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CipherTrace Crypto Advisory | Non-Fungible? Not So Fast

Non-Fungible? Not So Fast | Canada Issues KYC Requirements | Coinbase Fined by CFTC | CBDCs Advance in U.S., Thailand | The Link Between COVID & Money Laundering


  • SEC Commissioner Warns that Split or Bundled NFTS Could Be Unregistered Securities
  • FINTRAC Issues KYC Guidance for Virtual Currency Transactions
  • Coinbase Accused of Misleading Users, Fined $6.5 Million
  • U.S., Thailand Advance Their CBDC Plans
  • Authorities See Spike in Money Laundering Linked to COVID Restrictions


ICYMI: Watch Dave’s ACFCS webinar on Travel Rule enforcement anytime!


Are NFTs Securities? Peirce Warns Against Fractionalized Tokens and NFT Index Baskets

As NFTs continue to heat up, SEC commissioner Hester Peirce warned in a recent Cointelegraph fireside chat that under some circumstances, NFTs could be considering securities, placing sellers in legal limbo. The non-fungible nature of NFTs, Peirce said, could be defeated by some of the uses to which NFTs are being put. “People are being very creative in the type of NFTs they are putting out there,” Peirce said, saying that fractionalized NFTs and index baskets could be considered investment products.

During her fireside chat, Peirce also criticized the use of the Howey Test to assess whether crypto assets are securities, claiming it “hasn’t worked that well” for the crypto industry, so far. Peirce, also known informally as Crypto Mom, hopes to collaborate with incoming SEC chairman Gary Gensler to further develop her “safe harbor plan,” to which emerging blockchain networks such as NFTs can benefit.

Why it matters: There’s palpable excitement around NFTs, especially following the sale of graphic designer Beeple’s “Everydays” artwork as an NFT for $69.3 million at auction, the third highest price ever paid for work by a living artist. While Peirce is warning about sales of NFT investment vehicles, there’s also the possibility that NFTs will become popular vehicles for money laundering. The Financial Action Task Force (FATF) covered NFTs and their ML potential in their latest crypto guidance.

Read more:

Read our analysis of the Proposed FATF Guidance for Virtual Assets and VASPs:


Canadian MSBs to Face New KYC Requirements for Virtual Currency Transactions

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit, has issued new guidance for MSBs operating in the country. Under the new rules, MSBs and foreign MSBs will be required to identify clients from which they are receiving virtual currency equivalent to $10,000. The transfer, exchange, or remittance of virtual currency equivalent to $1,000 will likewise trigger KYC verification requirements.

MSBs are expected to comply with the updated guidance by June 1, 2021.

Why it matters: FINTRAC now considers Virtual Asset Service Providers to be MSBs. As such, VASPs operating in Canada must now comply with more stringent KYC verification requirements, as well as ongoing monitoring and reporting.

Read our analysis: 

Read the guidance in full:


In-House Trading Software Used by Coinbase Results in CFTC Settlement

Popular crypto platform Coinbase was fined $6.5 million by the Commodity Futures Trading Commission (CFTC) in response to a number of allegations surrounding their GDAX trading platform, also known as Coinbase Pro. Complaints detail that the platform misled its users by displaying inaccurate and misleading information pertaining to digital assets. The CFTC is also alleging wash trading by a former unnamed Coinbase employee.

In a statement to Decrypt, Coinbase said, “Coinbase has reached a settlement with the CFTC regarding activities that happened and ended years ago. The settlement order today does not include any finding of harm to any Coinbase customer.” In an unusual move, CFTC Commissioner Dawn Stump issued a concurrent statement alleging illegal market manipulation but saying that the CFTC does not have jurisdiction over Coinbase.

Why it matters: With the crypto space evolving at such a rapid pace, regulators around the world are implementing and enforcing AML, as well as consumer protection laws. At the same time, there are issues of jurisdiction and responsibility that have yet to be decided. Currently, no single US federal agency has been tasked with regulating this booming market.

Read more here:


US and Thailand Continue CBDC Development

The United States continues to discuss the digital dollar but finds itself behind many countries around the world in the development of a central bank digital currency. Last week at a conference in Basel, Switzerland, Federal Reserve Chair Jerome Powell state that “digital currencies would need to be integrated into existing payment systems alongside cash and other forms of money.”

Though Powell’s statement was taken as supportive of traditional finance by many banks harboring concerns about cryptocurrencies, Treasury Secretary Janet Yellen has been somewhat bullish on a digital dollar, remarking last month that a CBDC could help Americans lacking access to traditional financial systems. The Boston Fed and MIT are working in concert on a digital dollar project and hope to unveil a prototype in Q3 of 2021.

Why imatters: While the US drags its feet on CDBC development, other countries forge ahead. Thailand recently released updated guidelines that draw a distinction between state-backed securities and non-BAHT-backed stablecoins.

Read more here:

and here:


Money Laundering on the Rise as a Result of the Covid-19 Pandemic

While most of the world was under lockdown to prevent the spread of Covid-19, business ground to a halt. At the same time, criminals took advantage of the increased digitization of transactions to launder incredible amounts of money. The UN has estimated that $1.6 trillion is laundered each year, with criminal proceeds encompassing 3.6% of global GDP. The Financial Action Task Force (FATF) has meanwhile reported an increase in money laundering over the course of the pandemic, with 60 million new bank accounts opened during the crisis. Notably, many of the digital IDs associated with these 60 million new accounts could not be verified.

Why it matters: As the digital economy becomes synonymous with the global economy, bad actors will seek to take advantage of oversight challenges facing banks and other financial institutions. Banks remain woefully unaware of the levels of cryptocurrency transactions happening on their payment networks, which only aids criminal enterprises. Blockchain analytics and cryptocurrency intelligence tools are quickly moving from a future need to an essential in the now.

Watch the Financial Times video here:

Read more on how CipherTrace can help detect crypto-related payments in your bank’s networks:

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