Launchy Regulatory Roundup #3 - Telegram CEO Arrested

📢 Sponsor | 💡 Telegram | 📰 Past Editions

Good Morning.

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

The US crypto industry has a bright future with both presidential candidates promising support. Meanwhile, Europe's regulatory environment, marked by MiCA and Pavel Durov's arrest, is making it less attractive for the crypto community 🦅 🦅 

In Today's Edition:

• Headline: Pavel Durov arrest 🤦 

• Global Legal Roundup: DAO, crypto political donation and more

• Case Study: Consolidated Audit Trail (CAT) 🤔 

You read and share. We listen and improve. Send us feedback at [email protected].

HEADLINE

Telegram Founder Pavel Durov Arrested

State of play: According to TF1, Telegram co-founder and CEO Pavel Durov was arrested in France on Saturday after arriving from Azerbaijan on his private jet, causing the price of Toncoin ($TON) to plummet.

• Durov faces multiple charges related to alleged illegal activities by Telegram users, including facilitating terrorism, drug and stolen goods sales, and fraud, which the platform allegedly failed to moderate.

• Durov was reportedly the subject of a search warrant from OFMIN, a French agency combating child sexual exploitation.

• According to the TF1 report, Durov was presented to an investigating judge this Saturday evening before a possible official indictment today.

• An investigator from France's National Anti-Fraud Office (ONAF) stated that Pavel Durov is likely to end up in pre-trial detention.

• According to CoinGecko data, TON is down nearly 17% in the past 24 hours, dropping from $6.80 before the reports to $5.59.

• TON stated it remains fully operational and stands by Pavel during “this challenging time.”

What’s Next: This issue could drag TON and expand the investigation to the blockchain as Telegram uses Toncoin for its ads payment.

Why it Matters: TON could be included in the investigation, the long-term impact is the network's decentralization and the possibility of Telegram and TON exiting Europe.

• EU’s Digital Services Act (DSA) holds platforms liable for illegal user content.

Our Take: The arrest highlights the growing tension between tech platforms (including crypto) and regulators around the world.

• Durov's situation also could lead to broader skepticism about the stability of blockchain projects associated with prominent individuals.

GLOBAL LEGAL ROUNDUP

🇦🇺 ASIC Wins Case Against Kraken’s Bit Trade

The Federal Court of Australia ruled that Bit Trade Pty Ltd, Kraken's operator in Australia, violated the Corporations Act by offering a financial product without making the required "target market determination."

• The Australian Securities and Investments Commission (ASIC) brought the case, emphasizing that Kraken's margin extension product had been offered without meeting legal requirements.

• Kraken expressed disappointment but agreed to comply with the ruling.

• ASIC is seeking financial penalties, highlighting the importance of regulatory compliance in the crypto industry.

🇺🇲 Treasury Withdraws KYC Proposal, FinCEN's Travel Rule Persists

The US Treasury Department has formally withdrawn a 2020 proposal that sought to impose know-your-customer (KYC) requirements on unhosted crypto wallets, which had faced significant opposition from the crypto industry.

• The proposal, initially introduced during the Trump administration, was seen as impractical and overly restrictive.

• The withdrawal marks a victory for the crypto industry, although another related proposal from 2020 from FinCEN is still alive.

• FinCEN seeks to implement the Travel Rule by requiring financial institutions to report personal information for crypto transactions over a certain limit, which remains under consideration.

🇺🇲 Crypto Leads 2024 Political Donations

Nearly half of all corporate political contributions in the 2024 election cycle have come from cryptocurrency companies, totaling $119M out of $248M, according to a report by Public Citizen.

• Most of these donations have supported pro-crypto super PACs like Fairshake.

• The report describes the crypto industry's political spending as "unprecedented."

• Since 2010, only the fossil fuel industry has outspent crypto companies, donating $162M to fossil fuel-friendly politicians.

🇺🇲 Kamala Harris Wants to Support Crypto

Democratic presidential candidate Kamala Harris plans to support policies that promote the growth of the cryptocurrency industry, according to her senior policy advisor, Brian Nelson.

