Crypto-currency crackdown spreads from Dubai to London

A computer screen displays a site featuring cryptocurrency token sales in Berlin on Nov. 26, 2017. Bypassing oversight of any kind, Initial Coin Offerings (ICOs) have sprung from nowhere to become a hugely popular way for start-ups to raise funds online, offering self-created digital ‘tokens’ or coins to any willing buyer. (AFP)
Updated 28 November 2017

Crypto-currency crackdown spreads from Dubai to London

NEW YORK: When US entrepreneur Bharath Rao looked around for the best place to raise money for his crypto-currency derivatives trading business, the US did not make his list. Instead he chose the East African island nation of the Seychelles to sell the trading platform’s tokens.
Rao, a San Diego-based technology veteran who has worked for major Wall Street banks, is not alone.
Confronted with national regulators’ intensifying scrutiny of digital currency fund-raising, known as initial coin offerings, many entrepreneurs are moving businesses to locations more welcoming to crypto-currencies and known for low taxes.
Dozens of start-ups have flocked to Singapore, Switzerland, Eastern Europe and the Caribbean this year, according to interviews with entrepreneurs and company registration data made available to Reuters.
Like bitcoin, the best-known crypto-currency created in 2009, the coins use encryption and a blockchain transaction database enabling fast and anonymous transfer of funds without centralized payment systems.
The numbers compiled by crypto-currency research firm Smith + Crown show how national regulators’ attempts to curb coin sales may just shift business elsewhere.
The US leads with 34 digital currency start-up registrations so far this year, but that reflects Silicon Valley’s role as a technology hub and the depth of US financial markets rather than a welcoming regulatory climate.
Singapore registered 21 entities, up from one in 2016, followed by 19 in Switzerland, up from three last year, according to Smith + Crown. Central Europe saw 14 companies registered this year, compared with one in 2016, and the Caribbean hosted 10, up from two last year.
“The data affirms our sense that Switzerland and Singapore remain go-to locations, but the US could remain for companies raising large amounts of money,” said Matt Chwierut, Smith + Crown’s research director.
Switzerland does not have specific rules on digital coin sales, but some parts of an offer may fall under existing regulations, the Swiss Financial Market Supervisory Authority (FINMA) said in September.
So far, four of the five largest token sales, raising a total of over $600 million, were carried out by firms registered in Zug, a low-tax region south of Zurich known as the “crypto-valley” of the world.
In contrast, China and South Korea banned digital coin sales this year and regulators in the US, Malaysia, Dubai, UK and Germany warned investors that current scant oversight exposed them to risks of fraud, hacking or theft.
Soaring registrations in “friendly” jurisdictions show how hard it is for national watchdogs to regulate digital coin sales. It is a challenge regulators are beginning to recognize.
“We are talking to other regulators, and we know that there are a lot of bilateral discussions taking place,” the Dubai Financial Services Authority told Reuters.
The US Securities Exchange Commission declined to comment about the migration of coin issuers to remote jurisdictions.
The UK’s Financial Conduct Authority and Securities Commission Malaysia reiterated their stance that digital coin sales are high-risk, speculative investments and that retail investors should be aware of that.
A spokesman for Germany’s Federal Financial Supervisory Authority (BaFin) told Reuters “hopping” within the European Union would be “largely futile” since the EU supervisory authority has adopted the same stance as BaFin on the issue.
The Dubai regulator pointed out that seeking out friendly jurisdictions was not unusual, but regulators still needed to warn about the inherent risks in digital coin sales.
Financial regulators from South Korea and China were not immediately available for comment.
In the US, the SEC’s July 25 ruling that digital coins should be regulated as securities had a short-lived chilling effect on the crypto-currency market. Short-lived, because many US startups thought they could avoid such scrutiny by selling “utility tokens,” which gave buyers access to products or services rather than a stake in the company.
Still, concerns that regulators’ views might evolve have made potential US coin issuers consider sales overseas.
“Our lawyers certainly think regulations on utility tokens could change. So for safety, the ICO should be done outside the US,” said Arran Stewart, co-founder of Job.com, an online employment platform which plans a token offering in the Cayman Islands in February.
In fact, out of 15 start-ups interviewed by Reuters, only one, Airfox, sold digital tokens in the US, raising $15 million last month. Others have either carried out a coin sale overseas or are planning one.
Rao, who started Leverj, a decentralized crypto-currency futures trading platform, said he picked the Seychelles for fund-raising because of its openness to crypto-currencies.
“It has not issued anything negative on crypto,” Rao said.
Digital coin sales soared to about $3.6 billion by mid-November, compared with just over $100 million in the whole of 2016, according to Autonomous NEXT, which tracks technology in the financial services industry. Typically, issuers publish a “white paper” describing their business plan and the news of new coin sales spread via online forums and websites tracking new offers. Investors pay for them with bitcoins or ether — two most widely accepted crypto-currencies — via a company’s website.
The ease with which start-ups can raise millions of dollars with little scrutiny in as little as minutes has alarmed regulators, but without a unified approach they hold little sway over that new funding market.
“It’s very difficult for governments to work together in any organized fashion,” said Lewis Cohen, a partner at Hogan Lovells in New York, which has a team of lawyers specializing in blockchain.
“Different jurisdictions will look at token sales through different lenses and it would be very difficult to get on a completely harmonized place.” Nimble and lightly-regulated crypto-currency companies can straddle borders with ease.
For example, BANKEX, which aims to convert illiquid assets into tokens to be traded on its crypto-currency platform, is registered in Delaware and plans a coin offering in the Cayman Islands this month, said the company’s CEO, Igor Khmel.
Hogan Lovell’s Cohen said that while it would be foolish to shut token sales down, they should be regulated, or self-regulated.
“We may need to have some guard rails,” he said.
“I don’t think it’s really fair for legitimate platforms that are trying to create new and innovative business models to be thrown in with other less scrupulous parties who may see token sales as a way of making a fast buck.”
— REUTERS


