Monthly Archives: October 2018

With the passing of legislation regulating cryptocurrencies, ICOs, and associated technology service providers, Malta has announced itself as a major Fintech player (and is even being referred to as “The Blockchain Island”). Malta’s worldly attitude towards cryptocurrencies and Distributed Ledger Technology (“DLT”) has recently seduced some of the world’s biggest cryptocurrency exchanges, motivating them to redomicile to, or open fresh offices, in Malta.

 

The legal framework is pragmatic with its prime focus being on:

• Consumer protection
• Market integrity &
• Financial stability.

 

The primary legislative tool which will regulate cryptocurrency exchanges licensed in Malta is the Virtual Financial Assets Act (hereinafter the ‘VFAA’ or the ‘Act’) which was originally tabled in Parliament in April 2018, (and has just passed into law – see below Legislation Update). The VFAA, (along with the Technology and Service Providers Act and the Malta Digital Investment Authority Act) sets out the regulatory framework for DLT Assets.

 

Primary Obligations

 

To be able to operate as a VFA Exchange, a license is required from the Malta Financial Services Authority (‘MFSA’).

 

Key Persons behind the proposed VFA exchange will need to undertake a fit and proper test: – The MFSA will need to be satisfied that the applicant/s can/will comply with and adhere to the  the requirements of the VFAA and any other subsequent or related guidelines as may be prescribed.

 

PHYSICAL PRESENCE REQUIREMENT: If the applicant is a natural person/s, this person/s will need to be domiciled in Malta. Where the applicant is a Company, the Company may be incorporated in Malta. Alternatively the Company can be incorporated abroad in a “reputable jurisdiction” but it must set up a branch office in Malta.

 

PROGRAMME OF OPERATIONS: The Applicant/Licensee must at all times have, and must submit to the MFSA for initial approval, a Manual documenting and explaining the business/operational/IT etc  systems, security access protocols and any other items as the MFSA may from to time require you to include in the manual.

 

VFA EXCHANGE OPERATOR (OPTIONAL): The act provides for a VFA Exchange Operator to (at the discretion of the business) be appointed. If so appointed the VFA Exchange Operator’s role will be to manage and operate the business of the VFA exchange. This role however may be performed by the VFA exchange itself. Where a VFA Exchange Operator is appointed, the MFSA will decide, by means of Rules, how the different duties are going to be allocated as between the VFA exchange and the VFA exchange operator.

 

FINANCIAL INSTRUMENTS TEST: The Financial Instruments Test is a mandatory requirement for issuers of ICOs. That said, it may help all license holders to decide (a) whether a DLT Asset would qualify as a “VFA” within the ambit of the VFAA or (b) whether it should be regulated under any other law or (c) whether it should be exempt from regulation altogether.

 

STEPS TO GETTING A CRYPTO EXCHANGE LICENSE IN MALTA:

 

Here are the essential steps/stages involved in applying for a Cryptocurrency Exchange License in Malta:

1. The application and supporting documents are prepared
2. A Preliminary meeting is held with the “MFSA”
3. The MFSA Authorisation Unit will review the application docs and provides feedback
4. In Principle approval is then given (ie The license is approved subject to the applicant providing certain further docs or info)
5. The Applicant fulfils the outstanding requirements
6. The License is Issued

Timeline: Minimum 3 months

Cost: Circa $US30,000

 

Malta Cryptocurrency Exchange Legislation Update

 

On 20 July this year (2018) the Parliament of Malta approved and enacted three pieces of Legislation aimed at regulating Distributed Ledger Technology (hereafter referred to as “DLT”) and services relating thereto. The primary Act governing the licensing and operation of Cryptocurrency Exchanges is the Virtual Financial Assets Act (herineafter the “VFA Act” or “the Act”) – a copy of which can be accessed via this link: https://parlament.mt/media/95198/act-xxx-virtual-financial-assets-act.pdf ). The Act purports to regulate, amongst other things, the issuing of ICO/Virtual Financials Assets, (hereinafter referred to as ‘VFAs’) in or from within Malta.

