US/China restrictions for ICO. What does it mean?

[briansparks]

Hi folks,

I am associated with one upcoming ICO for exchange and it is registered in UK. It is utility token (not SEC approved or security). As per many attorneys, they do not want to sell tokens in US and China. It is written in our terms that sale is not allowed for US/China residents.
Recently of the person got interested to invest (buy token worth $100k) and he is US residents. I understand that if he transfers USD, he will need to report to IRS. But suppose, if he transfers 5000 Eth (equivalent to $100k) to our wallet and we transfer equivalent amount of our tokens to him, how IRS or regulation will come into picture ?
Practically, how it will be caught or proven ?

Please help me to understand this.

Thanks

[St4yInTh3D4rk]

If someone have 5000 ETHs then it will be surely bought from any of the exchanges and the IRS will track all the purchases from any exchanges in that country so if he doesn't give proper taxes to his investment and earnings or he is doing any restricted thing by that government will be probably get in to their eyes.

If you are from that project then why you want the investor from the country where these kind of action was banned?

[milewilda]

If someone have 5000 ETHs then it will be surely bought from any of the exchanges and the IRS will track all the purchases from any exchanges in that country so if he doesn't give proper taxes to his investment and earnings or he is doing any restricted thing by that government will be probably get in to their eyes.

If you are from that project then why you want the investor from the country where these kind of action was banned?

They would really got interested knowing that the said investor would put up $100k which you cant really deny that this is indeed a good one to fill up the funding. No matter which way do that investor would pay or invest
to the project he would still end up to make bulk purchase of ETH and as we know such amounts would already require verification on most exchangers as of now so he do still be caught up on where hes located.
Unless if he had 5k eth stored on his own wallet then this wont be a problem.

[Lucius]

Hi folks,

I am associated with one upcoming ICO for exchange and it is registered in UK. It is utility token (not SEC approved or security). As per many attorneys, they do not want to sell tokens in US and China. It is written in our terms that sale is not allowed for US/China residents.
Recently of the person got interested to invest (buy token worth $100k) and he is US residents. I understand that if he transfers USD, he will need to report to IRS. But suppose, if he transfers 5000 Eth (equivalent to $100k) to our wallet and we transfer equivalent amount of our tokens to him, how IRS or regulation will come into picture ?
Practically, how it will be caught or proven ?

Please help me to understand this.

Thanks

I see this mainly as problem of investor, he/she need to know what are the legal consequences for this action and you say in your terms that sale is not allowed to USA residents. So in order to this investment happens you need to break your terms, and client need to go against the law of his country. I think this will not work, and both of you might have problems at the end.

[1Referee]

Recently of the person got interested to invest (buy token worth $100k) and he is US residents. I understand that if he transfers USD, he will need to report to IRS. But suppose, if he transfers 5000 Eth (equivalent to $100k) to our wallet and we transfer equivalent amount of our tokens to him, how IRS or regulation will come into picture ?
Practically, how it will be caught or proven ?

Please help me to understand this.

Thanks

It's going to be one heck of a job to keep the IRS out of the picture.

You need to make sure that the person who's planning to buy into your ICO is going to buy his Ethers through an OTC market. Buying any amount of coins through an exchange is a guaranteed way to blow your cover. But then again, what person is going to openly signal that he has $100,000 worth of fiat he wants to convert to Ether?

On top of that, in case he ends up buying into your ICO, he will need to cash out in the exact same way he entered. Doing the job one time without triggering the IRS is already difficult, doing it twice makes things far worse.

[Theb]

I am only aware with the SEC regulations in the U.S.A. so I can only partly answer your questions. It doesn't matter whether your U.S. citizen investor is sending you U.S. Dollars or Ethereum, he/she still needs to be an accredited investor in order to participate in your token's pre-sale. Also before you can even call your token a Utility token you don't have the final say on what kind of token you are holding, the U.S. government is still the one who will classify your token before you can even be certified to sell tokens in the U.S.A. There is no loopholes with this one, if the U.S. government found out that you are selling illegally you might be liable for it.

[cellard]

You will need to prove where these 5000 ETH came from. As long as you stay within crypto they can't really track anything, but once you sell for fiat and it shows up in your bank account, they will most likely ask where these 100k bucks came from. Some have argued otherwise (that any generic explanation will do as long as you pay the tax). I don't really believe this, specially for 6 figure deposits, you'll get audited, and you better have the proof for your funds have a licit origin, and here is the problem, if the gains come from an illegal security (as far as I understand, most ICO's) you may be in trouble.

I have a big headache myself getting all of my transactions sorted, taking screenshots and anything I can find, because all of my coins are from legal origin and I want to be able to prove that if I ever cash into fiat (and even if you don't cash out and you want to buy a house directly with bitcoin, they will still ask)

[avikz]

Hi folks,

I am associated with one upcoming ICO for exchange and it is registered in UK. It is utility token (not SEC approved or security). As per many attorneys, they do not want to sell tokens in US and China. It is written in our terms that sale is not allowed for US/China residents.
Recently of the person got interested to invest (buy token worth $100k) and he is US residents. I understand that if he transfers USD, he will need to report to IRS. But suppose, if he transfers 5000 Eth (equivalent to $100k) to our wallet and we transfer equivalent amount of our tokens to him, how IRS or regulation will come into picture ?
Practically, how it will be caught or proven ?

Please help me to understand this.