US removes some Chinese furniture, modems from planned 10% tariffs

Updated 17 August 2019

US removes some Chinese furniture, modems from planned 10% tariffs

  • US President Donald Trump on Tuesday delayed more than half of the proposed tariffs until December
  • The $114 billion retail furniture industry has been among the sector’s hardest hit with price increases due to Trump’s tariffs

WASHINGTON: The Trump administration is sparing some Chinese-made household furniture, baby items and Internet modems and routers from its next rounds of 10 percent tariffs, it said on Friday.
The US Trade Representative’s office released a complete list of the items that were removed from $300 billion in tariffs scheduled to go into effect on Sept. 1 and Dec. 15, some of which had already been hit with 25 percent tariffs.
Trump on Tuesday delayed more than half of the proposed tariffs until December, saying it would help shield businesses and consumers from the US-China trade war fallout during the Christmas selling season.
The new list of 44 categories of spared imports, worth about $7.8 billion according to US Census Bureau data, also includes some chemical compounds used in the manufacture of plastics. Reuters previously reported that bibles and religious texts would be spared from the tariff list.
Modems and routers made in China were part of a $200 billion list of products hit with tariffs last September that have since been raised to 25 percent. Friday’s exclusion would avoid a further 10 percent hike as Trump imposes tariffs on Sept. 1 to products in the same broad customs category, including smart watches, smart speakers and Bluetooth headphones.
The bulk of the items removed from the tariff list were furniture products, including wooden- and metal-framed chairs and those made of plastics. Some of these were previously hit with tariffs as part of broader furniture categories.
Baby-related furniture items also were spared, including toddler beds, bassinets, cradles, strollers and children’s seats.
The $114 billion retail furniture industry has been among the sector’s hardest hit with price increases due to Trump’s tariffs, which rose to 25 percent in May.
The US Labor Department said on Tuesday that the price index for household furnishings rose 0.4 percent in July, marking its third consecutive monthly increase and contributing to broad-based growth in consumer prices during July.