The Most ICO-Friendly Jurisdictions — Caribbean edition (Part 1)
This three part series will examine some of the world’s most crypto-friendly jurisdictions, all of which are attuned to attracting research and investment into Distributed Ledger Technology (DLT) and the Initial Coin Offerings (ICOs) that various enterprises are using in order to raise funds via this newfound fintech. Part 1 takes a look at various islands in the Caribbean while Part 2 is based in the Baltic States and Belarus and Part 3 in Europe to examine the crypto-scene as it is unfolding in Switzerland, Malta and Gibraltar.
Regulatory Considerations
While it is important for ICO-launching enterprises to consider the tax, securitization and anti-money laundering (AML) implications of the jurisdiction in which they hope to sell their coins/tokens (coins and tokens are essentially the same thing and I will use them interchangeably), it is equally important for these enterprises to consider the same implications of the jurisdictions in which they hope to sell their token. The focus of this article gravitates towards AML considerations, as this is the area in which I am engaged as KYC Operations Specialist at Fractal GmbH. Furthermore, it is evident, that there is a stronger worldwide consensus on AML regulation than there is on the taxation issues or financial classification (are they securities or not?) of these tokens.
By whitelisting customers through a rigid AML compliance program, both the token issuers and the token investors can ensure that their client/customer relationship is more trustworthy and less likely to be mixed up with criminal behaviour and money launderers. The AML regulation is a standard of the global financial industry — most recently spearheaded by the FATF and the EU AML Directive but with its roots in the Prohibition era of the United States — and to the extent that DLT and ICOs will overlap and intertwine with the existing financial system, it will continue to be a standard to uphold. With specific consideration for this newfound DLT and the ICO sphere therein, AML regulation is most notably being discussed in the 5th EU AML Directive, which will include virtual currency exchange platforms and digital wallet providers.
It is worth noting that over and above the added workload of following the regulatory requirements of each jurisdiction in which an ICO-launching enterprise desires to do business, the ability to launch from a neutral or ICO-friendly base, remains a strong feature (ergo the reason for this series) — meaning that in choosing an ICO-friendly jurisdiction, one has to worry less about the regulatory environment around them, allowing greater resources to focus on the regulations of the jurisdictions where the tokens are being offered for sale.
The ICO-friendly Caribbean
Home to some of the world’s more famous offshore financial centers, each of the three islands briefed here are situated in or next to the Caribbean, are British Overseas Territories, rank high in the Global Financial Centres Index, are considered to be tax-havens and have a long history of providing insurance and banking services to the world. Ordered here from smallest to largest by total land area (because, why not?) they are: Bermuda, the British Virgin Islands (BVI) and the Cayman Islands.
Bermuda
Bermuda is first in another sense — through its government’s early formation of a Blockchain Task Force in November 2017, a date which neatly coincides with Bitcoin’s late-2017 rally to around 20000 USD. The government of Bermuda, and foremost, it’s current Premier as well as Minister of Finance, the Hon E. David Burt, JP, MP has a very positive outlook on the future of DLT. Burt, born in 1979, is the youngest Premier Bermuda has ever known, assuming office at the age of 38. He double majored in finance and information systems and obtained a master’s degree in information systems technologies. A few months after he assumed office in Bermuda he announced the formation of the aforementioned blockchain task force. In a recent Ministerial statement (published: March 19th, 2018) Premier Burt demonstrates a solid understanding of DLT and how it will “disrupt and revolutionize the traditional methods by which we live and transact business on a day-to-day basis.” and, pointing to the cost-savings inherent in ICOs, “without the added costs and burdens of having to hire expensive middlemen to arrange transactions.” Premier Burt concludes the statement by outlining a regulatory framework, naming the members of a legal and regulatory working group (which includes officers from the National Anti-Money Laundering Committee) and affirming once again that Bermuda is well situated to become one of the first countries in the world to regulate ICOs. Right on the heels of this Ministerial Statement was the tabling of the Digital Asset Business Act 2018 which introduces the supervisory framework for the Bermuda Monetary Authority (BMA) to regulate “digital asset business” in Bermuda. Adding even more fuel to the fire is the announcement of a partnership with Binance, the world’s largest cryptocurrency exchange, which will establish a Global Compliance Centre in the country and contribute 15 million USD for training and investments in blockchain tech.
British Virgin Islands (BVI)
The British Virgin Islands (BVI) are another contender for the chance to be the crypto-hotspot and along with the Cayman Islands (see below) bring a formative bargaining chip to the table; that is, the tax-neutral corporation. Although no official government word has been made yet on ICO regulation in the BVI, several local legal firms believe that such governmental steps, when taken, shall be ICO friendly. . One of the largest legal firms on the island, Harneys, posits that the BVI is mostly taking a “wait and see” approach to ICO regulation. They hold that a number of existing regulations need to be taken into consideration, namely with regards to whether or not an ICO will be considered as a Securities offering which they believe is unlikely to apply to cryptoassets in BVI and the requirement to follow the AML Regime (taken very seriously), amongst other regulations already in place. Overall, Harneys concludes that the BVI legislative regime is flexible and able to take on the growing number of ICO launches there. Following the same line of reasoning as Harneys, another of the BVI’s preeminent legal firms, Ogier, adds to the BVI’s appeal by outlining it as a capital friendly jurisdiction. Tax neutrality, low maintenance costs (even relative to the Cayman Islands and Bermuda), and “transaction fluency” which draws on a strong presence of lawyers, accountants, and other corporate service providers. Ogier adds that the BVI’s Electronic Transactions Act 2001 (ETA) will provide certainty with regards to the legality of the electronic platform used by ICOs (something that is currently not so easy under Swiss law). Ogier concludes their article in a similar fashion to Harneys, pointing to the relative flexibility of the BVI legislation in supporting ICOs.
Cayman Islands
The Cayman Islands needs no introduction as it is one of the world’s largest and most well-known financial centres. According to the BBC, the Cayman Islands even has more registered businesses than it does people. And it is now making inroads into the blockchain sphere, especially through Cayman Enterprise City, an institution that was founded to attract new knowledge-based industries to the island. Cayman Enterprise City is a special economic zone that is exempt from corporate, income, sales and capital gains tax as well as import duties. An article in Lexology on fintech in the Cayman Islands says that to date thirty percent of the 130 or so fintech businesses in Enterprise City are blockchain based — further outlining the significant number of investment funds in crypto technologies and companies launching successful ICOs. The article lays claim to the Cayman Islands as the jurisdiction of choice for token generation events, due especially to the tax and securities law neutrality there. Cayman Finance, a private and government-backed initiative to protect and promote the island’s financial services industry, calls on “well-organized ICOs” to launch from the Cayman Islands. The initiative is extremely expressive with regards to anti-money laundering (AML) and prevention of terrorist financing, entitling a section of the linked web-article “Clean crypto”. The Money Laundering Regulations of the Cayman Islands extend to all “relevant financial business” and, they make clear, that this will include most ICO issuers.
Conclusion
Throughout these three jurisdictions, weaves the thread of national governments, banks and their regulatory environments. Each jurisdiction brings its own strengths to the table with regards to honing in on and capturing the growth of this newfound tokenization of assets. Complicit with the adage innovation first and then regulation, as the ecosystem around DLT and ICOs continues to mature, further energy will be expended on regulation. And as the regulatory regime around this new technology is further realized, ensuring that your enterprise is on the right side of the law will certainly be an advantage in the long term.
