Throughout history, states pursued control over economic transactions using regulations. Today, the regulatory apparatus of states all around the world is facing a new complicated task, regulating digital assets (cryptocurrencies).
In this article, we will analyze crypto legislations and their development all around the world. The range of analyzed issues was chosen on the basis of their applicability in the course of business activities, that can be done in the selected jurisdictions.
The reason behind such a choice of described jurisdictions is, such as the existence of regulatory policy for crypto-assets and blockchain, the history of its application, and the exciting business activity in the described countries.
Table of Contents
Importance of Crypto Compliance
Compliance in the sphere of the crypto domain is quite a new thing, as cryptocurrencies have been around for just a decade.
Moreover, it is difficult to fit the crypto- mechanisms to the existing frame of the legislature. However, that is, in most cases, what governments are trying to do.
For companies, that are going to work with crypto-assets it is of crucial importance to be aware of different requirements to meet their compliance obligations. That’s is because a few peoples and companies crypto community have faced charges, fines, and penalties, in some cases, up to criminal liability. Simply saying, mistakes in terms of compliance in some jurisdictions can easily get you in trouble.
This article is written for those interested in entering the crypto domain, but are not sure in terms of compliance with the regulations or are currently looking for the best suitable legal regime.
Most states prefer not to draft any new legislation regarding crypto-assets and try to fit to exciting scopes of regulation. For example, usually, governments refer to cryptocurrency as “virtual assets”.
In that regard, they are not creating a special legal regime for such new assets-they simply applying or extending the exciting one for virtual asset relates transactions: payment methods, sales, Initial Coin Offerings, Anti Money Laundering, etc.
Who usually drafts regulations?
Every government around the world have their respective agencies are accountable for drafting regulations. However, in many jurisdictions, no special regulatory bodies were created except for parliamentary committees and expert groups to regulate the virtual assets.
What all the major countries have in common and how they differ?
As we mentioned earlier, major countries are just beginning the process of drafting legislation regarding blockchain and this is going to take time to come with proper laws to regulate crypto assets. However, some approaches in terms of regulations are pretty much the same:
+++ Clear particular regulations exist
++ Specific regulations exist on the governmental level
+ Regulations exist
— Issue is not regulated
Lets take a closer look at every major jurisdiction.
Also Read: An Overview of Markets in Crypto-assets (MiCA)
United States of America
Legislature on blockchain and cryptocurrencies varies from state to state. However, there are certain branches and organizations that provide some legal guidance in terms of technical compliance in that field.
Blockchain and cryptocurrency lie is in the scope of MSB ( money services business ). FinCEN defines MSB as any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of E.G Currency dealer or exchanger, Check cashier and etc. 
On March 18, 2013, virtual currency exchange and administration of a centralized repository of virtual were added to the MSB list .
All companies, that have operations in blockchain and in cryptocurrencies are bound by Bank Secrecy Act to establish and maintain an effective written AML program reasonably designed to prevent money laundering and the financing of terrorist activities . AML requirements are laid out in 31 CFR § 1022.210, an MSB’s AML . They oblige every MSB to incorporate policies, procedures, and internal controls reasonably designed to assure compliance with the BSA and its implementing regulations.
MSBs are obliged totake precautions against economical crimes, including implementing Know Your Customer (KYC) and AML programs. For means of criminal, tax and regulatory investigations filing of Suspicious Activity Reports and Currency Transaction Reports is obligatory.
International Revenue Service also shows an extreme degree of interest in regard to blockchain and cryptocurrency transactions. In Notice 2014–21 IRS points out that paying for goods or services in a real-world economy transaction with “virtual currency”, has tax consequences that may result in a tax liability. Hence, General tax principles are applicable to crypto transactions .
Most of the litigation regarding blockchain is currently linked with two main things: copyright infringement (Blockchain.com v. Paymium, Oracle v. CryptoOracle), and fraud of investors (New York Office of the Attorney General v. Bitfinex). However, as far as the trend on cryptocurrencies goes, new cases against companies, involving, for example, AML requirements are yet to come.
