Jared Marx is an attorney at Washington, DC law firm Harris, Wiltshire & Grannis. He advises companies about bitcoin-related regulatory law and represents companies and individuals in civil and criminal proceedings. Here, he discusses how US law applies to non-US cryptocurrency companies.
The blockchain is borderless, but nations are not. Because of this, one of the well-known challenges of running a successful cryptocurrency business is navigating divergent legal systems.
For non-US companies, however, this is complicated even further by the fact that the United States often enforces its laws beyond its own borders. That’s because US enforcement authorities take an expansive view of their jurisdiction, sometimes prosecuting those with only very tangential links to the US.
Applying US law
So exactly how does US law apply outside of its physical borders?
The first and most important thing to know is that, as a general matter, any company that does business in the United States is likely to be subject to US law, even if the company isn’t located here. So incorporating in Finland and locating servers and employees in Helsinki won’t eliminate the effect of US law for a company that mostly serves US customers.
That means that non-US bitcoin exchanges that allow US-based persons to trade on their platforms generally need to be licensed money transmitters under US law, just as do cloud-based wallet systems that allow transactions on US soil. Similarly, foreign entities that make crowdsales to US-based persons are likely subject to US securities laws (to the extent that anyone can tell whether those laws apply).
Of course, companies whose employees, bank accounts, and servers are all located outside the United States have less at stake if the United States attempts to apply its law to them, for the simple reason that it’s more difficult for US enforcement agencies to seize funds or computers overseas. But those companies are not immune, as police agencies around the globe regularly work together, and often cooperate to arrest and extradite individuals who have been charged with offenses in other countries.
How much contact with the United States does a company need for US laws to apply to it? That can be a fact-intensive question, but a good shorthand is that if a web-based company has any users who are located in the US, there’s a good chance that a judge would agree that they’re subject to US law, at least with respect to the company’s interactions with those US-based persons.
What, then, if a company avoids US customers altogether? This is a surer route to avoiding US law, but still not bulletproof. Federal prosecutors sometimes assert jurisdiction based on hooks like the use of a US bank, or an allegation that a company conspired with a US person.
For example, the US terrorist financing statute makes it a crime to participate in terrorist financing anywhere in the world, as long as the financing is “directed toward” an attack against the United States.
For US citizens working abroad, there are also additional concerns. Statutes proscribing money laundering, terrorist financing, and foreign corruption all expressly apply to Americans overseas, even when no other connection to the United States exists.
For non-US companies that are concerned that US law might apply to them, the primary issue is usually whether the company has either avoided or met the requirements of US money transmitter laws. But a good compliance plan will also account for a number of other areas of law, including money laundering, consumer protection, privacy, and commodities laws.
For many small companies affected by these issues, these are largely theoretical concerns. Enforcement—both civil and criminal—is always least likely against small enterprises. But the inverse is also true: the more successful the business, the more attention it will get from enforcement agencies.
So for non-US companies who want or expect to be successful, some early strategic thinking with a competent lawyer can avoid great expense and potential criminal exposure later on.
This is not legal advice, and is not intended to establish an attorney-client relationship.
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