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Virtual Currencies

Outcomes of the June 16-21 FATF Plenary

Outcomes FATF Plenary, 16-21 June 2019

Orlando, 21 June 2019 – FATF President Marshall Billingslea of the United States, chaired the third and last Plenary meeting under the U.S. Presidency in Orlando on 19-21 June 2019.

During this Plenary, delegates celebrated the 30th Anniversary of the FATF. In recent years, the international community is following the FATF’s work increasingly closely.  Recent G20 statements and the United Nations Security Council resolutions recognise the FATF’s important role in protecting the integrity of the financial system. Last month’s FATF Ministerial meeting resulted in a new, open-ended mandate, and greater Ministerial involvement in the work of the FATF, recognising the substantial achievement of the FATF over three decades.  This Plenary meeting was the first under the FATF’s new mandate.    

U.S. Secretary of the Treasury Steven T. Mnuchin delivered the closing remarks to the Plenary, highlighting the critical role of the FATF, the importance of the new global standards agreed by FATF this week to protect virtual assets from abuse by money launderers, terrorist financiers, and other illicit actors; action on Iran; and agreement to strengthen the standards to counter the financing of the proliferation of WMD.

During three days of meetings, delegates discussed the following issues, including FATF initiatives under the U.S. Presidency of the FATF:

1. Major Strategic Initiatives

  • Mitigating risks from virtual asset activities, including a public statement and a risk-approach guidance on virtual assets and virtual asset service providers.

  • Launching a Strategic Review to analyse the progress made on effective implementation of AML/CFT measures, review the FATF/FSRB assessment processes, and identify drivers of positive change.

  • FATF’s current action to combat terrorist financing, including a statement on FATF Actions to identify ISIL, Al-Qaeda and Affiliates Financing and the adoption of guidance for jurisdictions on assessing terrorist financing risk.

  • FATF’s efforts to strengthen its standards on Countering the Financing of Proliferation

2. Mutual Evaluations and Follow-Up Reviews, and Compliance

  • Discussion of the mutual evaluation reports of Greece and Hong Kong, China

  • Discussion of follow-up reports for the mutual evaluation of Iceland, in which the country achieved technical compliance re-ratings

  • Issuing a statement on Brazil’s progress in addressing the deficiencies identified in its mutual evaluation report

  • Identifying jurisdictions with strategic anti-money laundering and countering the financing of terrorism (AML/CFT) deficiencies:

    • Jurisdiction no longer subject to monitoring: Serbia

    • New jurisdiction subject to monitoring: Panama

    • Monitoring Iran’s actions to address deficiencies in its AML/CFT system

3. Other Initiatives

  • Adoption of a report to the G20 Leaders

  • Approval of three Risk-Based Approach Guidance papers:

    • Lawyers

    • Accountants

    • Trust and Company Service Providers (TCSPs)

4. Welcoming the Kingdom of Saudi Arabia as a new member to the FATF

5. Discussion of the FATF priorities under the Chinese Presidency

1. Major Strategic Initiatives

Mitigating the money laundering and terrorist financing risks of virtual assets.

This Plenary, the FATF delivered on its commitment to member governments and the G20, as well as the private sector, to develop and clarify the FATF’s requirement with respect to virtual asset activities and virtual asset service providers. In October 2018, in response to the increasing use of virtual assets for money laundering and terrorist financing, the FATF amended Recommendation 15 and the glossary to clarify to which businesses and activities the FATF requirements apply in the case of virtual assets. Following a public consultation on the measures applicable to virtual asset transfers, the FATF has now finalised the Interpretive Note to Recommendation 15 which sets out in detail the application of the FATF Standards and binding measures for the regulation and supervision of virtual asset activities and service providers. The FATF also finalised guidance to further assist countries and providers in complying with their AML/CFT obligations and guidance for operational authorities to support the effective investigation and confiscation of virtual assets misused for money laundering or terrorist financing.

Risk-based Approach Guidance on Virtual Assets and Virtual Asset Service Providers

The FATF adopted updated guidance that clarifies the application of the risk-based approach to implementing the FATF Recommendations in the context of virtual assets. The guidance benefitted from dialogue with the private sector, including the sector itself. It includes examples of national approaches to regulating and supervising virtual asset activities and service providers to prevent their misuse for money laundering and terrorist financing. 