 

One of the primary activities regulated by the VFA Act is the setting up and operation of DLT Exchanges and VFA exchanges. (The VFA Act defines a DLT exchange as any trading and, or exchange platform or facility on which any form of DLT asset may be transacted. )

 

A DLT asset is classified as any virtual token, virtual financial asset, electronic money, or financial instrument that is intrinsically dependant on or utilises DLT. The term VFA exchange refers to any DLT exchange on which only VFAs may be transacted in accordance with the rules of the platform or facility.

 

A virtual financial asset (“VFA”) means any form of digital recordation that is used as a digital medium of exchange, unit or account and that is not electronic money, a financial instrument or a virtual token. Resultingly exchanges on which only financial instruments are traded, shall not be licensable under the VFA Act but will fall within the jurisdiction/application of the Investment Services Act.

 

Primarily the VFA Act provides that before a VFA can be offered to the public in or from within Malta (or before a VFA can be traded on a DLT exchange) the issuer of the VFA must compile a whitepaper (in compliance with the requirements set out in the act) and have it registered with the MFSA. Additionally, the VFA Act purports to regulate/control the structure and content of the whitepaper, likewise any advertisements placed by the issuer of the VFA.

 

In terms of VFA Services to able to operate a VFA Exchange in or from Malta (eg under the guise of a Malta Company)  a person (or company as the case may be)  would need a licence granted by the MFSA as provided for in the VFA Act. The VFA Act specifically sets outs the licensing requirements that licensees wishing to offer VFA Services in or from within Malta will have to meet. The VFA Act also outlines the procedures as regards how to go about applying for such a license and the issuance of the said licence/s.

 

The Act also provides that an application for a licence under the VFA Act can only be made via a VFA Agent which is duly registered under the VFA Act. Apart from having to be registered by the MFSA, such individual must be authorised to carry out the profession of advocate (ie Lawyer), accountant or auditor. (OCI has achieved this requirement with our In House Lawyer having taken on a Consultant Advocate role at/with a Maltese Law Firm).

 

The VFA Act also makes it mandatory for a licencee to appoint or engage the services of an ‘administrator’ or ‘board of administrators’. The administrator (or board of administrators as the case may be) is/are entrusted with the duty of carrying out representative and fiduciary responsibilitiess on behalf of the licencee. The Administrator “must be of good repute, possess sufficient collective knowledge, skills and experience and commit sufficient time to perform their duties and be able to understand the licence holder’s activities, including the main risks”.

 

The VFA Act also contains other provisions which are aimed at stopping market manipulation by licence holders. Activities including insider dealing, unlawful disclosure of inside information and market manipulation are specifically prohibited under the Act.

 

The law also makes it incumbent on the VFA exchange to show that, at all times, it has effective systems, procedures and arrangements in place to monitor and detect market abuse. Whenever the possibility of any such activity is suspected by a Licensee, there is a mandatory requirement to report this finding to the MFSA.

 

The VFA Act also (as is common with such legislation) prescribes:

 

• the regulatory and investigative powers of the Minister
• the various duties of auditors
• sanction options and remedies; &
• the procedure for appeals against various decisions of the MFSA.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

 

These days the Delaware C Corporation (also known as a General Corporation) is the most commonly incorporated Company type in Delaware.

 

Entrepreneurs are attracted by the Delaware C Corp’s ability to go public and raise capital by selling shares in the company. This type of corporation is also often used by startups looking to attract venture capital.

 

The Delaware C Corp has a typical Corporate/Legal structure: shareholders own the company via shareholdings, Directors run the company and are responsible for its strategic management, whilst officers (eg Managers, the CEO etc) manage the company’s day-to-day business.

 

Are You Thinking of Going Public?

 

So you market, or are about to market, a unique service or product! Your business is up and running and is growing (or is in the incubator stage). If you are in this position, you may find yourself, before too long, weighing up the option of going public.

 

Offering shares in your company to the general public for the first time is called an Initial Public Offering, or IPO. If you’re considering where or how to launch your IPO, look no further than Delaware. Almost all American IPOs in the last 25 years have been launched under the framework of a Delaware General Corporation (ic C Corp).

 

Delaware C Corp – General

 

So what is a Delaware General Corporation/C- Corp?

 

A Delaware General Corporation has three pillars of influence: shareholders, Directors and Officers. Each of these groups has different rights and responsibilities within the corporation.

