1. Occasional Paper Series – Ensuring adoption of central bank digital currencies – An easy task or a Gordian knot? / ECB
Central banks have been discussing the introduction of a retail central bank digital currency (rCBDC) widely, a new form of central bank money to be used in retail payments, for some time. However, at minimum levels, customers and retailers don’t adopt and accept this new means of payment. Potential obstacles to its adoption by consumers and retailers remain largely unexplored in the academic and policy literature.
In October, the European Central Bank (“ECB”) published a paper that surveys the key elements involved in adopting any new means of payment and discusses failed and ongoing initiatives with public digital money. This paper suggests that, when considering the adoption and use of rCBDCs in their broader investigation of the topic, central banks may face a design choice problem that is more complex than generally assumed in policy reports and research literature.
Put simply, this design choice problem is as follows: how to maximize the number of desired policy goals effectively implemented, subject to constraints such as (i) sufficient adoption by and demand from consumers and merchants to fulfill the desired policy goals and (ii) the so-called “do not harm” principle or avoiding negative economic implications. It concludes that ensuring the desired level of adoption of rCBDCs may impose significant constraints on central bank design choices and policy goals. In fact, in some settings, central banks may find themselves on the horns of a dilemma in seeking to balance the needs to (i) preserve the central bank’s hierarchy of policy goals, (ii) increase the chances of adoption and use of rCBDCs by consumers and retailers, and (iii) avoid any adverse economic effects.
This paper is an initial attempt to systematically cover the aspects central banks need to consider in trying to achieve their desired level of adoption and use.
For more information click here
2. Consultation Paper – Proposed Regulatory Measures for Digital Payment Token Services / MAS
On October 26, 2022, the Monetary Authority of Singapore (“MAS“) published a proposed regulatory measure for digital payment token services which sets out proposed regulatory measures for licensees and exempt payment service providers that carry on a business of providing a digital payment token (“DPT”) under the Payment Services Act 2019. Alongside this consultation paper, MAS has also published a consultation paper on the proposed regulatory approach for stablecoin-related activities.
MAS invites interested parties to provide their comments and feedback by December 21, 2022, inter alia, regarding these themes:
1) The option for the treatment of DPT holding for the purpose of determining a customer’s eligibility as an Accredited Investor (AI).
2) To assess the retail customer’s knowledge of the risks of DPT services, as well as the risks to be covered by the assessment or suggestion of possible next steps for DPT service providers, should the retail customer be assessed not to have sufficient knowledge of the risks of DPT services.
3) To restrict DPT service providers from offering incentives to retail customers.
4) Restrictions on debt-financed and leveraged DPT transactions.
5) Suggestions regarding effective systems, procedures, and arrangements that DPT trading platform operators should implement to promote fair, orderly, transparent trading of DPTs offered for sale on their trading platform.
6) Effective measures, including the implementation of market surveillance mechanisms, to detect and deter the unfair trading practice.
For more information click here
To submit comments click here
3. Eleven Defendants Arrested for Investment Fraud, Money Laundering, and Unlicensed Money Transmitting Business Schemes / U.S. Attorney’s Office Eastern District of New York
Defendants Allegedly Defrauded Victims of Almost $18 Million as Part of “Pig Butchering” Investment Fraud and Money Laundering Schemes and Illegally Converted More Than $52 Million of Cash to Cashier’s Checks. As alleged, nearly $18 million was swindled from over 200 victims throughout the country and laundered through the defendants’ sophisticated money laundering scheme.
According to the indictment and a memorandum filed in connection with the defendants’ bail hearings, the defendants engaged in a money laundering conspiracy dating back to May 2021 in which they laundered proceeds from an investment fraud scheme referred to as “Sha Zu Pan” or the “pig butchering” scam. Through this scam, more than 200 victims were contacted through messaging applications and convinced to invest almost $18 million in trading platforms by sending funds to purported money manager bank accounts that were later stolen. The defendants also operated an unlicensed money-transmitting business in which they converted approximately $52 million in cash into cashier’s checks on behalf of customers. As payment for their services, the defendants received a fee, which was generally a portion of the fee that the business received. As part of these criminal schemes, the defendants opened bank and cryptocurrency accounts under false names, using forged passports and identification documents of real people.
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4. FinCEN Announces $29 Million Enforcement Action Against Virtual Asset Service Provider Bittrex for Willful Violations of the Bank Secrecy Act / FinCEN
The Financial Crimes Enforcement Network (“FinCEN”) has assessed a civil money penalty in the amount of $29,280,829.20 against Bittrex, a private company that provides online virtual currency exchange and hosted wallet services, for violations of the Bank Secrecy Act (“BSA”) and FinCEN’s implementing regulations. FinCEN’s action is part of a global settlement with the Office of Foreign Assets Control (“OFAC”).
FinCEN’s investigation found that, from February 2014 through December 2018, Bittrex failed to maintain an effective AML program. Bittrex’s program failed to appropriately address the risks associated with the products and services it offered, including anonymity-enhanced cryptocurrencies.
Bittrex failed to implement effective transaction monitoring on its trading platform, relying on as few as two employees with minimal anti-money laundering training and experience to manually review all the transactions for suspicious activity, which at times were over 20,000 per day.
Bittrex conducted over 116,000 transactions valued at over $260 million with entities and individuals located in jurisdictions subject to comprehensive OFAC sanctions, including transactions with entities and individuals operating openly from OFAC – sanctioned jurisdictions such as Iran, Cuba, Sudan, Syria, and the Crimea region of Ukraine.
For more information click here
For the Consent Order imposing civil money click here
5. Basel AML Index 2022: 11th Public Edition – Ranking Money Laundering and Terrorist Financing Risks Around the World/ Basel
In October 2022, the Basel AML Index released the 11th Public Edition of the Basel AML Index which measures the risk of money laundering and terrorist financing (ML/TF) in jurisdictions around the world. Risk, as measured by the Basel AML Index, is defined as a jurisdiction’s vulnerability to ML / TF and its capacities to counter it; it is not intended as a measure of the actual amount of ML / TF activity in each jurisdiction. The countries risk scores in the range of 0 to 10 and rates them as low, medium, or high risk.
According to the index, the State of Israel is ranked again this year as one of the countries with the lowest risk of money laundering. Israel is placed in 116th place out of 128 with a score of 3.63, in this way it is ahead of countries such as the USA and Canada. In the current ranking, Israel has improved its score by a rate of 0.20 compared to 2021. In addition, Israel is ranked as the country with the lowest risk in the geographical category of the East Middle and North Africa.
According to the current ranking, the country that was ranked at the highest risk is Congo with a score of 8.30. Other countries rated high risk (in the first ten places) are: Haiti, Myanmar, Mozambique, Madagascar, Guinea-Bissau, Cambodia, Mali, Senegal and Vietnam. Finland, on the other hand, is at the lowest risk level with a score of 2.88.
For more information click here
The Financial Regulation practice at Shibolet accompanies and assists many enterprises in the world of Fintech and Finances in regulatory and operational processes in Israel and around the world
Financial Regulation Practice,
Shibolet & Co.
This update is provided as general information only and may not be relied upon in any individual case without additional legal advice.
