The Senate has yet to take action on the 21st Century Act (FIT21) (H.R.4763) which passed the House by a comfortable margin of 279-136 on May 22, 2024. FIT21 is a proposed landmark piece of legislation that would enact a comprehensive regulatory framework for the digital assets industry. Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand's (D-NY) Lummis-Gillibrand Responsible Financial Innovation Act (S.2281) also awaits consideration in the Senate. Since the election, President-elect Trump has announced key nominations to his cabinet and administration, including Scott Bessent for Secretary of the Treasury, Howard Lutnick for Secretary of Commerce and Paul Atkins, a strong crypto advocate, for SEC Chair. Atkins will replace Gensler, who recently announced his resignation. Atkins is known as a strong backer of cryptocurrencies, and it has been publicly reported that he has expressed reservations about the enforcement actions taken by the Securities and Exchange Commission (SEC) against the domestic crypto industry. 2025 will be a critical year for assessing how new leadership for key U.S. regulators will impact digital asset enforcement actions.
The President-elect has also announced the creation of the Department of Government Efficiency (DOGE) which is to be led by Elon Musk and Vivek Ramaswamy. Both men have expressed support for deregulation of the financial services industry and for cryptocurrencies. Congress is now in the lame-duck session until the end of the year. Members' attention is focused on the National Defense Authorization Act (NDAA), disaster funding following Hurricanes Helene and Milton and a probable continuing resolution (CR). This leaves comprehensive crypto legislation to be handled in the next Congress, when Republicans will control both chambers and the White House. These efforts will be influenced by leadership on the Senate Banking Committee and the House Financial Services Committee. So far, Sen. Tim Scott (R-SC) has been confirmed as the incoming Chair of the Senate Banking Committee, while Democrats Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA) will serve as ranking members on their respective committees. With current Financial Services Chair Patrick McHenry (R-NC) leaving Congress at the end of the year, the gavel for the Committee will likely go to either Rep. French Hill (R-AR) or Rep. Andy Barr (RKY).
The end of 2024 has shown that regulatory agencies in the United States were focused on digital asset enforcement actions throughout this year. This was made clear by the recently released SEC and Commodity Futures Trading Commission (CFTC) enforcement results for fiscal year 2024, which show the agencies' collective focus over the past year on enforcement actions that involved conduct related to digital assets.
The SEC's 2024 enforcement results show that the majority of the SEC's financial remedies for fiscal year end (FY) 2024 were the product of digital asset-focused cases—in particular, out of the $8.2 billion in financial remedies the agency obtained, nearly 56% were attributable to a monetary judgment obtained following the SEC's jury trial win against Terraform Labs and Do Kwon. Likewise, the CFTC announced $17.1 billion in financial remedies this year, which included the CFTC's $12.7 billion judgment against FTX—the largest recovery for victims and sanctions in CFTC history. Nearly 20% of the CFTC's enforcement actions this year (10 out of 58) involved the digital asset space, ranging from enforcement actions against intermediaries to digital asset exchanges, including Falcon Labs, to actions against digital asset protocols, including Uniswap Labs.
Akin Spotlight
Fifth Circuit Holds that OFAC Exceeded IEEPA Authority in Sanctioning Tornado Cash Immutable Smart Contracts
On November 26, 2024, a unanimous three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held in Van Loon v. U.S. Department of the Treasury that the decentralized, open-source software project Tornado Cash's immutable smart contracts (i.e., lines of privacy-enabling software code) are not "property" of a foreign national or entity for purposes of sanctions under the International Economic Emergency Powers Act ("IEEPA"). Therefore, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") exceeded its statutory authority when it sanctioned these immutable smart contracts in 2022 due to North Korea's use of Tornado Cash to commit cybercrimes such as the laundering of stolen crypto.
The district court had held that Tornado Cash's underlying smart contracts were "property," and Tornado Cash was an entity capable of being designated under IEEPA. Reaching only the first issue, the Fifth Circuit reversed and remanded the case to the lower court, concluding that the plain meaning of the term "property" requires something "capable of being owned," but the immutable smart contracts at issue are "just software code" deployed by individuals without contractual counterparties (despite the fact that the term uses the word "contracts"). In addition, the immutable smart contracts are not "contracts" or "services" under OFAC regulations. Therefore, the immutable smart contracts are beyond the scope of OFAC's blocking power.
Notably, the court explained that "IEEPA grants the President broad powers to regulate a variety of economic transactions, but its language is not limitless." As a result, the court noted that if "certain uncontrollable technology" current falls outside of OFAC's sanctions authority, then Congress would need to amend IEEPA (originally passed in 1977) or otherwise pass new legislation if it so wishes.