The FATF is now working on revising its methodology to assess how countries have implemented the FATF’s new requirement for the October 2019 Plenary. During the next 12 months, the FATF will closely monitor the actions that countries are taking and will continue to engage the private sector on its efforts to enhance compliance with the FATF standards.

Strategic Review

With a new, open-ended, mandate, the FATF moves into a new phase.  As the FATF continues to lead global action against money laundering, the financing of terrorism and proliferation, it must ensure that its work is timely, targeted and effective.  With the support from the G20, the FATF Plenary agreed to launch a strategic review of its own processes.  This review will analyse the progress made on effective implementation of AML/CFT measures, review the FATF/FSRB assessment processes, and identify drivers of positive change. 

FATF’s current action to combat terrorist financing

Combatting the financing of terrorism has remained a priority for the FATF under the U.S. Presidency. Acts of terrorism, whether perpetrated by groups such as ISIL and Al Qaeda, or terrorist groups with other extremist views, continue to pose a threat to our society. Since the February 2019 Plenary there have been a number of serious terrorist attacks. The United Nations recognised the FATF as the global standard-setter to combat terrorist financing when it adopted UN Security Council Resolution 2462(2019). This resolution, focused solely on countering terrorist financing, has embedded the need to implement the FATF Standards for combatting terrorist financing into international law. 

During this Plenary meeting, delegates heard an updated assessment of the financing methods employed by ISIL, Al Qaeda and affiliates, and released a public statement on FATF members’ actions to identify and disrupt their financing.  Despite ISIL’s loss of territory, it still has access to significant reserves of funds, while its extremist ideology continues to inspire acts of terror. 

The investigation and prosecution of terrorist financing is central to global efforts to counter terrorism. However, FATF and FSRBs’ assessments reveal that many countries still face challenges in investigating terrorist financing activity. A global workshop, hosted by the Israeli government in Tel Aviv in March 2019, building on the targeted outreach to judges and prosecutors initiated under the Argentinean Presidency of the FATF, sought to explore common challenges and best practices experienced by jurisdictions when prosecuting terrorist financing. The Plenary decided that the FATF should develop guidance to help countries effectively investigate and prosecute terrorist financing. 

Guidance on Terrorist Financing Risk Assessment

The FATF requires each country to identify, assess and understand the terrorist financing risks it faces in order to mitigate them and effectively dismantle and disrupt terrorist networks.  Assessing terrorist financing risks can be challenging due to the cross-border nature of terrorist financing, and the low value and routine nature of funds and transactions often involved.  The FATF finalised a Guidance which will assist countries, in particular low capacity countries with limited terrorist financing expertise, in assessing their risk context. Recognising that there is no one-size-fits-all approach when assessing terrorist financing risk, the Guidance provides relevant information sources and considerations for different country contexts. This report builds on the FATFs 2013 Guidance on National Money Laundering and Terrorist Financing Risk Assessments and draws on national experiences and lessons learnt in assessing terrorist financing risk from across the FATF Global Network.

Countering the Financing of Proliferation

Under the U.S. Presidency, in June 2019, the FATF agreed to pursue further work to strengthen the FATF Standards on countering the financing of proliferation by requiring jurisdictions and private sector entities to understand and mitigate their proliferation financing risks, as well as by enhancing requirements for domestic cooperation and coordination on proliferation financing.  FATF has conducted extensive analysis on a range of proposals, but has agreed to prioritize this work moving forward. Other options considered included new requirements to use criminal justice measures and financial intelligence, expanded targeted financial sanctions tools, and more effective mechanisms to ensure international information sharing on proliferation financing activity. The FATF agreed to potentially consider these other options at a later date.

2. Mutual Evaluations and Follow-Up Reviews, and Compliance

Discussion of the mutual evaluation reports of Greece and Hong Kong, China

The Plenary discussed the mutual evaluation reports of Greece and Hong Kong, China and the level of effectiveness of each jurisdiction’s AML/CFT system and their level of compliance with the FATF Recommendations.

The Plenary concluded that Greece has a sound legal framework to support effective action against money laundering and terrorist financing, but that the country needs to improve its prosecution of these crimes, the supervision of its designated non-financial professions and businesses and NPO sector, and the confiscation of proceeds of crime.   