 

Shareholders

 

The shareholders of a C Corp own the company, but do not manage the company. Typically, holders of common stock receive one vote for each share they own, and they have the right to elect the members of the Board of Directors. (They also have the right to vote on certain other matters of major significance to the company).

 

Any stockholder who holds a majority of the issued shares in a C Corp can control the company. Majority shareholders typically hold a larger amount of responsibility / power than minority shareholders.

 

Generally, minority shareholders hold no responsibility for, or re, the company, and are able to assign, via proxy format, their votes to anyone of their choosing. Typically minority shareholders can also sell their shares whenever they want (though this can be modified by reference to a Shareholder’s agreement).

 

C Corp Shareholders can/will receive 2 potential benefits: first, dividends (ie a share of the company’s profits) paid in proportion to the percentage of stock held (ie when/if the Board of Directors decided to declare a dividend); and second, by the increased value of their shares as the company grows.

 

Directors

 

The Directors run the company and are responsible for the company’s overall management/direction/results. They take responsibility for all major business actions, such as the issuance of shares, the hiring of officers, the hiring of key management, commercial decisions, the establishment of corporate policies’ and the setting of salaries and compensation packages.

 

The Board of Directors decides if a dividend will be paid to the shareholders and, if so, how much. Individual directors may also own shares in a C Corp.

 

Directors of a Delaware C Corp have certain fiduciary responsibilities to the company (known as Directors duties). They must be loyal to and not in conflict with the company; they must make informed, independent decisions; they must not act in bad faith (eg as self-dealing or fraudulent dealings); and they must act in the best interests of the company and its shareholders.

 

Directors may make decisions and take action in pre-schedules meetings (ie where a quorum is present, or without a meeting – by unanimous written consent of all Directors. Directors cannot donate or sell their votes to other directors, nor can they vote by proxy.

 

Ordinarily, Directors may be removed and replaced – with or without cause - by the majority vote of the shareholders. (This is why a majority shareholder can/does control the company).

 

Officers

 

The officers of the company work for the Board of Directors and handle the day-to-day business of the company. Officers carry out the Board’s decisions and implement the Board’s policy. Officers are usually the President, Vice President, Secretary and Treasurer. However, the Board may appoint other officers, such as a C.E.O., C.F.O., C.I.O., Sales Manager, Operations Manager or any other title ithe Board may wish to create.

 

Officers may be compensated with shares, or they may buy shares in the company as the Board of Directors may decide.

 

Why Delaware?

 

There are several good reasons why almost all US IPOs are Delaware general corporations/C Corps: Smart Investors don’t invest in good ideas – they prefer to invest where they can see they will receive/own a tangible, measurable proportion of the Company’s profits originating from the ideas. A shareholding offers such certainty.

 

Many IPO Professional Advisers would say that, through its general corporation provisions, Delaware offers the most versatile and functional toolbox of share structures. Stock choices available to a Delaware C Corp include blank check preferred stock, super-voting powers, stock options and stock warrants. With these features, + the added ability to tailor shareholders entitlements via reference to a shareholders’ agreement, a Delaware C Corp can provide entrepreneurs with a number of ways to attract investors.

 

Blank check preferred stock is one common example of a left field way to attract or secure an investor. You can structure your Delaware C Corp right from the start with an optional second class of stock that gives you the latitude to offer special deals to certain/significant investors.

 

Another such option is Preferred stock. Preferred stock lets you negotiate dividend rights, the votes per share, the security interests in the company’s assets and the potential to convert the preferred shares into common shares at a future date. Preferred stock can be very attractive to investors,  yet costs very little to issue.

 

Below are just two examples of how preferred stock can act in your favor in an IPO.

 

Using Preferred Stock to Attract an Investor

 

Let’s say you have an investor or interested party who, for whatever reason, hasn’t demanded shares in exchange for his or her investment, until now. To date the investor has put nominal sums into the business but now, on the verge of your IPO, wants a major percentage of the shares to be issued.

 

A Delaware C Corp can enable you to approach that investor and offer a very attractive deal: The terms of the deal are negotiable as, under Delaware law, you have the flexibility to reach a deal on terms agreeable to both sides.