In finding that the district court erred in giving "heightened deference" to OFAC's definition of "property," the court cites Loper Bright v. Raimondo, the recent U.S. Supreme Court case which overruled the Chevron deference doctrine with respect to agency interpretations of statutes. Given that this decision is one of the first cases to address OFAC's regulatory authority post-Loper Bright, it remains to be seen whether other OFAC interpretations of IEEPA will be easier to challenge in the coming months, despite the typical deference given to OFAC in light of the agency's national-security-focused mandate.
The government has until late January to decide whether it wishes to appeal this decision to an en banc Fifth Circuit panel or the U.S. Supreme Court. If it does not appeal, then the district court will need to issue a mandate instructing OFAC how to proceed, which will then inform how OFAC may adjust the current Tornado Cash-related SDN designations (which are broader than just the immutable smart contracts), as well as related FAQ guidance. The U.S. Court of Appeals for the Eleventh Circuit is also currently considering a similar Tornado Cash-related challenge to OFAC's authority in Coin Center et al. v. Yellin et al.
The Fifth Circuit's decision can be found here.
Key Developments
Pennsylvania Passes Bitcoin Rights Bill
On October 23, 2024, the Pennsylvania House of Representatives passed House Bill 2481 (the Digital Assets Authorization Act, which has been dubbed the "Bitcoin Rights Bill"), which broadly enables self-custody of digital assets, legalizes Bitcoin as a payment method and introduces taxation rules for Bitcoin transactions, marking a significant advancement in U.S. crypto regulation. The bill passed with overwhelming bipartisan support in a 176-26 vote.
The text of the bill can be found here.
UK Releases Draft Regulations on Reporting and Due Diligence Requirements for Crypto Assets Service Providers
On October 30, 2024, the United Kingdom released draft regulations titled "The Cryptoasset Service Providers (Due Diligence and Reporting Requirements) Regulations 2025" (the Regulations) and launched a consultation seeking views on the implementation of the new rules and certain other proposals, closing by January 10, 2025. The Regulations set out further details of reporting and due diligence requirements for reportable crypto asset service providers (RCASPs) to comply with the Regulations, penalties for failing to comply and appeals processes, the requirement for crypto-asset users to provide a valid selfcertification and associated penalties for failure to provide a valid self-certification. According to the consultation announcement, the draft regulations will be of interest to RCASPs, which facilitate the provision of crypto assets and transactions with crypto assets, organizations and bodies that represent RCASPs or their advisors and crypto asset users.
The text of the draft regulations can be found here and further information can be found here.
Blockchain Association Reports $429 Million Expenditure in Defensive Litigation Against the SEC
On November 1, 2024, the Blockchain Association, a cryptocurrency lobby, updated its "Regulation by Enforcement" webpage to state that Blockchain Association member companies had spent $429 million in defensive litigation against the SEC, reporting 104 enforcement actions brought by the SEC against the digital asset industry under Chair Gensler through 2023. On October 30, 2024, the Blockchain Association, in partnership with HarrisX, released a report on public perception polling on the SEC's "regulation by enforcement" approach to the U.S. digital asset industry under Chair Gary Gensler's leadership and, according to polling, voters preferred "clear rules and regulation over enforcement by a factor of two-to-one" and "voters believe that the U.S. has taken the wrong approach toward crypto and that the SEC has been too heavy handed."
The Blockchain Association's webpage can be found here, and the report can be found here.
UK FCA Welcomes Project Guardian's First Industry Report on Tokenization
On November 4, 2024, the U.K. Financial Conduct Authority (FCA) announced Project Guardian's first industry report on tokenization. Project Guardian is an international collaboration of industry and regulators, led by the Monetary Authority of Singapore, that explores the use of fund and asset tokenization. In the report, firms set out an ambitious, phased vision for the use of distributed ledger technology in asset management. The report further discusses potential industry and regulatory standards needed to scale tokenization use-cases and enable firms and investors to benefit from the technology. The FCA noted that in 2025 it planned to collaborate with the Monetary Authority Singapore to explore the regulatory considerations for tokenization within the asset and wealth management sector.
The full text of the report can be found here and the FCA's press release can be found here.