The Plenary discussed the joint APG-FATF assessment of Hong Kong, China and concluded that the jurisdiction has a strong legal foundation to underpin its AML/CFT regime.  Hong Kong, China understands its risks, has effective measures to combat terrorist financing and to confiscate the proceeds of crime, and actively cooperates with international partners. However, it needs to prioritise efforts to prosecute ML linked to foreign predicates, increase risk understanding and AML/CFT implementation by smaller institutions, and strengthen supervisory measures for some sectors.

The reports were prepared on the basis of the FATF Methodology for assessments which requires countries to take into account the effectiveness with which AML/CFT measures are implemented, as well as technical compliance for each of the FATF Recommendations.

The Plenary discussed the key findings, priority actions and recommendations regarding each jurisdiction’s AML/CFT regime. The mutual evaluation reports are expected to be published by September 2019 after the quality and consistency review, in accordance with procedures.

Discussion of the follow-up report for the mutual evaluation of Iceland in which the country achieved technical compliance re-ratings

The Plenary discussed the progress that Iceland has made since its mutual evaluation report was adopted last year. The FATF Plenary agreed to re-rate Iceland a number of FATF Recommendations to reflect the country’s current level of technical compliance. After a quality and consistency review, the FATF will publish the follow-up report which sets out the actions that Iceland has taken to strengthen the effectiveness of its measures to combat money laundering and the financing of terrorism and proliferation.

Brazil’s progress in addressing the deficiencies identified in its mutual evaluation report

In February 2019, the FATF decided that it would review the Brazil’s recently adopted legislation for compliance with FATF Standards at its June Plenary and determine the next steps at that time.  The Plenary has issued a statement with regard Brazil.

Identifying jurisdictions with strategic anti-money laundering and countering the financing of terrorism (AML/CFT) deficiencies

The FATF maintains its February 2019 public documents which identify jurisdictions that may pose a risk to the international financial system, with the amendments set out below:

Jurisdiction no longer subject to monitoring: Serbia 

The FATF congratulated Serbia for the significant progress made in addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in its action plan.

Serbia will no longer be subject to the FATF’s monitoring under its on-going global AML/CFT compliance process, and will work with its FATF-Style Regional Bodies MONEYVAL as it continues to further strengthen its AML/CFT regime.

New jurisdiction subject to monitoring: Panama

FATF has identified Panama as a jurisdiction with strategic AML/CFT deficiencies. The country has developed an action plan with the FATF to address the most serious deficiencies. The FATF welcomed the high-level political commitment of Panama to this action plan.

Monitoring Iran’s actions to address deficiencies in its AML/CFT system

In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in February 2019 to continue the suspension of counter-measures.

In November 2017, Iran established a cash declaration regime. In August 2018, Iran has enacted amendments to its Counter-Terrorist Financing Act and in January 2019, Iran has also enacted amendments to its Anti-Money Laundering Act. The FATF recognises the progress of these legislative efforts. The bills to ratify the Palermo and Terrorist Financing Conventions have passed Parliament, but are not yet in force. As with any country, the FATF can only consider fully enacted legislation. Once the remaining legislation comes fully into force, the FATF will review this alongside the enacted legislation to determine whether the measures contained therein address Iran’s Action Plan, in line with the FATF standards.

Iran’s action plan expired in January 2018. In June 2019, the FATF noted that there are still items not completed and Iran should fully address: (1) adequately criminalising terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) clarifying that the submission of STRs for attempted TF-related transactions are covered under Iran’s legal framework; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.

The FATF decided at its meeting this week to continue the suspension of counter-measures, with the exception of the FATF calling upon members and urging all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran, in line with the February 2019 Public Statement.

While acknowledging the progress that Iran made including with the passage of the Anti-Money Laundering Act, the FATF expresses its disappointment that the Action Plan remains outstanding.  The FATF expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items by completing and implementing the necessary AML/CFT reforms.

If by October 2019, Iran does not enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, then the FATF will require introducing enhanced relevant reporting mechanisms or systematic reporting of financial transactions; and increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran. The FATF also expects Iran to continue to progress with enabling regulations and other amendments.

Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

3. Other Strategic Initiatives

Adoption of a report to the G20 Finance Ministers and Central Bank Governors

The Plenary discussed the FATF’s report to the G20 Leaders which highlights FATF’s recent work on the regulation of virtual assets. It also sets out other recent developments, including strengthening FATF’s institutional basis, governance and capacity of FATF, countering the financing of terrorism and proliferation of weapons of mass destruction terrorist financing, improving transparency and beneficial ownership, de-risking and work on FinTech/RegTech in relation to digital ID.

Publication of three Risk-Based Approach Guidance papers

The risk-based approach is at the core of the FATF Recommendations. It ensures that countries identify and understand the unique risks they are exposed to, allowing them to prioritise resources on areas where risks are highest. Informed by a public consultation in March 2019, the FATF updated three risk-based approach guidance documents that aim to support the implementation of the risk-based approach, taking into account national ML/TF risk assessments and AML/CFT legal and regulatory frameworks:

  • Lawyers

  • Accountants

  • Trust and Company Service Providers (TCSPs)

4. Welcoming the Kingdom of Saudi Arabia as a member to the FATF

The FATF granted full membership to Saudi Arabia. In 2018, the country underwent a mutual evaluation. Since then, Saudi Arabia has worked according to an action plan to address the key effectiveness issues identified during the evaluation. Based on the country’s commitment to complete the items on its action plan and the continuing progress to improve its AML/CFT, the Plenary agreed to grant membership.

5. Discussion of the FATF priorities under the Chinese Presidency

The FATF Plenary discussed and approved the priorities of the FATF under the Presidency of Xiangmin Liu which will commence on 1 July 2019. The main priority is the Strategic Review, but among other priorities, the FATF agreed to continue its important work to mitigate the money laundering and terrorist financing risks of new technologies and at the same time exploit the opportunities to more effectively fight these risks. Under the Chinese Presidency, the FATF will also prioritise work to promote and enable more effective supervision by national authorities.

Link:

FATF Notice

May 9, 2019: FinCEN issues updated Virtual Currency guidance (plus an advisory)

New FinCEN Guidance Affirms Its Longstanding Regulatory Framework for Virtual Currencies and a New FinCEN Advisory Warns of Threats Posed by Virtual Currency Misuse

Contact
Public Affairs, 703-905-3770
Immediate Release

WASHINGTON—To provide regulatory certainty for businesses and individuals engaged in expanding fields of financial activity, the Financial Crimes Enforcement Network (FinCEN) today issued the following guidance, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC). The guidance is in response to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of multiple variations of businesses dealing in CVCs.

FinCEN today also issued an Advisory on Illicit Activity Involving Convertible Virtual Currency to assist financial institutions in identifying and reporting suspicious activity related to criminal exploitation of CVCs for money laundering, sanctions evasion, and other illicit financing purposes. The advisory highlights prominent typologies, associated “red flags,” and identifies information that would be most valuable to law enforcement if contained in suspicious activity reports.

“Treasury is committed to helping financial institutions better detect and prevent bad actors from exploiting convertible virtual currencies for money laundering, sanctions evasion, and other illicit activities.” said Sigal Mandelker, Under Secretary of the Treasury for Terrorism and Financial Intelligence. “The comprehensive advisory FinCEN issued today highlights the risks associated with darknet marketplaces, peer-to-peer exchangers, unregistered money services businesses, and CVC kiosks and identifies typologies and red flags to help the virtual currency industry protect its businesses from exploitation.”

“FinCEN was the first financial regulator to address virtual currency and the first to assign obligations to related businesses to guard against financial crime,” said FinCEN Director Kenneth A. Blanco. “The money transmitter definition we published in 2011 and the guidance we issued in 2013 clarifying how that definition applies to transactions involving virtual currency have proven to be exceptionally durable. Our regulatory approach has been consistent and despite dynamic waves of new financial technologies, products, and services, our original concepts continue to hold true. Simply stated, those who accept and transfer value, by any means, must comply with our regulations and the criminal misuse of any methodology remains our fundamental concern.”

Today’s guidance does not establish any new regulatory expectations. It consolidates current FinCEN regulations, guidance and administrative rulings that relate to money transmission involving virtual currency, and applies the same interpretive criteria to other common business models involving CVC. FinCEN’s rules define certain businesses or individuals involved with CVCs as money transmitters subject to the same registration requirements and a range of anti-money laundering, program, recordkeeping, and reporting responsibilities as other money services businesses.