 

You might, for example, offer the investor, 100,000 shares of (preferred) stock at $10 each with preferential terms, such as: 1) a guaranteed annual dividend of $1.00 per share (thus guaranteeing a 10 percent return to the investor); 2) no voting rights until the company goes public (meaning – you’re not diluting your own power); and 3) the preferred stock would be transferable to 1,000,000 shares of common stock one year after the Company goes public. The end result? You’ve delivered to the investor the prospect of a substantial return on his/her investment without diluting your ownership stake!

 

Keeping Control

 

If you’ve been unusually successful at raising investor capital before the public offering, it’s possible that your share of ownership has shrunk (or is in danger of shrinking) to close to 51 percent (at which level you only just have control of the company).

 

To ensure you retain control well into the future, at that point, (ie while you still retain majority control of the company), what you could do is you could issue 100,000 shares of preferred stock to yourself with certain special terms eg: 1) no dividend entitlements (thus eliminating potential investor objections); and 2) voting rights of 100 votes per share on all matters shareholders might vote on (thus maintaning your voting power notwithstanding that you may have divested yourself of more than 50% of the common stock).

 

Even if you continue to attract investment money that further dilutes your ownership percentage, in this scenario you have delivered yourself 10,000,000 extra votes, which is more than enough to offset the voting rights of the other outstanding shares.

 

Stock Offerings

 

The issuing of Common stock in the case of a Delaware C Corp is governed by law; each share of common stock in a Delaware C Corp is entitled to one vote, and common shareholders are entitled to a proportionate share of common stock dividends (if a dividend is declared) ie in proportion to the percentage of shares they hold.

 

Contrast that with Preferred stock which has no set prescription or formula under Delaware law. Preferred stock in a Delaware C Corp can be issued with or without voting rights and the Stocks’ terms are open and limited only by what the Board of Directors and Investors negotiate. In short Preferred stock in a Delaware C Corp can be structured in such a way as to offer the investors preferential financial assurances without the investors receiving voting rights.

 

A Delaware C Corp does not have to issue Preferred stock or Common stock – they can be deployed in tandem. In fact, one common method of preserving insider voting control when raising investment capital is to use preferred stock in addition to common stock.

 

In some preferred stock designs, certain stockholders may be entitled to superior dividends and/or liquidation rights (ie in the event that the company files for bankruptcy protection) and/or afforded other considerations. Additionally, a Delaware C Cop can retain the right to buy out preferred stockholders at a given price, or at a certain date in the future for a price based upon a particular formula. The flexibility and adaptability of the preferred stock model truly represents one of the prime advantages of the Delaware C Corp legislation.

 

Preferred Stock – Other Key Elements

 

Some corporate lawyers refer to Delaware C Corp stock as “blank check preferred stock” because the scenarios described above are both possible with the same class of preferred stock. So, too, are other scenarios if you have issued enough preferred stock – you simply classify the stock into different series and make arrangements with investors as circumstances dictate.

 

If the preferred stock has already been authorized, you can issue it to the investor on a same-day basis and complete the deal without a lengthy escrow period (ie/eg if doing so is to your advantage). The “blank check” reference arises from the fact that in effect you are issuing pieces of paper as you proceed, as many as required (providing investors accept them) in order to generate capital.

 

Another important thing for IPOs to be aware of is a basic principle of Delaware company law, ie in a Delaware general corporation/C- Corp, the Directors set the price of the stock. What this means is that the price of your stock is set by what the Directors say it is worth and/or by what investors believe it is worth (ie regardless of what the actual value of capital or assets held by the Company may be). The investors are in effect gambling on the future viability of your company – their judgment as to the future value of your company is what determines the share price, both when you sell it initially and when it sells on the open market.

 

How Much Stock?

 

A key matter you will need to resolve before you form your Delaware general corporation/C-Corp is what is the quantum of shares of stock to issue?

 

In arriving at the conclusion of that conundrum you will firstly need to ask yourself these two questions:

1. How much capital do I/we need to raise? &

2. What percentage of the company am I willing to forsake for that amount of money?

 

Let’s assume you plan to raise, via private offering, (a) $100,000 in year 1, then (b) a further $1,000,000 via a second private offering in year 2, then (c) an additional $25 million via an IPO after three or four years.

