Crypto regulation in the world: weekly digest #124

USA

A U.S. federal appeals court has recently overturned sanctions imposed by the Treasury Department on Tornado Cash, a cryptocurrency mixing platform. This ruling, issued by the Fifth Circuit Court of Appeals, determined that the Treasury's Office of Foreign Assets Control (OFAC) exceeded its authority when it sanctioned the protocol.

Tornado Cash was sanctioned in August 2022 due to its alleged involvement in laundering over $7 billion in cryptocurrency, including funds linked to North Korean hacking activities. Critics of the sanctions argued that penalizing open-source technology for the actions of some users was inappropriate and counterproductive.

The court concluded that Tornado Cash's immutable smart contracts, which operate autonomously on the Ethereum blockchain, do not qualify as "property" under federal law. This decision signifies that such smart contracts cannot be owned or controlled, thus falling outside the jurisdiction of OFAC sanctions.

The ruling stemmed from a legal challenge initiated by six Tornado Cash users, supported by Coinbase. They argued that since the smart contracts cannot be owned or controlled by any entity, they should not be subject to sanctions. The court agreed, stating that OFAC's actions were beyond its legal bounds.

The decision is seen as a significant victory for advocates of privacy and decentralized technologies. It raises critical questions about how to regulate blockchain tools used in illicit activities without infringing on privacy rights or stifling innovation. While this ruling protects Tornado Cash's smart contracts from sanctions, its founders still face legal scrutiny for alleged money laundering activities.

The U.S. Treasury Department has not yet indicated whether it will appeal the recent ruling. While the possibility of an appeal exists, it may be unlikely for the Supreme Court to overturn this decision, given the court's clear reasoning regarding the nature of smart contracts and their classification under federal law. However, the Treasury has not publicly commented on its next steps, leaving open the question of whether further legal action will be pursued.

If the decision will come into force, the Tornado Cash mixer’s addresses will no longer be listed on the Specially Designated Nationals (SDN) list, allowing for potential transactions involving the platform to resume without legal repercussions for U.S. persons.

Brazil

Brazil is considering a significant legislative proposal aimed at establishing a Sovereign Strategic Bitcoin Reserve. Introduced in the country’s Congress the bill proposal seeks to allocate up to 5% of Brazil's international reserves, approximately $18.6 billion, to Bitcoin through a phased acquisition strategy. This initiative is designed to enhance economic resilience, diversify national treasury assets, and provide backing for Brazil's forthcoming central bank digital currency, the Drex.

The reserve aims to protect Brazil's financial assets from currency fluctuations and geopolitical risks, thereby stabilizing the economy. RESBit will serve as collateral for the Drex, which is Brazil's planned digital currency. The management of the reserve will utilize blockchain and artificial intelligence technologies to ensure transaction integrity and operational security.

The bill stipulates that Brazil's Central Bank and Ministry of Finance will be responsible for the custody and management of the Bitcoin assets. They are required to report on the reserve's performance, acquisitions, and associated risks every six months to maintain transparency. Additionally, the proposal includes measures for educational initiatives aimed at fostering public understanding of cryptocurrencies and blockchain technology.

Brazil's move is reminiscent of El Salvador's decision to adopt Bitcoin as legal tender in 2021, which has been cited as an example of how cryptocurrency can contribute to economic diversification and financial inclusion. The Brazilian proposal also aligns with global trends where countries are increasingly integrating digital assets into their financial strategies.

As of now, the bill is under review by the Speaker of Brazil’s House of Representatives. If approved, it will move on to various committees for further discussion and potential amendments before a final vote.

In the U.S., Senator Cynthia Lummis is planning to reintroduce a similar legislation. Her proposal suggests that the U.S. Treasury purchase 1 million bitcoins over five years, which would represent about 5% of the total global supply.

Russia

Russian government has recently adopted a law that officially recognizes cryptocurrencies, such as Bitcoin, as property in the country. This legislation introduces a comprehensive framework for the taxation and regulation of digital assets, marking a pivotal step in Russia's approach to the cryptocurrency sector. The law classifies digital currencies as property, granting them legal status and enabling their use in various activities, including foreign trade under controlled conditions. This classification ensures that cryptocurrencies are afforded the same protections and responsibilities as other forms of property.

The legislation also establishes a tiered taxation system for cryptocurrency transactions. A 13% tax rate applies to income up to 2.4 million rubles (approximately $24000), while a 15% tax rate is imposed on income exceeding this threshold. From 2025, corporate entities engaged in cryptocurrency mining will be subject to a standard corporate tax rate of 25%.

Cryptocurrency mining and sales are exempt from VAT, which aims to reduce the financial burden on these activities and encourage operational feasibility within the sector.

The new law is set to take effect on January 1, 2025, providing time for individuals and businesses to adapt to the new regulatory environment. This timeline reflects Russia's broader strategy to integrate cryptocurrencies into its economy while ensuring compliance with regulatory standards.

News from other countries:

• South Korea has officially delayed the implementation of its cryptocurrency tax for an additional two years, moving the new effective date to 2027. The tax was initially scheduled to take effect in January 2025 but has now been postponed for the third time due to political negotiations and concerns about its potential impact on the market.

• Nigeria has restarted its lawsuit against Binance, focusing on allegations of money laundering involving over $35 million. The Economic and Financial Crimes Commission of Nigeria filed an amended lawsuit in the Federal High Court in Abuja, targeting Binance and its fugitive regional manager, Nadeem Anjarwalla, who is accused of concealing illicit funds generated from the exchange's operations in Nigeria.

• Rwanda is actively preparing to regulate cryptocurrencies, with plans to establish a regulatory framework by the first quarter of 2025. The National Bank of Rwanda (NBR) is collaborating with the Capital Markets Authority (CMA) to create regulations governing the use and trading of virtual assets in the country.

We continue to highlight the news of the world of crypto regulation worldwide. Please stay with us!