Links:

FINCEN Press Release

Guidance (Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies)

FinCEN Advisory on Illicit Activity Involving Convertible Virtual Currency

AUSTRAC reminds virtual currency exchanges of their AML obligations

Cybercrime Squad and AUSTRAC remind digital currency exchanges of reporting obligations

8 March 2019

This is a joint media release between the NSW Police Force and AUSTRAC.

The NSW Police Force and the Australian Transaction Reports and Analysis Centre (AUSTRAC) are reminding digital currency exchange providers to be aware of their obligations following amendments to Commonwealth legislation last year.

 

In April 2018, amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 were introduced, which included expanding the scope of the Act to include regulation of digital currency exchange providers.

 

These changes included registering with AUSTRAC, verifying customer identity, reporting suspicious matters and over-threshold cash transactions; and complying with record-keeping requirements.

 

AUSTRAC National Manager for Regulatory Operations, Dr Nathan Newman, said AUSTRAC worked closely with digital currency exchange providers to prepare them for these laws, which are in place to protect industry from criminal exploitation and in turn, the Australian community.

 

“Digital currency exchange providers have had adequate time and opportunity to comply with these new laws and AUSTRAC has already refused the registration of two digital currency exchange providers. We continue to actively monitor the sector’s compliance,” Dr Newman said.

 

“It’s important that digital currency exchange providers meet their obligations so we can identify any instances of criminal activity using their services to launder money, fund terrorism or commit other serious crimes.”

 

Cybercrime Squad Commander, Detective Superintendent Matt Craft, said this is a timely reminder to those who deal in digital currencies to ensure they are meeting their obligations.

 

“While cash is still ‘king’, digital currencies are fast becoming the preferred choice for organised criminal networks involved in money laundering, funding terrorism, and cybercrimes,” Det Supt Craft said.

 

“These amendments were implemented to ensure digital currencies were being monitored in the same ways as cash exchanges and transfers.

 

“Any information about illicit activity by digital currency exchange providers that is provided to our squad – whether related to organised crime, terrorism, or technology-enabled crime – will be actively pursued in partnership with AUSTRAC.

 

“Let this be a warning to digital currency exchange providers: if you fail to comply with your obligations, your actions will not go unnoticed.”

 

Det Supt Craft added that an increase in popularity of Dark Net marketplaces will also mean increased targeting by law enforcement.

 

“Given the perceived anonymity of the Dark Net, Australian criminal groups are starting to favour the online environment to conduct illicit business,” Det Supt Craft said.

 

“With police and our partners proactively targeting this space, I’ll assure these networks that their anonymity is no longer guaranteed.”

 

More information about digital currency exchange providers’ obligations under the Act is available at: http://www.austrac.gov.au/digital-currency-exchange-providers.

 

Anyone with information about non-compliant digital currency exchanges or the facilitation of serious and organised crime is urged to contact Crime Stoppers: 1800 333 000 or https://nsw.crimestoppers.com.au. Information is treated in strict confidence. The public is reminded not to report crime via NSW Police Force social media pages.

Contact:

NSW Police Force Media Unit (02) 8263 6100
AUSTRAC Media (02) 9950 0488

Link:

AUSTRAC Notice

FinCEN Enforcement Action: Virtual Currency Exchanges are MSBs, you know!

FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti-Money Laundering Laws

Immediate Release

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) has assessed a civil money penalty against Eric Powers for willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements.  Mr. Powers failed to register as a money services business (MSB), had no written policies or procedures for ensuring compliance with the BSA, and failed to report suspicious transactions and currency transactions.

Mr. Powers operated as a peer-to-peer exchanger of convertible virtual currency.  As “money transmitters,” peer-to-peer exchangers are required to comply with the BSA obligations that apply to MSBs, including registering with FinCEN; developing, implementing, and maintaining an effective AML program; filing Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs); and maintaining certain records.

