British Virgin Islands: Crypto-Currency And ICOs In The British Virgin Islands

Last Updated: 8 February 2018
Article by Michael Killourhy

Initial currency offerings (ICOs) of crypto-currencies, tokens and other block chain based assets raised over US$ 3.5 billion in 2017. Leading offshore financial centres such as the British Virgin Islands (BVI) have sought to become a major part of this new capital raising phenomenon and there is increasing interest in the use of BVI companies as ICO issuer vehicles. While other offshore jurisdictions have experienced similar interest, structuring an ICO through a BVI company offers a number of advantages which have made the BVI an attractive ICO base. As a result the jurisdiction has seen a number of highly successful launches during the last 12 months.

ICOs

ICOs are in essence just another means of accessing third-party capital. Rather than receiving a security whose return is dependent on the performance of the business of the issuer or its group, as in a traditional IPO, in an ICO investors exchange cash for a new crypto-currency on a blockchain network. In most cases this crypto asset takes the form of a credit or token for use in purchasing goods or services in the application or enterprise into which the ICO proceeds will be invested. However, rather than using these "utility tokens" for making purchases within the application, most investors will hold the tokens in the hope that the success of the underlying enterprise (in which the new utility token will be the sole or principal unit of exchange) will cause the relative cash value of the utility token to increase as demand for those tokens for use within the application increases and their potential being accepted as wider means of exchange increases.

As the value of a token is determined by the demand for the token itself rather than returns or repayments from some underlying business operated by the issuer (albeit that there may be an indirect link between token value and business performance), then most types of utility token are not regarded as "investments" or "securities" by regulators and are therefore not subject to many of the regulations and restrictions that might apply to a public debt or equity issue by a company. As a result, ICOs offer an efficient and cost effective means of accessing mass capital for start-up or early stage enterprises or technology entrepreneurs which might not otherwise have access to capital markets.

Structuring

Similar to existing forms of special purpose vehicle capital raising, a typical ICO structure will feature a newly formed issuer vehicle (the ICO Issuer) established and managed by a group of ICO sponsors (the sponsors or founders) for the purpose of investing in a particular project which will be detailed in the ICO business plan - known as the "white paper". The white paper will also set out the fundraising target which the ICO Issuer expects to achieve. The ICO Issuer will then raise funds by issuing crypto-currency tokens on a blockchain network in exchange for investor cash (which may be in the form of conventional fiat currency or, in some cases, other crypto-currencies). The new tokens may be used within the project being developed by the founders or held for potential capital gains as demand grows. Once the ICO Issuer has achieved its target fundraising goal, the funds raised will be invested in the project described in the white paper.

Most BVI ICOs are structured through an ICO Issuer incorporated as a BVI business company under the BVI Business Companies Act, 2004 (the BCA).

ICOs in the BVI

The use of a BVI business company incorporated under the BCA as an ICO Issuer brings with it all of the standing advantages associated with BVI business companies and the BVI as a capital friendly jurisdiction. These advantages include:

  • corporate flexibility and efficiency enshrined in the modern and commercially minded BCA and other BVI corporate legislation;
  • the absence of capital control and maintenance rules, allowing for the free flow of funds in and out of a BVI ICO Issuer;
  • tax neutrality;
  • low incorporation and annual company maintenance costs relative to similar jurisdictions such as Cayman and Bermuda;
  • efficient company maintenance;
  • continuing obligations for BVI companies and their officers and owners are commercially progressive and non-onerous, and, for the present at least, most traditional ICO forms would not be subject to additional securities or public offering regulations under BVI law; and
  • "transaction fluency" - as the largest offshore corporate domicile the BVI enjoys the presence of a strong professional services community of lawyers, accountants and corporate services providers. Transactions are professionally handled and transaction fluency is optimised.

Although neither the BVI government nor the BVI's financial services regulator, the BVI Financial Services Commission (FSC), has issued any ICO or blockchain specific rules or guidance as yet –the FSC's current attitude towards blockchain is mostly constructive and the impulse to impose new restrictions in the area has been resisted. The current official approach is for the BVI to take a 'wait and see' approach to ICO regulation, however, for the present, the consensus view is that an ICO in its customary form would not be restricted or subject to more onerous regulation under the existing financial services regulatory framework in the BVI.

While there is no legislation or regulation specific to ICOs or blockchain in the BVI, it is worth noting that in addition to those general advantages of BVI law set out above, there are particular aspects of BVI legislation which have specific application to ensuring the success and attractiveness of the BVI as an ICO jurisdiction. For example, since everything in relation to the launch and conduct of the ICO will be done on an electronic platform, the utility of the BVI's Electronic Transactions Act 2001 (ETA) provisions on electronic signatures and record keeping requirements is of fundamental importance. In very general terms the ETA underscores that electronic contracts and records will not be denied legal validity in the BVI simply because they are maintained in electronic, as opposed to paper, format and that transactions of all kinds can be executed by electronic exchange.

