Dear Experts, kindly inform:
Shall an company registered in Hong Kong make KYC and ALM for its Utility token sale (ICO) and at the same time prevent US, China, etc. citizens from doing contributions?
The Overall Risk Score is 10 from 100 due to "The Howey Test".
This is not legal advice whatsoever. The reason why ICO issuers do this is to exercise extreme caution in fear of future regulations by the United States that currently aren't in place. They are showing legal due diligence to make sure that they are not in violation of any potential ruling. KYC and AML requirements became rampant after the SEC's DAO report. The Howey Test is a good place to start but there are so many factors that can deem a ICO/crypto a security. Even if it's token is no where near considered a security, how it's sold, marketed, amongst other things could still define it as one. In my opinion, it will most likely come down to a case to case basis in determining this.
There are securities laws in the United States that would prevent the sale of an unregulated/unexempted security from being sold to someone in the states. The issue for the state or federal regulator would be getting the entity to appear in their jurisdiction, as its quite easy to just ignore them if you do not operate or have a place of business there. Caviar.io is a recent example of a company that got pinged, even though they had anti-us measures in place they still sold to a US person and got in trouble for it. The principal operated out of a US state and so they were able to slap his wrist easily. Now they are having to do a full scale KYC audit to show the regulator in which ever state the principal operates out of that they are willing to play ball.
I think KYC and AML precautions show a capable and risk averse team which in my opinion is a good thing. If they are willing to play ball with global authorities and have done their research about how to conduct themselves then that shows at least they care.
On the utility token point there are a number of concerns with proving that the token has actual utility and isnt just a non-dividend bearing security. My understanding is that Paypie is having to wait until their platform is 100% operational in order to show the Canadian authorities that their token has genuine utility and should be exempt from securities regulations. Voting rights on platforms, staking rights on platforms & proper use cases are what your after. Simply swapping a token for something that money could buy can mean that the 'utility' of the token is questionable (ie you can buy stuff from X using x token isnt really utility because why cant you do that with $).