Also read: Cryptocurrency Money Laundering Explained
Russian Duma (Parliament) has long begun a process of lawmaking regarding cryptocurrencies. On 22 of July 2020, a law on Digital Financial Assets was passed . It defines digital financial assets as digital rights of claim. Digital rights, pursuant to the Civil Code of the Russian Federation are recognized as binding and rights, the content and conditions of which are determined in accordance with the rules of the information system. Such a system must meet certain criteria, among which are:
- Ability to recover access to the assets in case of loss of such
- Uninterrupted access to the system
- Correctness of the information in the system
- Obligation to provide certain third parties with the information on assets of certain users (including the Russian Ministry of foreign affairs, etc)
Basically, the new law on Digital Financial Assets in some way equals such assets to securities, so ensuring compliance with 39-FZ “On the securities market”  is important.
KYC and AML
One of the most important laws that regulate both KYC and AML in Russia is 115-FZ “On Countering Money Laundering and the Financing of Terrorism” . This law obliges organizations to gather information clients (name, citizenship, etc.), to track beneficiaries, and to ensure the legal nature of personal funds.
This issue is very tightly linked with a common requirement for all IT-related business in Russia, which is compliance with 152-FZ on personal data protection. All the important requirements of this law must be taken into consideration as Russian state always keeps an eye on its violation.
Currently there is no particular regulation regarding taxation in the Russian field of cryptocurrencies. However, it seems like soon it will change, as the new Russian Prime Minister (Mr.Misschustin) is known for creating a very efficient taxation system. Moreover, the Russian government understands the potential behind blockchain but struggling to regulate and tax it.
Unfortunately, the law on Digital Financial Assets prohibits payment for services and goods with cryptocurrencies, but as the law has not come into action, sooner or later a wave of such cases can be expected. Frankly speaking, Russian litigation on cryptocurrency is not very detailed. Despite that even two years Russian courts have already recognized cryptocurrency as property 
Singapore is known as “crypto heaven”, not only because it is a one of the world’s financial centers, but also one of the reasons is the balanced legal and regulatory regime of the Monetary Authority of Singapore .
The main difference with all other major jurisdictions is that token will not be considered a security simply because of capital-raising activity being involved.
Pursuant to Singapore’s legislation, Sales of virtual currencies can be executed through: (a) private sale; (b) ICO; and © trading.
There are no particular regulations for retail investors specifically governing their trade operations with cryptocurrencies. However, MAS has issued a statement to advise the public to “act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies”.
Businesses that accept cryptocurrencies as a method of payment are subjected to normal income tax rules. To put that into perspective, if a business accepts payment in ETH or BTC, then it will be considered as revenue just as it would be if paid in fiat.
Individuals or businesses that buy and sell virtual currencies in the ordinary course of their business will be taxed on the profit derived from trading in the virtual currency.
Profits derived by businesses that are involved in mining and trading of virtual currencies in exchange for money are also subject to tax, as these would be considered “revenue”. Whether gains from the disposal of virtual currencies are subject to capital gains tax a «case-by-case» approach is used. Purpose, frequency of transactions, and holding periods are among the main factors when the taxation regime is determined.
AML and KYC
In Singapore following requirements are obligatory for execution:
- Know Your Client “KYC” requirements (source of income requirements).
- AML requirements.
- Combating of Financing of Terrorism requirements.
The following must be performed by businesses in terms of KYC:
- verify the customer’s identity including name, unique identification number, date of birth, nationality, and residential address;
- if the customer is not a natural person, verify the identities of the natural persons who have the authority to act for the customer;
- ascertain whether there are any beneficial persons and if so, the identities of those beneficial persons;
- check customer for being a politically exposed person
- conduct periodic reviewing of the adequacy of the customer information.
Also business must report suspicious transactions, such as:
- transactions which do not make economic sense;
- transactions involving large amounts of cash;
- transactions involving a high velocity of transactions through a bank account;
- transactions involving transfers abroad;
Also, the provisions of the Personal Data Protection Act must be performed. For example, when an individual’s personal data is collected, consent of the individual must be obtained and the individual must be informed on the purpose of such collection. Penalties for in compliance with the act go up to 1 000 000 USD .
Switzerland has had success in attracting developers and investors, largely due to its business-friendly regulations and digital expertise. This has led to the creation of the so-called “Crypto Valley” in the Zug-Zurich area, considered to be one of the world’s leading blockchain ecosystems.
In Switzerland, cryptocurrency-related activities are not prohibited and there are no Swiss statutes or regulations which are tailor-made to the phenomenon of cryptocurrencies. The only exclusion is AML-related legislation.