ICOs and Existing BVI Securities and Financial Services Regulation

While there is a clear consensus that an ICO in its customary form would not be restricted or subject to more onerous regulation under existing BVI financial services legislation, it is still important and necessary to consider any proposed ICO against such legislation so as to ensure that it is appropriately structured to avoid tripping any restriction or obstacle that otherwise would not apply.

The BVI financial services legislation relevant for consideration in respect of an ICO includes the following:-

  • Securities and Investment Business Act 2010 (SIBA)

Investment business activity in the BVI is regulated by the provisions of SIBA which prohibits a person from carrying on, or holding themselves out as carrying on, investment business of any kind in or from within the BVI unless that person holds a licence from the FSC or is within one of the exemptions or safe harbours offered by SIBA. However, an ICO of, and subsequent dealings in, standard utility tokens should not be subject to the general prohibition as utility tokens would not come within the definition of an "investment" for the purposes of SIBA.

While most ICO issues would not fall within the scope of SIBA, and therefore there should be no need for the BVI ICO Issuer to hold an FSC investment business licence, there is still a danger that certain forms of token or crypto asset might come within the definition of investment if their value or return is determined by reference to the performance of some other asset or business (such that it becomes a form of derivative). Therefore the terms of any proposed token or crypto asset should be carefully considered.

Similarly, most ICOs should fall outside the public offer rules at Part II of SIBA for the same reason as set out above (because standard utility tokens would not be considered "investments") – if such rules were presently in force. Part II of SIBA requires that a formal offering prospectus be produced and registered when an offer of securities is made to the public and deals generally with "public issue of securities", however none of Part II is presently in force and therefore consideration of its application still remains academic. 

  • BVI AML Law

The BVI's present anti-money laundering laws are codified in the form of the Proceeds of Criminal Conduct Act 1997, the Anti-Money Laundering Regulations 2008 and the Anti-Money Laundering and Terrorist Financing Code of Practice 2008 (together the AML Law). As in other responsible jurisdictions, the requirements of the AML Law are intended to provide a comprehensive set of rules and safeguards aimed eliminating or at least minimising money laundering or terrorist financing through the BVI.

The identification, record keeping and reporting obligations imposed by the AML Law are however only applicable to persons ("relevant persons") involved in certain types of regulated business ("relevant business"). ICOs of standard utility tokens would not be caught within the definition of relevant business for these purposes and therefore the BVI ICO Issuer involved is unlikely to be a "relevant person". Sponsors though should nevertheless be aware of the provisions of the AML Law and obligations thereunder should any aspect ever be brought to apply to a BVI ICO or BVI ICO Issuer – albeit that we are no aware of any intention to modify any aspect of the AML Law in this respect. 

  • The Financing and Money Services Act 2009 (FMSA)

The FMSA regulates "money services business" in the BVI which is defined as "money transmission services, cheque exchange services, currency exchange services, the issuance, sale or redemption of money orders or traveller's cheques or other such services". These types of services either expressly or self-evidently contemplate transactions in "fiat currency", i.e. currency which is legal tender. As tokens and crypto-currencies generally are not fiat currency, then the general view is that these fall outside the scope of the definition of money services business and therefore ICOs and subsequent transactions in tokens or other crypto-currencies would not be subject to FMSA. 

  • Beneficial Ownership Secure Search System Act 2017 (the BOSS Act)

The BOSS Act requires BVI companies and their registered agents to record information as to the beneficial ownership of the company on a central government controlled, but confidential, database. Beneficial ownership for the purposes of the BOSS Act is determined by reference to control tests, i.e. share ownership, voting rights, the right to remove a majority of the board of directors and the exercise of significant influence and control over a company. Given that any disclosure here is driven by reference to "control" of the entity, it should be relatively straightforward to ensure that the identity of token holders will not need to be recorded in any beneficial ownership register of an ICO Issuer. 

  • Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS)

At present, the terms of FATCA and CRS as implemented into BVI law would not require an ICO Issuer to record or disclose information on mere token holders (or holders of other crypto assets issued by the ICO Issuer). 

Conclusion

Existing BVI legislation is sufficiently flexible to support ICOs of utility tokens without these being subject to any additional licensing, disclosure or record keeping obligations under existing BVI financial services legislation. This, coupled with those generally advantageous aspects of BVI law, make the BVI an attractive locale for ICOs and it is expected that the number of ICOs involving BVI companies will continue to increase.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions