August 25, 2023

The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released proposed regulations regarding reporting requirements for the sale and exchange of digital assets by “brokers,” the term used to describe digital asset trading platforms, digital asset payment processors, certain digital asset hosted wallet providers, and persons who regularly offer to redeem digital assets created or issued by that person (e.g., ICO token issuers and stablecoin issuers). The proposed regulations would also subject digital assets brokers to the same information reporting rules as brokers for securities and other financial instruments. They are open for public comment until October 30. 

House Financial Services Committee (HFSC) Chair Patrick McHenry (R-NC) said in a statement, “Following the passage of the Infrastructure Investment and Jobs Act, numerous lawmakers of both parties made clear that any proposed rule must be narrow, tailored, and clear. I’m glad to see the delayed effective date and exemptions for other activities in the proposed rule mirror my bipartisan bill, the Keep Innovation in America Act. However, it fails on numerous other counts. Any additional rulemakings related to the other sections from the law must adhere to Congressional intent.”

The Board of Governors of the Federal Reserve (FRB) Chair Jerome Powell delivered remarks on the FRB’s progress toward lowering inflation, announcing that the FRB will proceed carefully as it decides whether to tighten monetary policy further.

The FRB announced the termination of an enforcement action with HSBC Holdings PLC and HSBC North America Holdings Inc.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Roman Semenov, one of three co-founders of the sanctioned virtual currency mixer Tornado Cash, for his role in providing material support to Tornado Cash and to the Lazarus Group, a state-sponsored hacking group that is an instrumentality of the Democratic People’s Republic of Korea (DPRK or North Korea). Tornado Cash has been used to launder funds for criminal actors since its creation in 2019, including to obfuscate hundreds of millions of dollars in virtual currency stolen by Lazarus Group hackers. 

This sanctions designation was conducted in coordination with the U.S. Department of Justice (DOJ), which unsealed an indictment against Semenov and a second co-founder of Tornado Cash, Roman Storm, who was arrested by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation. The DOJ charged Semenov and Storm with conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitting business, and conspiracy to commit sanctions violations. A third co-founder of Tornado Cash, Alexey Pertsev, was arrested on related money laundering charges in the Netherlands in August 2022 by Dutch law enforcement authorities.

Relatedly, the U.S. District Court for the Western District of Texas granted summary judgment for OFAC after the agency was sued by a group of Tornado Cash users, alleging that OFAC’s designation of Tornado Cash violated the First Amendment, Fifth Amendment, and Administrative Procedure Act. At issue was whether OFAC could sanction Tornado Cash (plaintiffs argued Tornado Cash is not a person or property), whether the designation prohibits free speech, and whether the designation’s impact on use of ether trapped in a Tornado Cash smart contract pool constituted a taking by OFAC. 

The Securities and Exchange Commission (SEC) announced it is adopting new rules under the Investment Advisers Act of 1940 aiming to protect investors who directly or indirectly invest in private funds by increasing visibility into certain practices. Sen. Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, applauded the rules, while HFSC Chair Patrick McHenry criticized them. 

The SEC charged Wells Fargo Clearing Services, L.L.C., and Wells Fargo Advisors Financial Network, L.L.C. (collectively, Wells Fargo), for allegedly overcharging more than 10,900 investment advisory accounts over $26.8 million in advisory fees. Wells Fargo agreed to pay a $35 million civil penalty to settle the SEC’s charges.

The SEC charged former New Jersey State correctional police officer John A. DeSalvo with fraudulently raising funds through the unregistered offering of the Blazar Token, a crypto asset security he created that collapsed in May 2022. The SEC also charged DeSalvo with misappropriating investor funds, alleging that he sent funds to his personal crypto asset wallets and used them to pay for a bathroom renovation.

HFSC Chair Patrick McHenry and Rep. Ann Wagner (R-MO), Chairman of the Capital Markets Subcommittee, sent a letter to the Public Company Accounting Oversight Board (PCAOB), urging the Board to reevaluate the proposed changes in its Exposure Draft regarding Company Noncompliance with Laws and Regulations (NOCLAR) standards. The letter claims that the proposed changes are in direct conflict with existing rules and risk undermining audit quality, auditor independence, and the materiality standard.

HFSC Ranking Member Maxine Waters (D-CA) and Reps. Al Green (D-TX), Juan Vargas (D-CA), Ayanna Pressley (D-MA), Rashida Tlaib (D-MI), Nikema Williams (D-GA), Ritchie Torres (D-NY), and Steven Horsford (D-NV) sent a letter urging the Federal Housing Finance Agency (FHFA) to use its full authority to provide permanent and meaningful protections for tenants residing in multifamily housing financed with mortgages backed by Fannie Mae and Freddie Mac.

The Biden-Harris Administration announced the launch of the SAVE Plan, a student loan repayment plan intended to lower monthly payments for borrowers. The SAVE plan is an income-driven repayment (IDR) plan that calculates payments based on a borrower’s income and family size – not their loan balance – and forgives remaining balances after a certain number of years.

From August 1st to August 23rd, the Biden Administration continued to engage in actions aimed at maintaining but not expanding Russia and Iran sanctions. China also continued to factor considerably into the Biden Administration’s calculus, particularly with the issuance of outbound investment restrictions. Congress was in recess during the reporting period but conducted activities to prepare for its return. Read more in our latest Sanctions Watch here.

Need to catch up on what happened earlier this week? Check out our Midweek Update here