Crypto Compliance Weekly Newsletter: February 21, 2023
Updated: Mar 10
This week, SEC charges Do Kwon and Terraform Labs, DOJ publishes Civil Fraud Recovery Statistics, LATAM workers choose to receive payment in crypto, Bank of Brazil will allow tax payments in crypto, and ChatGPT’s potential influence on Web3 and cryptocurrency trading.
1. The SEC charges Do Kwon and Terraform Labs with multi-billion dollar crypto asset securities fraud
The Securities and Exchange Commission (“SEC”) has charged Do Kwon and his company, Terraform Labs, with orchestrating a multi-billion-dollar crypto asset securities fraud. The company was responsible for the creation of Terra Luna and TerraUSD tokens. It’s estimated that its collapse has cost investors over $40 billion.
The SEC alleges that Terraform “failed to provide full, fair, and truthful disclosure, as required for a host of crypto asset securities” and “committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
In addition to the financial charges imposed by the US regulator, Mr. Kwon faces charges of fraud and breaches of capital markets law in South Korea.
2. DOJ’s 2022 Civil Fraud Recovery Statistics show the lowest fraud recovery since 2008
The Department of Justice (“DOJ”) has released its annual report of civil fraud recoveries and statistics under the civil False Claims Act (“FCA”). Among the most important highlights for the year, it was found that FCA settlements and judgments totaled just over $2.2 billion, the lowest amount of recovery since 2008. Most recoveries (over $1.7 billion) involved the healthcare industry. Additionally, new FCA enforcement areas include fraud in pandemic relief programs such as the Paycheck Protection Program and violations of cybersecurity requirements that unnecessarily increase costs to the government or put sensitive information at risk.
In summary, according to the DOJ statistics, ‘’the overall number of new FCA cases, settlements, and recoveries remains consistently strong”. The lowest amount of recoveries might be explained due to a brief pause in FCA investigations until 2023.
3. LATAM workers are choosing to receive payment in crypto
According to the Deel Lab for Global Employment's Global Recruitment Report, many Latin American workers choose to be paid in cryptocurrencies. The report revealed that “between January and December 2022, the number of remote workers choosing to target paid in crypto grew from 61% to 64%”. No other region in the world had more workers choosing to receive crypto payments during the same period. The report also noted that despite the fall in crypto prices, it has not significantly discouraged workers from choosing crypto pay.
4. Bank of Brazil partners with Bifty to allow tax payments in crypto
Bank of Brazil has partnered with the local cryptocurrency firm Bifty for a new initiative, allowing citizens to pay their taxes, fees, and other cryptocurrency charges. The initiative aims to expand the use and access of digital assets across the country, with Bifty acting as a "collection partner" for the bank. The move also “gives consumer protection from a reputable bank.” Overall, this partnership makes it easier for Brazilians with cryptocurrencies under the custody of Bifty to pay their tax bills.
5. ChatGPT with the potential to transform Web3 and cryptocurrency trading
ChatGPT, an AI language model developed by OpenAI, has become a pop culture phenomenon since its release in 2022. ChatGPT is a foundation model capable of following specific instructions through a fine-tuned version of GPT-3 called InstructGPT. This technology has the potential to transform various industries, including Web3. ChatGPT can be utilized in the Web3 space to create language-based explorers for blockchain activity, programming smart contract assistants, smart contract security testing, intelligence NFTs, and conversational wallets. Combining foundation models like ChatGPT and the Web3 paradigm offers many opportunities.
Another area in which the AI tool might pose potential benefits is in the development of cryptocurrency protocols and for trading cryptocurrencies. Some users are already using the platform to make decisions with real-time price and market data and request a proper analysis of the efficiency of a cryptocurrency.
Canaria Consulting LLC is a boutique consultancy specializing in developing, enhancing, and maintaining regulatory compliance programs for virtual currency firms. Canaria Consulting was founded to help virtual currency firms meet their regulatory obligations in a way tailored to the unique characteristics of virtual currency and decentralized blockchain technologies.