Members of Congress Publish Letter to US Treasury on Effects of Crypto Mixer Sanctions
On November 14, 2024, seven members of Congress (Sean Casten, Stephen F. Lynch, Bill Foster, Brad Sherman, David Scott, Emanuel Cleaver II and Joyce Beatty) sent a letter to the U.S. Department of the Treasury requesting information about the ongoing use of the cryptocurrency mixing service Tornado Cash after sanctions were imposed in 2022. The letter noted that, despite sanctions, Tornado Cash has remained online and continues to function as a decentralized smart contract. In the letter, questions were put to the U.S. Treasury, including requesting an estimate of the amount of activity, illicit and legitimate, that has passed through Tornado Cash since August 8, 2022, and the amount of illicit activity that has passed through cryptocurrency mixers year-over-year.
A copy of the letter can be found here.
SEC Chair Gensler to Depart Agency on January 20, 2025
On November 21, 2024, the SEC announced that Chair Gary Gensler will step down effective at 12:00 p.m. on January 20, 2025. Chair Gensler began his tenure on April 17, 2021, in the immediate aftermath of the GameStop market events. According to the announcement, he led the agency through a robust rulemaking agenda to enhance efficiency, resiliency and integrity in U.S. capital markets and oversaw high-impact enforcement cases to hold wrongdoers accountable and return billions to harmed investors. The announcement further noted that under Chair Gensler, the SEC brought actions against crypto intermediaries for fraud, wash trading, registration violations and other misconduct, and in the last full fiscal year, according to the SEC's Office of the Inspector General, 18% of the SEC's tips, complaints and referrals were crypto-related, despite the crypto markets comprising less than 1% of the U.S. capital markets.
The SEC's press release can be found here.
CFTC's Global Markets Advisory Committee Advances Recommendation on Tokenized Non-Cash Collateral
On November 21, 2024, the CFTC Global Markets Advisory Committee, sponsored by Commissioner Caroline D. Pham, advanced a recommendation to expand the use of non-cash collateral through the use of distributed ledger technology. The recommendation provides a legal and regulatory framework for how market participants can apply their existing policies, procedures, practices and processes to support use of distributed ledger technology for non-cash collateral in a manner consistent with margin requirements.
The CFTC's press release can be found here.
SEC Announces Enforcement Results for Fiscal Year 2024
On November 22, 2024, the SEC announced that it had filed 583 total enforcement actions in fiscal year 2024 while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history. The $8.2 billion in financial remedies consisted of $6.1 billion in disgorgement and prejudgment interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record. Approximately 56% of the $8.2 billion financial remedies ordered are attributable to a monetary judgment obtained following the SEC's jury trial win against Terraform Labs and Do Kwon, who were charged with one of the largest securities frauds in U.S. history. In its announcement, the SEC flagged a number of key crypto-related enforcement actions, including: the SEC charging Xue Lee and Brenda Chunga for their involvement in an allegedly fraudulent crypto-asset pyramid scheme known as HyperFund that raised more than $1.7 billion from investors worldwide; the SEC settling charges against Silvergate Capital for false and misleading disclosures to investors about the strength of their compliance program and the monitoring of crypto customers, including FTX, by its wholly owned subsidiary, Silvergate Bank and settling charges against Barnbridge DAO for failing to register its offer and sale of structured crypto assets offered and sold as securities.
The SEC's enforcement results can be found here.
CFTC Announces Enforcement Results for Fiscal Year 2024
On December 4, 2024, the CFTC announced that it had filed 58 enforcement actions and obtained over $17.1 billion in monetary relief in FY 2024. The $17.1 billion in financial remedies consisted of $2.6 billion in civil monetary penalties and $14.5 billion in disgorgement and restitution. The CFTC brought 10 enforcement actions during FY 2024 that involved conduct related to digital assets. In particular, the CFTC obtained record-breaking monetary sanctions in various types of digital asset cases, including in actions against FTX and Binance, charging Voyager's former CEO with commodity pool fraud, filing multiple actions involving decentralized finance and filing and settling charges with companies acting as intermediaries to digital asset exchanges. The $12.7 billion FTX judgment is the largest recovery for victims and sanctions in CFTC history.
The CFTC's enforcement results can be found here.
Trump Picks Paul Atkins as New SEC Chair
On December 4, 2024, it was announced that President-elect Donald Trump picked Paul Atkins to serve as the newly appointed chair of the SEC. Trump made the announcement in a post on his Truth Social platform. Atkins was previously an SEC commissioner under President George W. Bush. Media reports suggest that Atkins will be a strong advocate for looser regulation of crypto assets. In his post, President-elect Donald Trump stated that "Paul is a proven leader for common sense regulations ... [and] recognizes that digital assets & other innovations are crucial to Making America Greater than Ever Before."
Further information can be found here and here.
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