 

Say for the first offering ($100,000), you’ve decided you’ll give up 10% of the company, and then another 25% for the second offering of $1 million (which means you will have parted with 35% of the Company all up before you go public).

 

In this scenario, you would own 65% of the Company at the time of your IPO. However, going public is rarely that straight forward. Let’s assume (a) you’ll need to set aside some stock, or stock options, to attract gun staff and (b) you’ll probably need to assume that other needs will also eat into your ownership stake.

 

This is when blank check preferred stock can come into play: As your ownership percentage of common stock shrinks, you can retain majority voting rights (and control of the Company) via issuance of preferred stock as you may specify. This will enable you to achieve a balance between attracting investors (along with productive coworkers) while avoiding the prospect of being voted out and losing control of your company.

 

Once you’ve decided the quantum of capital you want/need to raise, you’ll then need to decide the number of shares and the value of each in order to reach that figure.

 

In many situations, a general corporation (often referred to as a stock corporation, open corporation or C corporation), is recommended, especially when a Company goes public or plans a private Offering of Stock.

 

General corporations are also typically used when a company wants to attract Venture Capital Funding.

 

A cautionary note: Anyone can own part of a Delaware C-Corp, but there are a limited number of owners you can take in before the SEC potentially gets involved. Moreover you can’t advertise the sale without the SEC getting involved ie you can’t offer the investment online (hey, want to invest in my company? ads are not allowed). That said, if you know someone that wants to invest in your company it’s fine to sell them stock (ie private equity rounds are fine).

 

Before you incorporate a Delaware C Corp you should look up the SEC minimums and regulations to make sure you are following them.

 

Local laws can have an impact. Hence you should also seek appropriate legal financial and tax advice before committing to commit a Delaware C Corp.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

 

Given the decline of the Brazilian Economy (and the resulting political uncertainty), if you are based in Brazil and have a few dollars/assets no doubt you’d be looking at ways to protect those assets. For maximum certainty, ideally, you will be looking for ways to safely move those assets out of Brazil.

 

The solution is to set up an Offshore Corporate or Fiduciary entity and then transfer ownership of the assets to that entity.

 

As a minimum what you should do is set up a Company in a Privacy Haven (that is somewhere that doesn’t have a public register of Directors Shareholders or Beneficial Owners) to take ownership of the asset/s in the first instance.

 

For maximum security, what you could/should then do is set up a Private Foundation to hold the shares of your Offshore Company (and for ultimate protection transfer ownership of the asset/s from the Company to the Foundation).

 

Ideally, to minimize the chances of the Brazilian Authorities finding out who’s behind the Offshore Company, you will want to incorporate your Company (and your Foundation) in a country which has not signed a Tax Information Exchange Agreement (“TIEA”) with Brazil.

 

Jurisdiction etc Options

 

If that plan makes sense to you, you might want to take a close look at the following jurisdictions – as all offer ownership privacy, none of them have signed a TIEA (ie Tax Information Exchange Agreement) with Brazil and all charge no tax on profits realized outside the country of incorporation/registration:

 

• Seychelles: http://offshoreincorporate.com/seychelles-offshore-companies/
• Belize: http://offshoreincorporate.com/belize-offshore-companies/
• Anguilla: http://offshoreincorporate.com/anguillan-ibcs/
• Nevis: http://offshoreincorporate.com/st-kitts-and-nevis-offshore-companies/
• RAK – For detailed information (including pricing info) check this link: https://www.dropbox.com/s/rey4ml7nkgq19eu/RAK%20Offshore%20Companies.docx?dl=0
• US LLC/IBC Combo – For detailed information (including pricing info) check this link: https://www.dropbox.com/s/zunxtlubpm6bs8k/How%20An%20LLC%20%26%20IBC%20Combo%20Option%20Works.docx?dl=0

 

By far the most popular place to incorporate an Offshore Company is Hong Kong. Check the following link which explains why: https://www.dropbox.com/s/4g1xroin3c8vkoa/Why%20Incorporate%20in%20Hong%20Kong.docx?dl=0

 

If you want to have the option of only having to declare in Brazil income actually paid to you by the Offshore Company:

 