While offering and selling native payment tokens is not subject to Swiss sales regulations, an offer and sale of utility tokens and asset tokens may become subject to offer/ sales regulations, if the relevant sold tokens constitute securities.
Under Swiss Law, for tax purposes, cryptocurrencies must be converted into Swiss francs. The Federal Tax Administration provides year-end conversion rates for certain cryptocurrencies such as BTC, ETH, Ripple, BTC Cash, or LTC.
Depending on the canton, cryptocurrencies are considered to be assets, comparable with bank deposits, and are therefore subjected to wealth taxes.
If no current valuation rate can be determined, the cryptocurrency must be declared at the original purchase price in Swiss francs. However, the rules of taxation strongly depend on taxation.
AML and KYC
Under Swiss law, most of the crypto-related activities are subjected to anti-money laundering requirements.
There are two main groups of financial intermediaries under the Swiss Anti-Money Laundering Act: “banking sector”, and “non-banking sector”.
- Intermediaries of the “banking sector”. Such include banks or securities dealers.
- Intermediaries of the “nonbanking sector” which: (i) accept and hold on deposit assets belonging to third parties; (ii) assist in the investment of such assets; or (iii) assist in the transfer of such assets.
The AMLA and implementing regulations provide for a series of obligations that financial intermediaries must adhere to, e.g., regarding the verification of the identity of customers/ contracting parties as well as the beneficial owners of funds held .
Specific rules may apply to cryptocurrencies that are qualified as securities. In order to be considered an intermediary you must: accept or hold cryptocurrencies belonging to a third party or assist in the investment and transfer of cryptocurrencies
If the token can be owned or not, in particular, is linked with the question of whether they are qualified as securities or not. In the case of tokens, which do not qualify as securities, native payment tokens such as Bitcoin, the question of ownership stays to this moment unresolved.
There are no particular licensing procedures relating to cryptocurrencies in Switzerland and, therefore, a variety of licenses may be relevant in the area of cryptocurrencies, including the banking license and the securities dealer license.
Currently, the main regulatory body is the People’s Bank of China. The Banks Circular 2013 and Circular 2017 have formed the framework for the regulation of cryptocurrency, which has implied bans on Initial Coin Offerings (ban includes liability up to criminal liability).
According to Article 20 of the law on PBOC, “No units or individuals may print or sell promissory notes as substitutes for the Renminbi to circulate on the market.” As provided in the Circulars mentioned above, crypto trading platforms are banned, and no parties may directly trade or, serving as a central clearance party, indirectly trade cryptocurrencies. However, the authorities did not expressly imply a ban on the trading of cryptocurrency among its owners and users. Using this loophole, many cryptocurrency owners choose to trade the cryptocurrency via offshore crypto-trading platforms .
Up to this moment, there are no express provisions on the taxation of crypto assets. But, if cryptocurrencies are being traded as commodities, the transaction may be imposed with value-added tax for the sale of intangible assets.
AML and KYC
AML mechanisms in China largely focus on the KYC system, primarily on the client identity data and transaction records, and on transactions in which large amounts of funds are used (including dubious transactions). However, most of operations in PRC are made not in the sight of AML mechanisms. Moreover, the cross-border flow of crypto assets bypasses the monitoring and approval of the State Administration of Foreign Exchange.
Implication of Regulations
As recently as in June 2020 the Chinese authorities have cracked down on several thousands of bank accounts belonging to cryptocurrency traders. Chinese police allege that accounts were involved in illicit activities, including money laundering. This shows the intent of PBOC to actively hunt down money laundering schemes. However, most of the times such crackdowns of authorities are groundless 
Prudential Regulation Authority is the regulator that is primarily accountable for the regulation of crypto-assets. However, The Bank of England and HM Treasury (Her Majesties Treasury) is also taking part in those processes.
In 2014 the Bank of England stated that cryptocurrencies are unlikely to be considered money due to
their limited adoption within the UK financial system and their inability to form a reliable payment unit given a lack of inherent value and high volatility, marking them as a relatively immature asset class by comparison. Despite the fact that the characters had drastically changed from 2014 the approach of the English Bank basically stays as an official position of the government of the United Kingdom.
English Common Law looks at cryptocurrency as a digital form of personal property referred to as choicein possession, whereby the rights of the owner of that property derive from the ability to physically possess it and transfer title to it to others, albeit that cryptocurrencies themselves are intangible.
Her Majesty’s Revenue and Customs was one of the first of the taxation authorities in the world to study the concept of a cryptocurrency, publishing a brief that covers the way how Bitcoin should be treated for tax purposes. At certain moment authorities were planning to treat fiat and cryptocurrencies in a pretty similar way.
AML and KYC
When it comes to AML requirements, the United Kingdoms’ regime has two legislative acts to offer, one of them, applying to particular types of entities; other applies generally. The Money Laundering Regulations 2017 is applicable only to specific types of firms (credit institutions, firms performing financial services).
At the moment, firms engaged only in activities solely related to cryptocurrencies, such as cryptocurrency exchanges, are not subject to the MLRs 2017 and hence are not obliged to do «due-diligence» operations in compliance with MLR .
In general UK’s anti-money laundering regime is laid in the Proceeds of Crime Act 2002 under which many companies started to comply with the MLR 2017. Proceeds of Crime Act also contains a number of criminal offenses for which any person, regardless of their status and the nature of their activities, can commit if they are involved with the criminal property. So the concept of identity verification is crucial to many crypto enthusiasts, the largely anonymous nature of cryptocurrencies is often risk too far for cryptocurrency businesses operating in the UK.
The case of Vorotyntseva v Money-4 Ltd shows that cryptocurrencies could be the subject of an injunction.
The claimant had given £1.5m of bitcoin and ethereum cryptocurrency to Nebeus in order to test its trading platform. Ms. Vorotyntseva then started to become concerned that the funds had been dissipated. She raised these concerns with Nebeus and asked for confirmation that Nebeus still held the funds.
The judge granted the freezing order against all of the Defendants, finding that the directors were closely enough involved with the running of Nebeus to justify them being subject to the Order as well.
All companies engaged in crypto-related operations must be ready for compliance procedures, primarily in the sphere of taxation and AML, as it seems like those fields are the most worrying for all the major jurisdictions.
Some of the laws of the major jurisdiction are already being applied to companies in various, as it is proved by litigation examples. Sooner or later, we will witness the same level of regulation and liabilities linked with it, as it is currently in the banking sector and in the sphere of securities. That means that in some time in the future there will be criminal cases against crypto companies, who do not comply with the necessary requirements. Why? Because such a process is inevitable. Governments worldwide always had pursued control over the financial sector and crypto is a part of this future.
1) BSA Requirements for MSBs https://www.fincen.gov/bsa-requirements-msbs
2) Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf
3) 31 CFR § 1022.210 — Anti-money laundering programs for money services businesses https://www.law.cornell.edu/cfr/text/31/1022.210
4) Bank Secrecy Act/ Anti-Money Laundering Examination Manual https://www.ffiec.gov/press/PDF/FFIEC%20BSA-AML%20Exam%20Manual.pdf
5) Notice 2014–21 https://www.irs.gov/pub/irs-drop/n-14-21.pdf
6) 259-FZ on Digital Assets https://www.consultant.ru/document/cons_doc_LAW_358753/
7) 9-FZ OF APRIL 22, 1996 ON THE SECURITIES MARKET https://aecsd.org/upload/files/Legal%20Framework/39_FZ.pdf
8) Federal Law №115-FZ https://www.legislationline.org/documents/id/4294
9) Federal Law №152-FZ https://pd.rkn.gov.ru/authority/p146/p164/
11) Resources of https://www.mas.gov.sg
16)MLR https://www.legislation.gov.uk/uksi/2017/692/pdfs/uksi_20170692_en.pdfThe economics of digital currencies, Q3 2014.
Bitquery is a set of software tools that parse, index, access, search, and use information across blockchain networks in a unified way. Our products are:
- Coinpath® APIs provide blockchain money flow analysis for more than 24 blockchains. With Coinpath’s APIs, you can monitor blockchain transactions, investigate crypto crimes such as bitcoin money laundering, and create crypto forensics tools. Read this to get started with Coinpath®.
- Digital Assets API provides index information related to all major cryptocurrencies, coins, and tokens.
- DEX API provides real-time deposits and transactions, trades, and other related data on different DEX protocols like Uniswap, Kyber Network, Airswap, Matching Network, etc.
If you have any questions about our products, ask them on our Telegram channel or email us at firstname.lastname@example.org. Also, subscribe to our newsletter below, we will keep you updated with the latest in the cryptocurrency world.