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As the adoption of cryptocurrencies — or digital currencies that are encrypted for security — spreads throughout the business and financial sectors, so too do the concerns that lack of regulation render the new-age currency susceptible to fraud, manipulation, and to being used as a vehicle for money laundering. Nevertheless, recent efforts by U.S. enforcement agencies to apply and enforce financial regulations indicate that cryptocurrency-based transactions will be under greater scrutiny than ever before.

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The Securities and Exchange Commission (SEC) recently issued a report suggesting that it broadly considers Initial Coin Offerings (ICOs) — a popular method of raising investment funds through cryptocurrency, which function like traditional securities offerings — to be subject to federal securities laws, and has since established a Cyber Unit that will target securities violations involving ICOs. Now, those involved in global ICOs and similar transactions will need to consider whether the cryptocurrencies concerned are securities, as well as the extent to which U.S. securities laws apply to such transactions made outside the United States.

In a recent shot across the bow after issuing its report, the SEC filed an emergency TRO to freeze the assets of a Brooklyn-based businessman and two of his companies in an attempt to halt two ongoing ICOs, including one that the SEC claimed was disguised as a club membership. The Department of Justice (DOJ) too has recently weighed in. In July, the DOJ brought criminal charges against BTC-e, a major foreign platform for buying and selling virtual currencies, and its Russian operator for violations of U.S. anti-money laundering laws. Other countries, including the United Kingdom and Japan, similarly have indicated that regulatory reform to address cryptocurrency growth is on the horizon. In light of this enforcement environment, those using cryptocurrency to do business need to pay attention to the rules of financial regulatory compliance and the possibility of defending civil or criminal charges.

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