Background - Digital Assets

Digital Assets

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"Blockchain, on which digital assets are built, is altering the way nearly every industry segment operates. We understand the legal, compliance, and business issues that are implicated by digital assets—and our practical, real-world advice helps enterprises move decisively and efficiently to drive value from digital transformation."

- Michelle Gitlitz
Global Head of Crowell & Moring’s Blockchain & Digital Assets Practice

Today, digital assets—including virtual currencies, central bank digital currencies, security tokens/digital securities, crypto-commodities, and other tokens—are expanding into every sector and industry, creating opportunities for entrepreneurs and organizations around the world. As their use grows, digital asset businesses are encountering challenges with federal and state laws that were established before such assets existed.

Businesses in the digital asset ecosystem must understand whether they must register with the Financial Crimes Enforcement Network (FinCEN) as a money transmitter or secure state money transmitter licenses. They may potentially submit to regulation by the Securities and Exchange Commission (SEC) or the Commodities and Futures Trading Commission (CFTC). They must also understand the tax implications of their business activities and their reporting responsibilities to the Internal Revenue Service (IRS). These digital asset businesses include:

  • Exchanges that convert fiat currency for virtual currency
  • Bitcoin ATM providers, custodians, or wallet providers
  • Those that tokenize equity, debt, or assets such as real estate, or use purchasable tokens as a means of conducting other operations

Crowell & Moring’s multidisciplinary Blockchain & Digital Assets Practice helps you successfully navigate this complexity. Our team provides advice on structuring digital asset business models, token offerings, and transactions. We also offer experience on potential risks and relevant regulations, policy, and guidance as well as on the implementation of reasonable, efficient strategies specific to your business.

If You Transmit, Your Cryptocurrency May Need to Submit

A Cross-Sector Focus on Digital Assets:

  • AML and Economic Sanctions
  • Energy
  • Gaming and Social Media
  • Investment Funds, Investors, and Asset Managers
  • Operation of Exchanges
  • Payments
  • Real Estate and Art
  • Security Token Offerings
  • Supply Chain Management and Logistics
  • Trade Clearing and Settlement

Businesses in the US face multiple federal agencies asserting jurisdiction over various aspects of digital assets as well as a patchwork of state money-transmitter rules that exist in parallel to federal requirements. Regulatory guidance continues to evolve, even as regulators seek to assert their jurisdiction through new enforcement actions in this area. Similar trends are playing out in foreign jurisdictions. The need for careful and strategic legal advice by experienced professionals who understand both the regulators and the technologies is high and will remain so.

Experienced Guidance for Evolving Regulatory Complexities
Our Blockchain & Digital Assets Practice helps multinational institutions, traditional companies, and virtual currency innovators navigate the regulatory landscape across federal, state, and foreign jurisdictions, including guidance on:

  • Federal anti-money laundering (AML) requirements under the Bank Secrecy Act (BSA) and FinCEN’s guidance on virtual currency
  • State-by-state cryptocurrency regulations and money transmission licensing
  • SEC regulations (Reg S, Reg D, and Reg A for security token offerings) and no-action relief letters
  • CFTC rules
  • Internal Revenue Code provisions and IRS guidance
  • Civil and criminal enforcement actions against digital asset businesses across all of these agencies
  • Public-private partnerships between regulators, law enforcement, and industry participants
  • Advocacy for legislation, rule changes, and exemptive relief in the digital assets space

Access Experienced Advice on Digital Transactions
To assist our clients, we maintain an evolving, fifty-state survey of regulatory requirements for digital assets. For businesses using security tokens or digital securities, we provide advice on compliance with SEC rules and guidance. For digital assets that are considered commodities, we provide counsel on compliance with CFTC rules. In addition, we offer robust tax advice and tax planning for digital asset businesses.

Launching a business that uses blockchain-based tokens can introduce other concerns that must be identified and resolved to ensure maximum return on investment, including the security and stability of mission-critical systems and data, cross-border and US data privacy issues, and the protection of intellectual property. When needed, we partner with our colleagues in London and Brussels to address EU AML rules and EU data privacy rules. We leverage Crowell’s traditional excellence in complex regulatory matters with deep experience in tailored approaches to corporate structure, raising capital, and a strong understanding of the broader technology context.

A Team Fluent in Blockchain

Bitcoin, the most well-known cryptocurrency, is built on blockchain, a form of distributed ledger technology. Our tech-savvy Blockchain & Digital Assets lawyers have been at the forefront of the enterprise blockchain space from the earliest stages of its development. Our work has been industry-agnostic, helping clients in all verticals bring their blockchain and digital asset businesses to market. Our practice includes lawyers with prior professional experience; software developers, data scientists, and consultants in the tech industry; and nationally recognized technology lawyers who understand the competitive landscape that is driving innovation, including:

  • A cofounder of Diversity in Blockchain, Inc., a nonprofit organization committed to creating equal, open, and inclusive opportunities in the blockchain industry
  • A 2018 National Law Journal and New York Law Journal “ Cryptocurrency, Blockchain, and Fintech Trailblazer”
  • A former Chief Counsel of FinCEN and Assistant Director with OFAC
  • Members and contributors to the Wall Street Blockchain Alliance and the Digital Chamber of Commerce

Proven Experience at the Forefront of the Digital Economy
With our expertise, clients can unlock more value from their digital transactions while ensuring compliance. Recent engagements include:

  • Designing a complete AML and OFAC sanctions compliance programs for multiple virtual currency exchangers and custodians
  • Representing clients before FinCEN, the SEC, CFTC, and state regulators to negotiate regulatory treatment of digital asset business models
  • Counseling clients on money transmission issues relating to digital wallets for both person-to-person (P2P) and person-to-business (P2B) payments
  • Advising clients on legal, regulatory, and risk management issues surrounding coin or token offerings, including launching new security token offerings and remediating prior offerings
  • Advising on regulatory treatment and registration strategy for a virtual currency-trading platform led by the former head of the New York Mercantile Exchange
  • Advising utility token startup on AML issues relating to an initial coin offering (ICO) and subsequent exchanges and administration of the new token

The global cryptocurrency market was valued at $856.36 billion in 2018 and is projected to display robust growth of 11.9% during 2019–2024.
Source: Research and Markets Report