Thanks

Ideally, the ETH transaction should not get caught if done with proper precaution and different wallets, even from the US. However, since you have a business and you don't want any legal trouble with it, I will suggest you to stay out of such offers. Because the investor will sell off your tokens at any future point of time and get the cash back to either in ETH or bank account. If the investor cash it out to his bank account, he can be asked for the origin of that fund and then the whole story will uncover. So it's better to remain compliant to the existing rules and don't sell anything to US or Chinese investors. 

[Tapyaks72]

Hi folks,

I am associated with one upcoming ICO for exchange and it is registered in UK. It is utility token (not SEC approved or security). As per many attorneys, they do not want to sell tokens in US and China. It is written in our terms that sale is not allowed for US/China residents.
Recently of the person got interested to invest (buy token worth $100k) and he is US residents. I understand that if he transfers USD, he will need to report to IRS. But suppose, if he transfers 5000 Eth (equivalent to $100k) to our wallet and we transfer equivalent amount of our tokens to him, how IRS or regulation will come into picture ?
Practically, how it will be caught or proven ?

Please help me to understand this.

Thanks

Ideally, the ETH transaction should not get caught if done with proper precaution and different wallets, even from the US. However, since you have a business and you don't want any legal trouble with it, I will suggest you to stay out of such offers. Because the investor will sell off your tokens at any future point of time and get the cash back to either in ETH or bank account. If the investor cash it out to his bank account, he can be asked for the origin of that fund and then the whole story will uncover. So it's better to remain compliant to the existing rules and don't sell anything to US or Chinese investors. 

Obviously China and US want to control world economy, crypto currency somehow in the process they think that  cryptocurrency will become a hindrances, because of taxation issues and control of the world currency, yeah we should be extra carefully dealing with this giant economy because  they would create some move to pin down crypto currency,

[buwaytress]

Actually, to my understanding, what you need to prove as an entity receiving those funds, is not to provide proof how the person got those funds. That is on the person. But you have to prove that you did your due diligence, that the investor is accredited in your jurisdiction, and that the person or source of funds are not sanctioned entities (in this case US or China). For example, if I send money through my bank, I have to declare the source of income and provide some proof, but the bank is not obliged to investigate beyond that.

On the face of this, you can't accept the investment. Simply changing his mode of transfer doesn't change the fact that he/she is a US-based entity. The legal workaway is if the person uses a third-party entity to transfer the funds in the name of that 3rd entity. Typically, an offshore business or fund. Still, the transfer of USD and purpose and eventual destination all matter.

[HeRetiK]

[...]

On the face of this, you can't accept the investment. Simply changing his mode of transfer doesn't change the fact that he/she is a US-based entity. The legal workaway is if the person uses a third-party entity to transfer the funds in the name of that 3rd entity. Typically, an offshore business or fund. Still, the transfer of USD and purpose and eventual destination all matter.

Exactly. Obviously ETH transactions can not be as easily linked to private individuals as bank transfers, but for the sake of staying on the legal side of things the mode of transfer is irrelevant. If you already go through the extra measure of not selling those tokens to US / Chinese residents despite being "only" utility tokens rather than tokens that could be interpreted as securities you shouldn't put the legal status of your ICO at stake like that.

Also USD 100k,- can not that easily "disappear" and "re-appear" without turning a few heads, unless you do some money laundering in which case you'd open a whole different can of worms.

[buwaytress]

Exactly. Obviously ETH transactions can not be as easily linked to private individuals as bank transfers, but for the sake of staying on the legal side of things the mode of transfer is irrelevant. If you already go through the extra measure of not selling those tokens to US / Chinese residents despite being "only" utility tokens rather than tokens that could be interpreted as securities you shouldn't put the legal status of your ICO at stake like that.

Also USD 100k,- can not that easily "disappear" and "re-appear" without turning a few heads, unless you do some money laundering in which case you'd open a whole different can of worms.

Absolutely. I'm all for personal liberation of finance and money, and I believe as much as the next person about the right to privacy, the right to self-determination, and very much see Bitcoin as an expression of that. But if you're an enterprise wanting to do business in the traditional world of finance and banking, if you want to play in that playground, then there's really no option. You play clean, or you play dirty. I can empathise with businesses of course, especially individual entrepreneurs, but if we're talking about attracting funding, capital... certainly if you're offering a form of securities and wanting to follow the rulebook on accredited investors, then you shouldn't try to move goalposts with that kind of money.

Of course, there are legal ways to do businesses with sanctioned entities and regulated persons, and I imagine there are loopholes especially in this new industry... but not even the top lawyers will know how to do that just yet, not until the landscape becomes clearer for "digital currencies".

[KrishaBitcoin]

Hi folks,

I am associated with one upcoming ICO for exchange and it is registered in UK. It is utility token (not SEC approved or security). As per many attorneys, they do not want to sell tokens in US and China. It is written in our terms that sale is not allowed for US/China residents.
Recently of the person got interested to invest (buy token worth $100k) and he is US residents. I understand that if he transfers USD, he will need to report to IRS. But suppose, if he transfers 5000 Eth (equivalent to $100k) to our wallet and we transfer equivalent amount of our tokens to him, how IRS or regulation will come into picture ?
Practically, how it will be caught or proven ?

Please help me to understand this.

Thanks

This is very dangerous for money laundering as this involved a very high figures of money in which it is very impossible to hide the transactions as regulations now are fully strictly implemented but if your friend can manage to transfer their money thru the banks (which i think is very difficult too) then he could invest using your KYC. Here in our country, the government will be alarm everytime we converted huge figures to any local exchanges in which i think the IRS which is most advance in talking of technology could monitor too.