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It’s no secret that the crypto industry is seeking greater regulatory clarity on what cryptoassets the Securities and Exchange Commission (SEC) classifies as a security. And there are growing concerns about legal and reputational damage if you get caught in the SEC’s trap.
This industry demand for greater clarity was further accelerated when the SEC’s recent insider trading charge against two former Coinbase employees stated that at least nine of the tokens involved were securities — without specifying which assets the agency was specifically referring to. This important omission has caught the attention of many crypto stakeholders who have been closely following the SEC’s actions in the space.
Now, one of the world’s most prominent crypto exchanges – FTX – has said it will likely avoid listing a cryptoasset that could be considered a security under the SEC’s Howey test until further regulatory, legislative or judicial clarity is provided.
It is noted that this is particularly applicable for FTX US as the company is primarily headquartered in the Bahamas. FTX is among several leading companies that have sought to relocate their operations to jurisdictions with more clearly defined regulatory requirements for the crypto industry.
The company notes in its new policy that ether and bitcoin will not be among the tokens it chooses to avoid, given the general acceptance that these assets are not securities.
Even still, the “clarity” involving ETH and Bitcoin is remarkable and uncommon because many more cryptocurrencies lie in a regulatory ambiguous area where their classification is unknown or unspecified. This is likely to have the greatest impact on newer assets seeking to be listed on the FTX.
In a statement published on their website, FTX notes that: “Ideally, we would end up in a place as an industry where being secure is not a bad thing: where there are clear processes for registering digital asset securities that protect customers while enabling innovation. We remain excited to work constructively with regulators to develop and operate within the regulatory framework for security tokens.”
As many in the industry call for the Commodity and Futures Trading Commission (CFTC) to have greater regulatory oversight of crypto markets, it is even more important – especially in the interim – that both agencies can act in a way that protects consumers while preserving innovation throughout the company’s lifecycle.
FTX has detailed the following framework it will implement as the company makes decisions to move forward with the crypto asset listing.
- “First, our legal team will perform an asset analysis according to the Howey test and other relevant case law and guidelines. If the analysis determines that it is a security, FTX US will treat it as such.
- If (1) it is not determined to be a security, we will generally treat it as a non-securities commodity, unless the SEC and/or an appropriate court of competent jurisdiction determines that the asset is a security.
- If we do if you find an asset that would potentially constitute a security, we will not list it in the US unless/until there is a process to properly register it. Again, this is just our decision and only for FTX US; other platforms will make their own decisions.”
IRS updates tax language to include NFTs
The Internal Revenue Service (IRS) has released a newly updated draft form for the 2022 tax year. So far, very little clarity has been offered regarding the tax treatment of non-fungible tokens (NFTs) – a constant concern for crypto enthusiasts looking to file their taxes. In the new IRS draft text, the narrower term “virtual currency” used to refer to cryptoassets has been replaced by the term “digital asset”, and will include a broader group of assets such as NFTs.
The IRS draft text clarifies the following: “Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. If certain assets have the characteristics of digital assets, they will be treated as digital assets for federal income tax purposes.” The last sentence in the text seems to leave a lot of room for debate or future interpretation as other goods will be questioned in the coming years.
Filing taxes on cryptocurrencies and other digital assets has historically been quite complicated—especially when it comes to reporting short- or long-term capital gains, cryptocurrencies as payment for services, and other factors that would influence one’s filing decisions. Hopefully more information and clarity will be forthcoming from the agency as tax season approaches and people look to file their returns for the year.
Crypto is now treated as a financial product in South Africa
According to the Financial Advisory and Intermediation Services of South Africa (FAIS) Act, cryptoassets will not be treated and labeled as financial products. This declaration was signed late last week and published in the South African Government Gazette.
The definition of cryptoasset used in the new guidelines specifically excludes any asset issued by a central government, such as a central bank digital currency (CBDC), or a country that recognizes Bitcoin as legal tender, such as the Central African Republic or El Salvador.
Instead, the FAIS Law defines cryptocurrencies as something that is exclusively privately issued or “a digital representation of value that is not issued by a central bank, but which individuals and legal entities can trade, transfer or store electronically for the purpose of payment, investment. or other forms of utility”.
This definitive declaration means that those operating crypto assets in South Africa – such as a crypto exchange or other form of intermediary – will now need to apply for and obtain the appropriate license from the government in order to continue their activities in the country. According to the announcement, those who will need a new license must apply before June 2023.
The Department of Justice accuses the group of a global sanctions evasion scheme
Last week, the Department of Justice (DoJ) KleptoCapture Task Force announced that it had charged five Russian nationals and two Venezuelan nationals with international money laundering and sanctions evasion.
This global criminal conspiracy involved foreign shell companies or correspondent banks and cryptocurrencies to disguise the source of their illicit funds brokered by several Venezuelan state-owned oil companies, all of which are sanctioned. Even with sophisticated tactics to hide the source of funds, officials were still able to identify and trace these crimes. If charged, these individuals could face up to 30 years in prison.
Breon Peace, U.S. Attorney for the Eastern District of New York, said in a recent Department of Justice press release: “As alleged, the defendants were criminal facilitators for the oligarchs, orchestrating a complex scheme to illegally obtain U.S. military technology and oil that Venezuela approved through countless transactions involving fictitious companies and cryptocurrencies.
“Their efforts have undermined security, economic stability and the rule of law around the world. We will continue to investigate, disrupt and prosecute those who fuel Russia’s brutal war in Ukraine, evade sanctions and sustain the dark economy of transnational money laundering.”
Compliance with NFT laws
