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Blockchain Bites: Bitcoin and the BSA, Signature Deposit Growth, Darknet Crypto Donors

Daniel Kuhn
·5-min read

Signature Bank’s deposits grew by over $4 billion. Non-profits have rejected bitcoin donations made from hackers. And a FinCEN investigation raises questions about bitcoin mixers and the Bank Secrecy Act. Here’s all the news people are talking about in crypto today.

Top shelf

Corporate DeFi?
R3’s open-source variation of its enterprise blockchain, Corda Network, will see the addition of a native cryptocurrency. The new coin, called XDC, will open the gates to build central bank digital currencies (CBDCs) and decentralized finance applications (DeFi) on the network. Programmed by the Cordite Society, a group of former bankers building decentralized tools, the XDC system will have compliance baked in to meet anti-money laundering (AML) standards, as every node represents a legal entity, CoinDesk’s Ian Allison reports. The Cordite Network is welcoming new members to vote on the rate of supply of XDC and other points of governance going forward.

Ironic outcome
Uniswap’s first voting process demonstrated the need to overhaul its governance system, Dharma CEO Nadav Hollander has said, following a “disappointing outcome.” The vote was over reducing the token threshold required to make and pass proposals on the protocol. Despite 98% of the votes cast being in favor of a proposed change, the total number needed for a successful vote fell short of the 40 million required by about 400,000. A successful vote would have seen this requirement drop by around a third. Hollander also said the vote “galvanized users to delegate in much higher numbers,” which was a “healthy outcome for Uniswap.”

Related: First Mover: PayPal Rushes in and Bitcoin Breaches $12K, While USDC Gains on Tether

Dirty money
Robinhood-esque hackers who stole from corporations to give to charities have seen their donations rebuked. Members of the hacking group Darkside attempted to give bitcoin donations to two non-profits, Children International and The Water Project. The group used ransomware to steal from profitable companies with the intention of giving “some of the money” to charity, according to a BBC report citing a darknet blog. To make the donations, the cybercriminals used the service offered by The Giving Block, a U.S.-based project that converts donations into dollars for charities not set up to handle cryptocurrencies. “If the donation is linked to a hacker, we have no intention of keeping it,” Children International said.

CBDC platform
LINE Corporation, operator of the popular messaging app, is jumping into the CBDC game with a platform to allow central banks to develop digital currencies. The platform reportedly will help central banks develop customized, blockchain-based CBDCs by offering tools to issue digital tokens, tokenize assets and run decentralized applications (known as dapps). LINE is not alone. Mastercard recently released a platform allowing central banks to test how proposed digital currencies would work in real life. A LINE representative told South Korean newspaper Chosun that “major” Asian nations are already in discussions with the firm, though they could not disclose which ones.

Deposit growth
Deposits at crypto-friendly Signature Bank grew by $4.11 billion, an 8% increase, in the third quarter of 2020. Over the past year, deposits have grown by $15.28 billion, or nearly a 40% increase, according to the bank’s earnings release. Signature reports $54.34 billion in total deposits. “Crypto firms are often a rich source of low-cost deposits for the few banks that openly serve the sector. As such, analysts have paid close attention to deposit growth at Signature, Silvergate Bank and Metropolitan Commercial Bank,” CoinDesk’s Nathan DiCamillo reports.

Quick bites

At stake

Bitcoin & the BSA
The executive behind the Helix and Coin Ninja bitcoin mixing services will pay a $60 million fine, following a Financial Crimes Enforcement Network (FinCEN) investigation that raises questions around the legality and future of these privacy-protecting tools. 

Related: First Mover: Monero Leads Privacy-Coin Rally as Bitcoin Trips on Path to $12K

Bitcoin mixers are services designed to anonymize the source of funds. The U.S. financial watchdog hailed these civil charges as the “first” action against a bitcoin mixer. 

It was also said to be the first time the U.S. Department of Justice explicitly called bitcoin mixing a “crime,” casting a shadow on any service that obscures bitcoin’s publicly accessible path, CoinDesk’s Danny Nelson reported.

Prosecutors allege Harmon ran the unregistered money services business Helix from 2014 to 2017, conducting 1,225,000 transactions for customers and is “associated with virtual currency wallet addresses that have sent or received over $311 million.” From 2017 on, prosecutors say Harmon provided money transmission services via Coin Ninja.

Each of these transactions are said to be in violation of the Banking Secrecy Act. Prosecutors also said Harmon had a responsibility to file suspicious activity reports and systemically flouted U.S. money laundering laws.

“If you’re in the crypto space you’re about to become as familiar with the BSA as you think you are with the 33 and 34 acts and the Howey test,” Stephen Palley, a partner in the Washington, D.C. office of Anderson Kill, tweeted. “Each one of these violations is a separate violation of the BSA.  That is why the penalty is so massive.”

“The max penalty is $209,144,554. That’s a gobsmackingly enormous number because BSA non-compliance is heavily penalized and because FinCEN really really wants you to comply and really really wants you to be in pain if you don’t comply,” Drew Hinkes, an attorney with Carlton Fields, tweeted.

Harmon also faces criminal proceedings in U.S. federal court.

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