Asset misappropriation and blockchain
Blockchain is a ledger system that processes, stores and tracks digital information, from crypto-currencies to loan agreements. Because blockchain documents all changes and is hard to tamper with, financial firms and regulators see it as a potential way to make transactions more transparent, auditable and secure. Because of this feature, blockchain can effectively prevent one or several individuals in collusion from overriding controls, or illicitly changing or deleting official accounting records. Moreover, as the embedded rules are automatically followed without much human intervention, it can enforce the operation of controls. By incorporating blockchain technology to their accounting information systems, companies could reduce fraud risk by maintaining a clean, secure database and a strengthened control system.
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Content:
- The key to cryptocurrency
- Cryptocurrency Embezzlement
- Bitcoin sent by mistake, recipient will not be punished for keeping it: South Korea ruling
- Keyword: cryptocurrency
- AK-47s To The Moon – The True Scale of Crypto Crime
- Cryptocurrency Fraud
- Gall Obtains Proprietary Injunction and Mareva Injunction to Freeze a Cryptocurrency Wallet
- What are the legal issues around NFTs?
- International Fraud & Asset Tracing 2021
- Cryptocurrency theft on the rise
The key to cryptocurrency
Our international blockchain, technology, data, intellectual property and finreg specialists discuss the legal issues raised by the growing commercial activity around non-fungible tokens. Sales of non-fungible tokens NFTs have soared in recent months.
NFTs have been issued by businesses in various sectors, to raise brand awareness, exploit gaming opportunities in the metaverse , and remunerate artists for their creative output. Despite recent growth and some monumental sale prices, confusion remains about what NFTs are and the legal issues they pose. NFTs are digital assets that are typically built on the Ethereum blockchain and freely tradeable. They generally serve as evidence of ownership of virtual or even physical assets, but the specific rights that attach to NFTs vary.
Whereas cryptocurrencies and most financial securities are fungible, NFTs are unique in that they are not mutually interchangeable in the same way that cryptocurrency usually is , although the underlying asset represented by the NFT may not be. We like to think of NFTs as digital trading cards stored on the blockchain. Coding is locked on to the blockchain as part of the token and self-executes when defined events occur. For instance, the smart contract may be set up so that access to the underlying digital asset is only granted following receipt of payment, or so that the original creator of the digital asset receives a payment whenever the NFT is sold on.
Nevertheless, existing laws and regulations will apply, and there are several commercial and legal issues that any business issuing, trading or exchanging NFTs will need to consider.
These could include certifying ownership of an asset, a licence to use intellectual property rights IPR , or even contractual rights, for example a right to receive or use a particular asset whether digital or virtual or to access benefits.
Clarity upfront will avoid the issuer giving up unintended rights and potential claims from purchasers alleging misrepresentation of the rights on offer. Equally, the purchaser of an NFT needs to understand what they are acquiring. For example, if the NFT incorporates smart contract functionality, this will be encoded into it and may not be evident on the face of it.
Purchaser due diligence is needed to establish what rights and obligations are being acquired, particularly if they might impact on the current or future value of the NFT and the underlying asset. What an NFT represents, how much is expected to be generated from selling it, and even whether it is capable of fractional ownership, will largely be driven by the commercial rationale for issuing the NFT.
For example, if the value lies in the scarcity of an NFT or the underlying asset, an issuer may want to restrict fractionalisation and must ensure it can enforce those restrictions , and purchasers may seek assurances in that respect.
However, if the NFT or the underlying asset is high-value, fractionalisation of the NFT without dividing the underlying asset may open up investment opportunities for those otherwise unable to afford it. Those factors will also determine for example the content of any conditions of sale or smart contract and the applicable regulatory framework.
Selling a claim to a unique piece of content might seem at first glance to be equivalent to an assignment of copyright. But typically, copyright and other IPR will be retained by the issuer, and the buyer will be granted a right to display the underlying asset.
What the purchaser of an NFT will own depends on any coding or smart contract embedded in the NFT or the terms of sale in a traditional contract format. NFT creators may, for example, set up an NFT to create an automated ongoing payment of royalties or commission on any resale of the tokens.
Payment could be automated via a smart contract within the NFT, with the issuer able to track resales since they will be logged on the blockchain where the NFT is held.
Although NFTs are not yet specifically regulated, if they exhibit characteristics of other regulated investment units, they may trigger national and supra-national legal obligations. In particular, issuers will need to demonstrate the non-fungibility of any NFT they offer, to avoid it being considered a security token or cryptocurrency, which could be caught by financial regulation including the upcoming MiCAR.
Issuers and service providers will generally be caught by regulation in the jurisdiction into which the NFTs or related services are sold, particularly if offered to the retail market. Given the inherently global nature of these digital assets, multi-jurisdictional analysis will usually be required. Liability for compliance will sit with the regulated entity and is difficult to pass on.
As well as any financial penalties, the reputational risk of non-compliance will be severe. Aside from financial regulation, businesses must also ensure that any marketing activity in respect of its NFTs is compliant, bearing in mind that several regulators have taken enforcement action in the crypto space, including in relation to advertisements for unregulated crypto that did not adequately highlight financial risks. It is unlikely that the sale of NFTs will involve the disclosure or exchange of significant personal data, so compliance with privacy laws will not be a material consideration.
However, the security of data and NFT transactions more broadly will be paramount. Technical teams will need to consider which security and data-sharing standards, and which blockchain protocol most commonly Ethereum , will be deployed. In addition, there will need to be appropriate technical arrangements in place to ensure the permanence of NFTs and, crucially, any digital assets they represent.
