Part 4: The Stablecoin Ban Will Be International
US Law Will Be Global Law
In three previous posts we outlined the regulatory changes coming to the cryptocurrency markets. First we gave an overview of the changes coming. Next we gave a description of how the taxation implications. In the third installment of our breakdown we showed how Crypto could be usurped as money by CBDC . Here the original author lays out how US Rules are going to be applied globally for Stablecoins etc
Part 4: US Crypto Laws Will Be International
Key Points:
Worldwide Regulation of Crypto Currencies Will Include Heavy-handed restrictions on the following:
Peer-to-Peer Transactions, Stablecoins,Private wallets (cold storage, phone and desktop apps), Privacy (privacy coins, mixers, Decentralized exchanges, use of TOR and I2P) Former ICOs and Future Projects (DeFi) NFT, smart contacts, second layer solutions, and much more)
In short: they want to change the way the space can operate. As you’ll discover, the regulations rolled out aim to create a system of complete transparency and control. At the same time, regulatory clarity could pave the way for the next stage of adoption.
The Big Picture: Global Regulation
The logic behind this seems to be to first introduce a high-level definition (including coins regulated as commodities, securities, and everything in between). Next, any future global restrictions on the wider crypto-space can be applied at this level.
From the latest FATF Guidance, a number of possible additional restrictions can already be deducted. Things to look out for are the restriction of the use of “unhosted wallets,” the introduction of the “travel rule,” labeling those who engage in peer-to-peer transactions as a risk, and a whole host of other measures.33)
One additional aspect of VASP regulation mentioned in the FATF Guidance is also included in the Digital Asset Bill; VASPS engaged in services which are available in the United States and to United States persons, have to be regulated in the United States, even if the provider is located outside the United States.34)
Previously:
Part 1: Bitcoin's Regulatory Future
Part 2: Why Crypto Will Not Be Money in the US
Part 3: Slamming the Door On Crypto as Money
International FATF Crypto Regulation Introduced in the US
Those paying attention to international anti-money laundering legislation know that the following sections from the Digital Asset Bill originate from guidance issued by the FATF (Financial Action Task Force). FATF is an intra-governmental organization creating financial legislation.
In March, the Paris based FATF issued draft guidance26) (“FATF Guidance”) on a number of topics. And even though this guidance hasn’t been finalized, there are already a number of points directly included in the Digital Asset Bill.
Banning the use of Stablecoins
Subchapter I of chapter 51 of subtitle IV of title 31, United States Code, department of treasury regulation, will be amended, to read as follows:
“(a) IN GENERAL.—Beginning on the date of the enactment of this section, no person may issue, use, or permit to be used a digital asset fiat-based stablecoin that is not approved by the Secretary of the Treasury under subsection (b).”27)
Criminalizing the use of privacy coins and anonymizing services (mixers, coinjoins)
The bank secrecy act is going to be amended to sanction the use of anonymity-enhanced convertible virtual currencies and anonymizing services.28) It is worth noting that willful violations of the bank secrecy act could give rise to a fine of not more than $250,000, or imprisoned for not more than five years, or both.29)
Introduction of the term Virtual Asset Service Provide (VASP) into US Law
As a next step, the term Virtual Asset will be introduced into Section 5312(a) of title 31, United States Code. A Virtual Asset can be a digital asset, or “a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes;”30)
So far we have seen a number of definitions. To understand their relationship, the following image was made based on the definition of Virtual Asset according to Section 5312(a) of title 31, United States Code:31)
Virtual Asset is a broad definition; it covers most activities involving cryptos. We can see in the Digital Asset Bill that entities that are facilitating transactions in Virtual Assets are to be called “virtual asset service providers,” or VASPS. Sec 301 of the Digital Asset Bill defines a VASP:
“(A) means a person who—
(i) exchanges between digital asset and fiat currencies
(ii) exchanges between digital assets;
(iii) transfers of digital assets;
(iv) is responsible for the custody, safekeeping of a digital asset or an instrument that enables control over a digital asset;
(v) issues or has the authority to redeem a digital asset; and
(vi) provides financial services related to the offer or sale of a digital asset by a person who issues such digital asset; and
(B) does not include any person who—
(i) obtains a digital asset to purchase goods or services for themself;
(ii) provides communication service or network access services used by a money transmitter; or
(iii) develops, creates, or disseminates software designed to be used to issue a digital asset or facilitate financial activities associated with a digital asset.”32)
This definition comes directly from the FATF Guidance, with the only difference being that the US excludes the exchange between different forms of one virtual assets. On the other hand, section (v) is a new addition.
Interpretation International Regulation in the US:
International AML legislation, created by Paris-based FATF, is being introduced in the US.
The FATF term “virtual asset service provider” (VASP) is introduced in the US. The definition is so broad that it covers practically all crypto projects.
After first being in the FATF Guidance, the banning of stablecoins and anonymity-enhanced cryptos and the obligation for VASPs to be licensed in the country of their clients are included in the Digital Asset Bill.
It is not hard to imagine that other restrictions for cryptos currently discussed by FATF, such as the travel rule and restricting unhosted wallets, will be introduced next. This is not a regulation you introduce to then never use it.
All VASPs with operating in the US or with US clients need to be regulated in the US.