Hiring: Ponzi Scheme Operator
An overview of the bill approved by the Committee For Economic Affairs of the Brazilian Senate
In November 2021, the Committee For Economic Affairs of the Brazilian Senate approved a bill to regulate the financial experiments on blockchain technology.
It was a surprise because there was no discussion on mainstream media or even between politicians. Once approved by the Committee, the bill now will be presented to all members of the Senate to be voted on.
What can we expect?
Cryptoassets are defined, in the bill, as units of value, tokens, encrypted with a combination of public and private keys, which can represent goods, services, or rights, and grant the holder access to the registry system that originated the token.
Simply put: 99% of current experiments concerning the financial uses of blockchain technology can be recognized as crypto-assets according to the text that some Brazilian lawmakers are trying to turn into law.
However, it is interesting to note that the text excludes from such recognition those units of value, virtual or tokens that are or represent legal tender in Brazil or in any other country.
Although in most cases this will not be a problem, it can generate some complications regarding the so-called stablecoins, mostly because most of such cryptos today are backed in some national currency.
Another problem would be related to cases where a country recognizes a cryptocurrency as a national currency, as is the case of El Salvador and Myanmar.
If this trend is confirmed, the lawmakers will have double work down the road. However, this is a technical issue, and I'm sure our legal advisors in the legislative houses will be able to provide an adequate answer.
The most serious problems of the approved bill are related to three aspects, the first being the absence of a distinction between a financial token and a utility token.
In fact, even tokens that do not fit the concept of security will be considered crypto-assets according to the text. What's the problem with that? There are, and in the future will be more, several tokens without any relation to financial value.
However, for the legislator, all those tokens fall within the same category as any crypto asset like Bitcoin, Ethereum, or Cardano, and this means that the policing and taxation will be similar.
The second problem concerns the granting of authority to the CVM (the committee which helps the State to overwatch operations with a large range of financial units like stock, options, etc) to waive the need to register activities regulated by this law.
The CVM will be able to decide whether a company or individual needs to register its activities to keep running a crypto-related business.
To a foreigner, it must sound like just some bureaucracy being applied, but any Brazilian knows that the expense of time and money to do anything related to business here, especially small business, is huge.
So, the domain over the permission to run a crypto-related business without the need for this bureaucracy is, in fact, a power to decide what kind of business will take the easy path.
One of the CVM's functions concerns expanding the stock market, which is one of the most traditional forms of the economy.
We must remember that one of the most emblematic aspects of blockchain technology concerns institutional forms, meanings, property regimes, productive arrangements, etc, that do not fit in the market in its current form.
By offering such authority to the CVM, the legislator is defining a guideline, for crypto-related businesses, to reward a business that pleases the intuitions that currently govern the traditional institutions of financial capitalism.
What's bad about it?
To illustrate the problem we're facing here, we can highlight the moment (in the recent past) when large financial institutions in Brazil undertook efforts to mitigate the adoption of blockchain technology.
Some of them even were accused of closing accounts of customers who were involved in P2P transactions of crypto assets. Today the same institutions use p2p transactions to buy crypto assets. In other words, the biggest institutions do not always have the best ideas and that is why productive freedom and experimentation must be guaranteed.
The third kind of problem arises from the sanctions to prevent crimes related to Ponzi schemes. The bill updates the art. 292 -A of the current Penal Code to activities related to financial pyramids as follows:
“Penalty: Detention of one to six months, or fine.”
If the criminal action causes, or aims to cause, damage to the popular economy, the penalty asserts:
“Penalty - imprisonment, from one to five years, and a fine.”
A maximum detention of six months for those who commit crimes related to ponzi schemes, or five years if the target is the popular economy is ironic. Instead of a preventive measure, it sounds more like a policy to promote these crimes.
We must remember that for the crime of robbery, which usually causes harm to a limited number of people, the penalty is four to ten years of reclusion. But, if the criminal choose to fraud not few, but thousands of people, the maximum penalty is only four years.
Finally, a fourth problem, more analytical than practical, concerns the event of the approval of this bill. As is well known in Brazil, bills need political sponsors, people or groups that give their blessing for a given project to advance within the legislative houses.
It is very common for such sponsors to be public, for example, when a bill aims to improve the business environment in a certain sector, representatives of that sector will seek public representatives with sufficient influence to make the project be approved.
We are not talking about corruption, but about political articulation in a democracy.
However, other bills advance with anonymous sponsorship, and if the person or group that is promoting a particular bill does not want to be recognized for their involvement there is already reason to be suspicious.
This bill is one of those cases, we're talking about a text from 2015, taken out of the drawer in November (2021) and approved by one of the most important and busy congressional committees, in the midst of a crisis, with no discussion and, especially, at the end of the fiscal year.
All we know about the author of the bill, Rep. Aureo, is that he is a deputy from the evangelical caucus (the one described in the media as absent from the plenary but always present in corruption scandals).
We don't know, either, the origin of his knowledge about blockchain technology, cryptocurrencies, etc.
A quick search on the deputy's own website (12/10/2021) offers only four results for the term “cryptoativos", all referring to the same bill, while when we search for “blockchain” there is no result at all.
The website was updated since I published this text on Prensa.li, but a new visit and we can see that the Representative itself is teaching its electors about how to buy and 'how to get rich’ with Bitcoin (the video warns the audience about the risk involved but still a clickbait).
Finally, I end this text with what I believe to be a happy quote from the bill, which, although used in the argument, was not fully incorporated into the normative instrument that is proposed there.
“The “borderless” aspect is intrinsic to the exchanges of Cryptocurrencies and Virtual Tokens, so national regulations that affect such operations cannot be restrictive and freeze such potential when trying to adapt them to the molds of traditional investments and financial assets.”