Tax Havens Eye a New Sideline: Initial Coin Offerings

via Fortune

Gibraltar, a U.K. territory of 30,000 people on the southern tip of Spain, put out a statement last week on so-called “Initial Coin Offerings” (ICOs). While some saw this as the latest government crackdown on ICOs, which are a controversial way for companies to raise money using cryptocurrency, the statement was more of a welcome mat than a warning.

At a time when regulators the U.S. and Canada are putting in strict rules for ICOs, or even banning them outright like China, smaller enclaves see an opportunity. According to Josh Klayman, an attorney at New York office of Morrison Foerester, Gibraltar is positioning itself to be an attractive destination for upcoming ICOs.

Despite a recent crackdown on ICOs by the SEC and other regulators, Klayman says demand is stronger than ever for ICOs, which in recent months have eclipsed venture capital rounds as a source of fund-raising for startups.

ICOs are controversial because they involve the sale of digital tokens, which ostensibly provide a way for token-owners to purchase a company’s services—but are in many cases little more than a vehicle for speculation. This has led regulators to warns that the “coins” in ICOs are actually securities, and must be registered as such.

In the case of its Gibraltar, the territory’s statement suggests it may take a more lenient view of the line between tokens and securities:

Tokens vary widely in design and purpose. In some cases, tokens represent securities, such as shares in a company, and their promotion and sale are regulated as such. More often, tokens serve some cryptocurrency or functional use that is unregulated, such as prepayment for access to a product or service that is to be developed using funds raised in the ICO.

Gibraltar plans to provide more guidelines in early 2018 to attract ICOs. For the territory, the advantages of becoming an ICO destination could include listing fees and business for local bankers and law firms.

According to Klayman, Gibraltar isn’t the only small enclave looking to brand itself as an ICO hub. She says the Isle of Man and the Cayman Islands are also looking to get into the game. In the meantime, Switzerland remains a popular base for launching ICOs.

It is perhaps no surprise that Gibraltar and the other small territories are vying to be ICO hotspots. Such territories, many of which served as naval bases during the British Empire, have for years sought to build their economy as tax havens or as a forum for online gambling and other activities frowned upon by larger countries.

Gibraltar has also been in the news this year over Spanish demands that the U.K. return the 2.6 square mile territory, which has been a British possession since 1802.


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