(a)  As Brazil has CFC ie Controlled Foreign Corporation Laws, it would be wise to include a Foundation as part of the Corporate structure. Check the following link which explains why, in detail: https://www.dropbox.com/s/fgv089hjpv5d7e6/Why%20set%20up%20a%20Foundation.pdf?dl=0

 

(b)  For maximum privacy and to minimize the chances of your Offshore Company being taxed onshore (as a Company which is seen to be managed and controlled from onshore can be taxed onshore) you would be wise to include a Nominee Director/Shareholder as part of the Corporate Structure. For information on how/why that will work for you (and for guidance on whether to select Nominee Services or not) please read these pages:

 

http://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

 

http://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

 

New/local laws can have an impact. Hence you should seek local legal financial and tax advice before committing to establish an Offshore Corporate or Fiduciary Structure.

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com

 

The Isle of Man is becoming a popular choice of jurisdiction for Cryptosphere Entrepreneurs looking for a middle ground solution between excessive regulation and zero regulation.

 

In short you can incorporate an ICO in the Isle of Man (“IOM”) and have the business officially registered as an ICO without needing to go through a formal license application such as exists in other Financial Centres.

 

Below is a series of Commonly Asked Questions (and Answers thereto) recently published by the IOM Authorities which should provide a neat summary of everything you will want/need to know when beginning your assessment as to the viability of choosing the Isle of Man as your preferred ICO Launch site:

 

Where does the business of issuing Convertible Virtual Currency (“CVC”) (such as via an Initial Coin Offering “ICO”) fit in Isle of Man legislation?

 

In April 2015 the Proceeds of Crime (Business in the Regulated Sector) Order 2015 amended Schedule 4 to the Proceeds of Crime Act 2008 which lists all of those businesses considered by that Act to be “Business in the Regulated Sector”. One type of such business is convertible virtual currency business which Schedule 4(1) (mm) to that Act describes as:

 

the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies or similar concepts where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity (emphasis added)

 

Therefore issuing CVC (which could be via an ICO or other concept), in or from the Island falls under the above definition and so is classed as “Business in the Regulated Sector”.

 

So does this mean that all business areas listed as “Business in the Regulated Sector” under Schedule 4 to the Proceeds of Crime Act 2008 are regulated by the Isle of Man Financial Services Authority (“IOMFSA”)?

 

No. “Business in the Regulated Sector” does not necessarily mean that the business is regulated in the contemporary sense of the word.

 

“Business in the Regulated Sector” for the purposes of the Proceeds of Crime Act 2008 means that additional legislation applies to those businesses (namely the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 or “the Code”).

 

Many of the business sectors in Schedule 4 are fully regulated by the IOMFSA, for example, under the Financial Services Act 2008 or the Insurance Act 2008. These businesses are subject to a wide array of regulatory controls and are subject to detailed scrutiny as required by the terms of the legislation they are regulated under.

 

Some businesses listed under Schedule 4 are only overseen for compliance with the Code. These businesses are called Designated Businesses. Their oversight does not extend to conduct of business, prudential and solvency regulation or protection of client assets. For the avoidance of doubt, businesses operating as CVC businesses (including ICOs) fall under this category.

 

If I am registered, what are my legal obligations?

 

The Designated Businesses (Registration and Oversight) Act 2015 imposes a number of obligations on the business. Some of those requirements include that it must keep all of the information submitted as part of its application for registration accurate and up to date, file an annual return and provide information or documentation to the IOMFSA upon request.

 

The AML/CFT obligations imposed on the business are detailed in the Code. In summary it requires that the business must identify and take reasonable steps to verify the identity of their customers including the beneficial owners of the customers and any persons who are empowered to act on their customers’ behalf. The Code also requires that the business must assess the risks facing it as well as the risks posed by its customers and monitor the transactions and activity of the customers on an ongoing basis.

 

Can I start the pre-sale of a token or coin before being registered or while the registration is being processed?

 

No. The business of selling or issuing a convertible virtual currency is undertaking a designated business. No distinction is made as to whether the sale or issuance of a CVC is undertaken as a pre-sale or after a public launch. Care should also be taken to ensure that the business is not holding out as undertaking a designated business prior to its registration.

