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
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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


EU sets out plans for ‘limited’ US trade deal

Updated 36 min 43 sec ago
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EU sets out plans for ‘limited’ US trade deal

  • Negotiating a trade deal was included in a transatlantic truce secured last year
  • EU governments were shell-shocked last year when Trump imposed tariffs on metals imports as part of his ‘America First’ vision

BUSSELS: The EU on Friday published its negotiating plans for a free trade deal with the US, part of an effort to avert a trade war with US President Donald Trump.
Negotiating a trade deal was included in a transatlantic truce secured last year after the US slapped tariffs on steel and aluminum imports from the EU, alarming the world.
The effort is also part of an effort to stop Trump from slapping tariffs on European car imports, a danger that has especially unnerved export powerhouse Germany.
“It is not a traditional (trade deal)... it is a limited but important proposal engaged on industrial goods tariffs only,” EU trade commissioner Cecilia Malmstrom told reporters.
The process however has got off to a rocky start, with the US side last week including agricultural products in their plans, which is an absolute no-go for the Europeans.
“In this mandate, we are not proposing any reduction of tariffs on agriculture. That area was left outside,” Malmstrom insisted.
The 17-page mandate submitted by the US also included other demands and charges that are unacceptable for the EU, including that Europe stop manipulating foreign exchange rates.
Given the split, the EU is entering the negotiations with trepidation, especially since the threat of auto duties is still very much alive in Washington.
The commission handles trade negotiations for the EU’s 28 member states and the plans must now be approved by the national governments before negotiations actually start with Washington.
Brussels and member states are wary after the failure of the so-called TTIP talks, a far more ambitious transatlantic trade plan which stalled amid fears a deal with Washington would undermine EU food and health standards.
Opposition by activists has already resurfaced with Friends of the Earth Europe warning that “there can be no trade-offs on food standards” in the deal.
EU governments were shell-shocked last year when Trump imposed tariffs on metals imports as part of his “America First” protectionist vision.
Brussels responded by slapping counter-tariffs on more than $3 billion in US exports like bourbon, blue jeans and Harley-Davidson motorcycles.
But Trump and European Commission President Jean-Claude Juncker in July called a truce, agreeing that as both sides pursued a trade deal, neither would impose additional tariffs.