“Obligations under the BSA apply to money transmitters regardless of their size,” said FinCEN Director Kenneth A. Blanco.  “It should not come as a surprise that we will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency, such as Mr. Powers, are money transmitters and must register as MSBs.  In fact, there were indications that Mr. Powers specifically was aware of these obligations, but willfully failed to honor them.  Such failures put our financial system and national security at risk and jeopardize the safety and well-being of our people, as well as undercut responsible innovation in the financial services space.”

Mr. Powers advertised his intent to purchase and sell bitcoin on the internet.  He completed transactions by either physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution. Mr. Powers processed numerous suspicious transactions without ever filing a SAR, including doing business related to the illicit darknet marketplace “Silk Road,” as well as servicing customers through The Onion Router (TOR) without taking steps to determine customer identity and whether funds were derived from illegal activity.

Mr. Powers conducted over 200 transactions involving the physical transfer of more than $10,000 in currency, yet failed to file a single CTR.  For instance, Mr. Powers conducted approximately 160 purchases of bitcoin for approximately $5 million through in-person cash transactions, conducted in public places such as coffee shops, with an individual identified through a bitcoin forum.  Of these cash transactions, 150 were in-person and were conducted in separate instances for over $10,000 during a single business day.  Each of these 150 transactions necessitated the filing of a CTR.

FinCEN notes that this is its first enforcement action against a peer-to-peer virtual currency exchanger and the first instance in which it has penalized an exchanger of virtual currency for failure to file CTRs.  FinCEN also notes that since his infractions, Mr. Powers has cooperated with FinCEN efforts.  In addition to paying a $35,000 fine, Mr. Powers has agreed to an industry bar that would prohibit him from providing money transmission services or engaging in any other activity that would make him a “money services business” for purposes of FinCEN regulations.



Links:

FinCEN Press Release

Assessment of Civil Monetary Penalty

FINMA shuts down illegal ICO

FINMA ascertains illegal activity by envion AG

The Swiss Financial Market Supervisory Authority FINMA has found that envion AG (now in liquidation) unlawfully received public deposits on a commercial basis from at least 37,000 investors. The company is currently being liquidated by the Zug bankruptcy authority.

In March 2019, FINMA concluded the enforcement proceedings against envion AG, which it launched in July 2018 (press release). As part of its proceedings, FINMA appointed an investigating agent to investigate suspicious activity on site. It was discovered during this that the company had unlawfully accepted funds amounting to over 90 million francs from at least 37,000 investors in the context of an initial coin offering (ICO) without the necessary statutory licence. The company was thus acting illegally and seriously violated supervisory law. 

ICOs can fall within the scope of the Banking Act

In the context of its ICO envion AG issued so-called EVN tokens. Investors were able to purchase these tokens by making payments in US dollars as well as in the Ethereum and Bitcoin cryptocurrencies. Envion AG granted the token owners a claim to repayment after thirty years. Furthermore, the conditions for the EVN tokens issued in a bond-like form were not equal for all investors, the prospectuses did not meet the minimum statutory requirements and there was no internal audit unit as required by law. In the present case, this acceptance of US dollars and the Ethereum and Bitcoin cryptocurrencies therefore amounted to an acceptance of public deposits for the purposes of the Banking Act. This however requires a banking licence. 

No further intervention by FINMA necessary

While the FINMA proceedings were ongoing, the Cantonal Court of Zug opened bankruptcy proceedings against envion AG on grounds of organisational shortcomings. As a result, further supervisory measures against the company by FINMA will not be required. FINMA cannot provide information regarding the financial situation of envion AG as the bankruptcy proceedings are controlled by the Bankruptcy Office of Zug. 

FINMA will continue to focus on ICOs

FINMA will continue to consistently take action against ICO business models which violate or circumvent supervisory law. Ultimately, this can lead to the company being liquidated by FINMA. FINMA is committed to ensuring that serious innovators can launch their ICO projects lawfully and has published guidelines to this effect. In addition, FINMA informs FinTech service providers about requirements under financial market law on its website. FINMA has also already repeatedly pointed out the risks associated with ICOs to investors. Specifically, FINMA warns about unclear provisions or overly optimistic promises made in the whitepapers or published by companies which are planning to conduct an ICO.