• The crypto community has been critical of the Biden administration's regulatory approach.

• Harris is reportedly working with Brian Deese and Bharat Ramamurti, key anti-crypto officials from the Biden administration who opposed the Clarity for Payment Stablecoins Act of 2023.

• Crypto4Harris, a group of Democrat-leaning crypto advocates, held an online town hall last week to discuss the path forward, inviting industry leaders and enthusiasts to support the Harris for President campaign.

🇺🇲 Judge Rejects SEC's Bid to Challenge Key Argument in Justin Sun Case

A New York District Judge denied the SEC's attempt to challenge a key argument in Tron founder Justin Sun's motion to dismiss the case against him.

• The SEC's lawsuit, which began in March 2023, accuses Sun of unregistered securities trading related to Tron and BitTorrent tokens.

• Sun argues the SEC overreaches by applying US laws to foreign transactions, as the tokens were sold "entirely overseas."

• The case is set to continue.

🇩🇪 Germany's BaFin Seizes 13 Illegal Crypto ATMs

Germany's financial regulator, BaFin, seized 13 crypto ATMs in a raid, citing their operation without the required BaFin permission and posing money laundering risks.

• The raid, conducted across 35 locations with police and Deutsche Bundesbank support, also resulted in the confiscation of nearly €250,000.

• Operating crypto ATMs without a license in Germany is illegal and can lead to prosecution and up to five years in prison.

• The country is enforcing the EU's Markets in Crypto Assets legislation framework.

🇭🇰 Hong Kong Lawmaker Calls for DAO Regulation

Hong Kong lawmaker Johnny Ng has urged the government to explore regulating DAOs after a recent High Court ruling required defendants to disclose financial records related to a DAO project.

• Ng emphasized that establishing a legal framework for DAOs could help position Hong Kong as a global Web3 hub.

• The case, involving the Mantra DAO and accusations of asset misappropriation, may set a significant legal precedent for the Web3 industry.

• Ng has also advocated for better banking access for crypto firms in Hong Kong, which recently introduced a crypto licensing regime.

🇦🇪 Abu Dhabi Proposes Regulatory Framework for Fiat-Referenced Tokens

Abu Dhabi's financial regulator, the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM), has proposed a regulatory framework for fiat-referenced tokens (FRTs), a type of stablecoin.

• The framework includes requirements such as maintaining reserve assets equal to the par value of all FRTs in circulation and managing segregated pools of reserves for different FRTs.

• The FSRA has invited public feedback on the proposal, with a deadline of October 3, 2024, before finalizing the regulations.

• This move aligns with the UAE's broader efforts to position itself as a global crypto hub.

More Regulatory Updates:

• Nigeria plans to introduce a crypto licensing process.

• Kraken’s motion to dismiss the US SEC case was denied.

• Malaysian authorities destroy over 900 Bitcoin mining rigs.

• Sen. Tim Scott floats creating a digital asset-focused panel.

• Prometheum to treat Uniswap and Arbitrum's Tokens as Securities.

• Crypto-backed Ansari Narrowly wins Arizona primary by 39 votes.

CASE STUDY

Crypto Groups Warn SEC's CAT Threatens Privacy

State of play: The DeFi Education Fund and the Blockchain Association have filed an amicus brief in a lawsuit against the SEC, its chairman Gary Gensler, and the Consolidated Audit Trail (CAT).

• CAT is a database tracking securities transactions

• The brief argues that the CAT could expose extensive personal information linked to blockchain wallet addresses, compromising privacy on public blockchains.

• The CAT's design, which was originally intended for traditional securities, may inadvertently create significant privacy and security risks for blockchain users.

Our Take: CAT poses risks in a space that values decentralization and security, with the CAT potentially becoming a target for hackers and a tool for excessive surveillance.

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

• Wassielawyer read about the types of lawyers in Web3.

• Matt Walsh read about Prometheum's action against Uniswap and Arbitrum.

• Daniel Barabander read about the Computer Fraud and Abuse Act (CFAA) and browser extensions.

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

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.