East Asia is reportedly the world’s leading marketplace for virtual currency with three of the largest exchanges based in China, Japan, and South Korea. China-based exchanges alone reportedly account for more than 90% of the global trading volume in virtual currency.
These virtual currency businesses may be surprised to learn that they may be exposed to possible government enforcement actions and private litigation in the US based on conduct taking place in their home jurisdictions.
The US government has recently taken aggressive steps to police the global virtual currency markets, taking a view that, in some circumstances, virtual currencies can constitute “securities” and “commodities” subject to enforcement and prosecution under US law. These recent actions open a Pandora’s box of possible legal consequences for virtual currency businesses operating in East Asia.
Enforcement actions in the US
The US government has been flexing its muscles to police virtual currency markets around the world, including by bringing a number of recent actions against businesses in East Asia and others parts of the world.
In 2016, a US government body brought an enforcement action against Hong Kong-based virtual currency exchange Bitfinex for failing to register with the government body. As recently as July 2017, US prosecutors fined Russia-based virtual currency exchange BTC-e US$110 million for violating US anti-money laundering laws.
These enforcement actions against virtual currency exchanges around the world are predicated on conduct occurring outside the US that has an effect within the US. And while the US government’s legal reach may not necessarily be valid, and is open to dispute, that may be little comfort to companies and individuals charged with illegal activity in the US.
Three US enforcement bodies are leading the competition to become the top regulator in the global virtual currency space.
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John Han is a principal at Kobre & Kim’s Hong Kong office and Benjamin Sauter is a principal at the firm’s New York office. Nan Wang, an associate at the Hong Kong office, also contributed to the article.