We have discussed the environmental impact of some blockchain systems previously. With environmental, social and corporate governance issues high on the corporate agenda, businesses issuing NFTs, particularly those on Ethereum a proof of work system , will need to consider whether they align with wider organisational environmental strategy.
And, if an NFT falls under the scope of the Sustainable Finance Disclosure Regulation, issuers will have to ensure proper disclosure on their web-site and pre-contractual documentation. Thorough vendor due diligence will be needed to ensure adequate protection is available in case of theft or misappropriation of crypto assets in the wallet. As well as any agreement with technology partners, the terms on which NFTs are offered for sale to purchasers need to be set out clearly.
They will need to be drafted in compliance with local consumer protection regulation, which may give purchasers enforcement rights in their home country. Even with well-drafted terms in place, issuers need to be mindful of the practical challenges of identifying potentially anonymous perpetrators who could be located in any jurisdiction, and how disputes will be resolved and judgments enforced. While questions remain about some NFT use cases, there is undeniably a fast-growing interest in the technology that is hard to ignore.
Their potential to generate and sustain revenue streams is particularly attractive, most notably in the context of art, sports, collectibles and in sectors where brand strength drives value. With these opportunities, however, comes a greater need for businesses to act carefully to avoid unintended regulatory implications and to protect their commercial interests.
Cryptocurrency Embezzlement
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Bitcoin sent by mistake, recipient will not be punished for keeping it: South Korea ruling
Written by James Thomas on Monday January 4, In a recently published article we reviewed the main frauds of In this piece, however, we consider the convergence between the pandemic and the ongoing digital revolution. Specifically, we highlight how the coming together of the two is further focusing the minds of both criminals and the anti-financial crime community on the fraud risks and opportunities associated with cryptocurrencies. The pandemic has led to a growth in online activity [3] as individuals, confined to their homes as a result of global lockdowns, have increasingly accessed services and products virtually as opposed to physically. While cash transactions were already in decline [4] prior to the pandemic, COVID has accelerated and has potentially locked in the trend towards cashless payments. Indeed, the World Health Organisation has identified physical money as a vector for the virus, encouraging the use of alternative payment methods. It is worth noting that criminals have also been living through lockdown conditions, making it more difficult for them to access their physical networks and the cash economy.
Keyword: cryptocurrency
Visit Us Contact Us. For a long time, managing intellectual property IP meant filing patents and registering trademarks. Unregistered IP rights were mostly neglected and even registered IP rights were considered a one-time activity and mostly a technical and administrative process. Professionals in charge of IP aimed to achieve very specific goals and then forget about them, except when related annuities were due for payment.
AK-47s To The Moon – The True Scale of Crypto Crime
The abundance of cross-border transactions highlights the need for exchanges to adopt appropriate cross-border controls to ensure AML and CTF compliance. In this report from CipherTrace, read insights about major trends, enforcement actions and recent scams and how to address cryptocurrency money laundering. About NICE Actimize NICE Actimize is the largest and broadest provider of financial crime, risk and compliance solutions for regional and global financial institutions, as well as government regulators. Consistently ranked as number one in the space, NICE Actimize experts apply innovative technology to protect institutions and safeguard consumer and investor assets by identifying financial crime, preventing fraud and providing regulatory compliance. The company provides real-time, cross-channel fraud prevention, anti-money laundering detection, and trading surveillance solutions that address such concerns as payment fraud, cybercrime, sanctions monitoring, market abuse, customer due diligence and insider trading. All rights reserved.
Cryptocurrency Fraud
The world of cryptocurrencies and other forms of digital assets such as non-fungible tokens is exploding. While Bitcoin is the largest and best-known cryptocurrency in the global economy, it is far from the only one. In , El Salvador enacted legislation to recognize Bitcoin as a medium of exchange. Other countries are also considering adopting similar legislation. Some countries even contemplate adopting their own blockchain-based currency as a form of legal tender. Other questions relate to how interests in cryptocurrencies, NFTs, and other digital assets can be transferred or monetized and how purchasers of digital assets can be protected from adverse claims.
Gall Obtains Proprietary Injunction and Mareva Injunction to Freeze a Cryptocurrency Wallet
Cryptocurrency is the fastest-growing method of financial transactions on the planet. Consumers, investors, and users continue to adopt digital currencies at a massive rate, making cryptocurrency thefts, hacks, and frauds more common than ever. And crypto crime is not just growing fast, it moves fast. So, in the event of a crime, an immediate investigation is critical.
What are the legal issues around NFTs?
RELATED VIDEO: What Are Asset Backed Tokens - CryptocurrencyWelcome to Finextra. We use cookies to help us to deliver our services. We'll assume you're ok with this, but you may change your preferences at our Cookie Centre. Please read our Privacy Policy. Last year, the cryptocurrency sector witnessed increased mainstream adoption but it was accompanied by hackings and theft that resulted in the loss of millions of dollars.
International Fraud & Asset Tracing 2021
The Investor Alert included these red flags of fraud:. Promises of high investment returns with little or no risk are a classic warning sign of fraud. Fraudsters may post fabricated historical returns on their websites showing high investment returns. Unlicensed, unregistered sellers commit much of the securities fraud targeting retail investors in the U. Check out the background including license and registration status of anyone offering you an investment in securities using the search tool on Investor. Skyrocketing account values. Depictions of investment accounts rapidly increasing in value and providing large returns are often fake.
Cryptocurrency theft on the rise
Welcome to Reuters Legal News beta. Please enjoy and provide us with your feedback as we continue to improve the Reuters Legal News experience. Representations of cryptocurrencies Bitcoin and Ethereum are placed on PC motherboard in this illustration taken, June 29, The company and law firm names shown above are generated automatically based on the text of the article.
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