Launchy Regulatory Roundup #11 - US Probes Tether for Potential Sanctions

SEC Put Crypto in Examination | Tokenization Risks to Financial Stability

Marco Manoppo & Muhammad Reynaldi Ariananda Arkiang
October 27, 2024

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Good Morning.

Welcome to our eleventh edition of the regulatory roundup. If you know anybody who would benefit from this content, please help us spread the word!

In this issue, we cover critical developments in crypto regulation as US prosecutors are intensifying scrutiny on Tether with potential sanctions, raising questions on stablecoin transparency and compliance. The issue also examines tokenization risks flagged by global regulators and highlights key updates from North America to Asia, covering everything from pro-crypto bills to cross-border oversight.

In Today's Edition:

Headline: US Probes Tether for Potential Sanctions 🚨
Global Legal Roundup: SEC Put Crypto in Examination Priority in 2025 🔙
Case Study: Tokenization Benefits & Risks to Financial Stability 🔎

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HEADLINE

US Probes Tether for Potential Sanctions Over Illicit Activity

State of play: According to the Wall Street Journal, US prosecutors and the Treasury Department are investigating Tether, the leading stablecoin issuer, for potential anti-money laundering violations and connections to sanctioned individuals.

The inquiry focuses on whether Tether's USDT is being used for illegal activities such as terrorism, drug trafficking, and hacking.
The Manhattan US attorney's office is conducting a criminal investigation, while the Treasury Department is considering sanctions against Tether due to its use by US-sanctioned entities, including Hamas and Russian actors.
The Treasury Department's possible sanctions would largely bar US citizens from transactions involving the company.
Tether’s CEO, Paolo Ardoino, has publicly denied these claims, criticizing the WSJ’s report as speculative.
Tether's spokesperson emphasized its long-standing collaboration with law enforcement to counter misuse of the stablecoin.

What’s Next: An intensified investigation could lead to US restrictions on Tether, setting a global regulatory precedent and potentially requiring stricter compliance, impacting its role in the crypto industry.

Why it Matters: As the largest stablecoin, Tether is vital to cryptocurrency trading and liquidity across global exchanges. Sanctions or strict regulations could disrupt trading volumes, liquidity, and pricing throughout the digital asset ecosystem.

Our Take: Despite Tether’s denial, US scrutiny signals a need for greater transparency in stablecoins, especially in AML and sanctions compliance.

GLOBAL LEGAL ROUNDUP

North America:

🇺🇲 Coinbase files FOIAs against US regulators.
🇺🇲 SEC lists crypto as an examination priority in 2025.
🇺🇲 Trump floats the idea of eliminating federal income tax.
🇺🇲 Hacker behind fake Bitcoin ETF X post pleads not guilty.
🇺🇲 Pennsylvania House of Representatives passes pro-crypto bill.
🇺🇲 Ripple files Form C, appeals SEC ruling on XRP institutional sales.
🇺🇲 CFTC chair says agency is ‘handcuffed’ as crypto regulations stall.
🇺🇲 Consensys urges clear crypto rules in letter to future US president.
🇺🇲 US government retrieves over $19M from purported hack this week.

MENA:

🇦🇪 UAE Region Ras Al-Khaimah launches Framework for DAOs in Free Zone.

Europe:

🇬🇧 UK’s finance watchdog defends ‘too tough’ crypto stance.
🇬🇧 UK crypto rules unclear for firms avoiding Europe’s MiCA regulation.
🇩🇰 Denmark Tax Council recommends bill to tax unrealized crypto gains.
🇳🇱 Netherlands seeks input on crypto tax monitoring laws to align with EU.

Asia:

🇻🇳 Vietnam releases blockchain strategy, aims for regional leadership.
🇰🇷 South Korea to ramp up oversight of cross-border crypto transactions.
🇯🇵 Japan slow to approve crypto ETFs, maintains strict taxes, regulations.
🇯🇵 Japanese authorities trace Monero, arrest 18 in $670K laundering case.
🇯🇵 Japan’s Political Parties emphasize need to reform crypto tax regulations.
🇮🇩 Indonesia extends the deadline for crypto exchange license requirements.

CASE STUDY

Tokenization Benefits & Risks to Financial Stability

Source: Bank for International Settlements (BIS)

State of play: The Financial Stability Board (FSB) and Bank for International Settlements (BIS) have flagged significant risks associated with tokenization, particularly as it scales and interacts with traditional financial systems.

The FSB identified three main vulnerabilities:
- The underlying asset being tokenized;
- The participants involved in distributed ledger technology projects;
- The integration of new technology with legacy systems.
Both organizations caution that tokenization could disrupt financial stability if used for complex, opaque products or without sufficient regulatory oversight.
The BIS added that while tokenization could reduce trade frictions, it also introduces credit, liquidity, and cyber risks.

Our Take: There is a need for a balanced approach to tokenization.

While the potential benefits, such as increased efficiency and reduced friction in asset trading, are promising, the identified risks cannot be overlooked.
As tokenization gains traction, it’s crucial for regulators to establish clear guidelines and frameworks to mitigate vulnerabilities.
Developers and investors should also prioritize sound governance and risk management practices.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our comprehensive database of crypto regulations around the world👇

NOTEWORTHY READS & MEME

The Fed’s Governor Waller’s speech on DeFi.
Sarah Brennan’s read on regulatory v legislative relief for tokens and models.
Ji Kim’s read on Crypto Council’s amicus brief for Supreme Court review in Binance v. Anderson.

I sold the wedding ring I bought to propose to my GF for Moodeng and now it’s going down. I’m freaking out right now.
— Coinfessions (@coinfessions)
7:00 PM • Oct 17, 2024

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.