refer to question 4 above for details of the current attitude of the UK Government and regulators to the use of blockchain technology.
The federal agencies have been actively bending blockchain to the existing legal framework, especially as it relates to its cryptocurrency applications. The SEC has been active in the ICO sphere, for unregistered, non-exempt ICOs involving securities, starting with the DAO ICO back in 2016. Beyond the securities laws violations, through these actions, the SEC Chairman, Jay Clayton, emphasized that cyber-enabled crime is a focus of the SEC and that the regulators should work together to find solutions for these risks. The Federal Trade Commission has clamped down on alleged pyramid schemes involving cryptocurrencies, the DOJ initiated suits for alleged schemes to defraud investors by marketing and selling fraudulent virtual currency and the CFTC also plays an active role in cryptocurrency enforcement. The IRS, through its recent guidance and IRS 6173 letters has indicated that there will be enforcement action should corrective filings for crypto transactions not be reported. Due to the global nature of blockchain, enforcement is not limited to US-centric actions and the Treasury Department, through the Treasury Department’s Financial Crimes Enforcement Network and the Office of Foreign Asset Control, cannot be excluded from this discussion.
In 2018, MAS announced that it had warned eight (8) cryptocurrency exchanges not to allow trading in digital tokens that are securities or futures contracts without the MAS' authorisation, and also warned one ICO issuer to stop the offering of its digital tokens in Singapore because the tokens offered were considered to have represented equity ownership in a company. Subsequently in 2019, MAS announced that it had also warned an ICO issuer not to proceed with its securities token offering until it could fully comply with the SFA regulations.
As described in the response to question 9 above, the SFC’s statement published on 9 February 2018 noted that the SFC had sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong warning them that they should not trade cryptocurrencies which are "securities" as defined in the SFO without a licence. The statement also noted that the SFC had written to seven ICO issuers.
In addition, in March 2018, the SFC confirmed that ICO issuer Black Cell had halted its ICO to the Hong Kong public and agreed to unwind ICO transactions for Hong Kong investors by returning them the relevant tokens, following regulatory action by SFC over concerns that Black Cell had engaged in potential unauthorized promotional activities and unlicensed regulated activities (also discussed in the response to question 9 above).
In February 2019, the Hong Kong Police Force arrested 25-year-old Wong Ching-kit, better known as “Coin Young Master”, and his 20-year-old colleague for conspiracy to defraud investors in so-called cryptocurrency ‘mining machines’ sold by the pair relating to the cryptocurrency ‘Filecoin’.