Contact

Vinzenz Mathys, Media Spokesperson 
Tel. 031 327 19 77
vinzenz.mathys@finma.ch

Link:

FINMA Notice

FINMA starts enforcement action against ICO

News

26 July 2018 

Press release

FINMA launches proceedings against ICO issuer

The Swiss Financial Market Supervisory Authority FINMA has launched enforcement proceedings against envion AG. FINMA has evidence that the company may have breached financial market law in relation to an ICO.

FINMA launched enforcement proceedings against envion AG in July 2018. The proceedings focus in particular on possible breaches of banking law resulting from the potentially unauthorised acceptance of public deposits in connection with the Initial Coin Offering (ICO) for the EVN token. Investigations carried out by FINMA to date indicate that, in the context of its ICO, envion AG accepted funds amounting to approximately one hundred million francs from more than 30,000 investors in return for issuing EVN tokens in a bond-like form. FINMA will make no further comment on the proceedings until they are concluded. 

Focus on ICOs

FINMA is committed to ensuring that serious innovators can launch their ICO projects lawfully and published guidelines to this effect in February 2018. However, it also consistently takes action against ICO business models, which violate or circumvent supervisory law. FINMA has also repeatedly drawn attention to the risks that ICOs pose for investors. 

Contact

Tobias Lux, Media Spokesperson 
Phone +41 (0)31 327 91 71 
tobias.lux@finma.ch 

Links:

FINMA Notice, PDF version

May 29, 2018: SEC halts fraudulent ICO

SEC Obtains Emergency Order Halting Fraudulent Coin Offering Scheme 

Charges “Blockchain Evangelist” Behind Alleged Scam

FOR IMMEDIATE RELEASE
2018-94

Washington D.C., May 29, 2018 —

The Securities and Exchange Commission today announced it has obtained a court order halting an ongoing fraud involving an initial coin offering (ICO) that raised as much as $21 million from investors in and outside the U.S.  The court also approved an emergency asset freeze and the appointment of a receiver for Titanium Blockchain Infrastructure Services Inc., the firm behind the alleged scheme.

An SEC complaint unsealed today charges that Titanium President Michael Alan Stollery, a/k/a Michael Stollaire, a self-described “blockchain evangelist,” lied about business relationships with the Federal Reserve and dozens of well-known firms, including PayPal, Verizon, Boeing, and The Walt Disney Company.  The complaint alleges that Titanium’s website contained fabricated testimonials from corporate customers and that Stollaire publicly – and fraudulently –claimed to have relationships with numerous corporate clients.  The complaint alleges that Stollaire promoted the ICO through videos and social media and compared it to investing in “Intel or Google.”  

“This ICO was based on a social media marketing blitz that allegedly deceived investors with purely fictional claims of business prospects,” said Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit.  “Having filed multiple cases involving allegedly fraudulent ICOs, we again encourage investors to be especially cautious when considering these as investments.”  

The SEC’s Office of Investor Education and Advocacy has issued an Investor Bulletinon initial coin offerings and a mock ICO website to educate investors.  Additional information about ICOs is available on Investor.gov and SEC.gov/ICO.  Investors in the Titanium ICO who believe they may be a victim should contact the SEC through www.SEC.gov/tcr and reference SEC v. Titanium Blockchain Infrastructure Services, Inc., et al., Civil Action No. 18-4315 (C.D. Cal.).

The SEC’s complaint, filed on May 22 in federal district court in Los Angeles, charges Stollaire and Titanium with violating the antifraud and registration provisions of the federal securities laws.  The complaint charges another Stollaire company, EHI Internetwork and Systems Management Inc., with violating the antifraud provisions.  The complaint seeks preliminary and permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, and a bar against Stollaire to prohibit him from participating in offering digital securities in the future.  Following the court’s entry of a temporary restraining order against them, Stollaire and his companies consented to the entry of a preliminary injunction and the appointment of a permanent receiver over Titanium.  

The SEC’s investigation, which is continuing, is being conducted by David S. Brown and supervised by Joseph G. Sansone and Diana K. Tani of the SEC’s Market Abuse Unit in coordination with supervision by Mr. Cohen.  Assisting the investigation is Morgan Ward Doran of the Cyber Unit and Roberto Grasso of the Los Angeles Regional Office.  The litigation is being conducted by David VanHavermaat and supervised by Amy Jane Longo of the Los Angeles Regional Office.

Link:

SEC Press Release

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