 

So, if an ICO business is “overseen” by the IOMFSA for AML/CFT compliance, is it therefore “licensed”, “authorised” or otherwise regulated by the IOMFSA or hold a “cryptocurrency licence”?

 

No. The business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies is a Designated Business as defined by Schedule 1 to the Designated Businesses (Registration and Oversight) Act 2015. This means it is subject to registration under that Act – not financial services regulation.

 

A Designated Business is not a regulated entity and must not hold out that it is anything but a registered Designated Business.

 

Are there any types of CVC business (including ICOs) which the IOMFSA would refuse to register?

The IOMFSA has published a registration policy which outlines what it expects of an applicant in terms of fitness and propriety.

 

In addition to this general registration policy, it is the IOMFSA’s policy to refuse to register an applicant which engages in the CVC business of issuing a CVC (of whatever type) where the CVC issued provides no benefit to the purchaser other than the CVC itself.

 

Examples of this include, but are not restricted to:

 

• · ICOs which convey:

- limited or no rights to the income generated from a project;

- limited or no rights to use the assets developed, purchased or acquired from the funds raised by the ICO;

• · ICOs where there is no reasonable basis for any expected capital growth of the value of the CVC.

 

Such characteristics are generally considered by the IOMFSA to pose an unacceptably high risk that the money raised from the CVC issuance could be used for unanticipated and illegal purposes, as well as posing a risk to consumers. It is because of these risks that it is the policy of the IOMFSA to refuse to register this type of business.

 

If a Designated Business is registered with the IOMFSA, is it required to state this on its website and other correspondence?

 

There is no requirement on a registered Designated Business to state that it is registered under the Designated Businesses (Registration and Oversight) Act 2015 to persons with whom it has communications in the course of its business. However where a business chooses to make such a reference, it should be made very clear that the business is registered under the Designated Businesses (Registration and Oversight) Act 2015 and the business must not ‘hold out’ that it is regulated.

 

Where a business is “registered” with the IOMFSA as a Designated Business, what requirements are imposed on the registered business?

 

As noted above, all businesses listed in Schedule 4 to the Proceeds of Crime Act 2008 are required to comply with the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (‘the Code’). The IOMFSA has powers under the Designated Businesses (Registration and Oversight) Act 2015 to oversee compliance with the Anti-Money Laundering and Countering the Financing of Terrorism legislation (which includes the Code, including powers to inspect the accounts, books and records of the business and take copies of those records).

 

Further details about potential legal or regulatory obligations and how they impact your business should be sought from an independent legal practitioner prior to making an application for registration. No designated business must be undertaken without a registration.

 

How do I apply for registration to issue CVC (including via an ICO) on the island?

 

First you need to ensure your business is of a type the IOMFSA will register, and that it has the necessary number of Island directors and is managed and controlled from the Island (see the Designated Businesses Registration Policy page: https://www.iomfsa.im/designated-business/registration-policy/ ).

 

Then, to begin the process you need to create an account on the application system, to do this you can go through the link below: https://www.iomfsa.im/designated-business/registration-forms/

 

This page provides a high level outline of how to go about registering. At the bottom of the page is a link to the registration system itself, once you create an account you will be able to complete the application forms.

 

There is a detailed user guide which takes you through step-by-step how to use the system and how to complete the forms: https://www.iomfsa.im/media/1423/dnfbpuserguide.pdf

 

Does being registered under the Designated Business (Registration and Oversight) Act 2015 mean I can get a bank account and banking services in the Isle of Man?

 

No. Whether a bank will offer services to your business is a commercial decision for the bank to make and is a matter between your business and the bank.

 

CAUTIONARY NOTE: It would be highly advisable to engage an experienced International Corporate Service Provider to assist with formation of the Operating Company and with the ICO Registration Process. There are a number of unseen reefs you will need to successfully navigate your way around (ie legal boxes you will need to tick) in order to succeed with your registration application. Your chances of succeeding without specialist help would be greatly reduced. (The OCI Legal Team can provide such assistance).

 

Would you like to know more? Then please Contact Us:

 

www.offshoreincorporate.com

 

info@offshorecompaniesinternational.com

 

ocil@protonmail.com

 

oci@tutanota.com

 

oci@safe-mail.net

 

ociceo@hushmail.com