Why Wyoming’s new utility token bill may be redundant
Federal regulators say ICO developers who sell tokens to US residents are considered money transmitters.
Lawmakers in the western US state of Wyoming passed a bill this week to exempt utility tokens from securities laws. However, this legislation may be ineffective when pitted against authoritative federal regulations.
Wyoming’s Senate cleared House Bill 70 (HB0070), which states that “a person who develops, sells or facilitates the exchange of an open blockchain token is not subject to specified securities and money transmission laws”.
The bill was initially passed by Wyoming’s House of Representatives on February 20, 2018 and now that it has passed through the Senate, only requires Governor Matt Mead’s signature to be officially written into state law.
LegiScan has made a copy of the “open blockchain token exemption” bill available to view online.
“A developer, seller or a person who facilitates the exchange of an open blockchain token, or the registered agent of the applicable person, shall electronically file a notice of intent with the secretary of state before the person shall qualify for an exemption under this section,” according to the bill.
However, the notice of intent doesn’t require many details; just a name, contact information and role title.
The SEC’s statement on potentially unlawful online platforms for trading digital assets, published by the regulator’s Divisions of Enforcement and Trading and Markets, suggests that if a platform “offers trading of digital assets that are securities and operates as an ‘exchange’, as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration”.
The Financial Crimes Enforcement Network (FinCEN) recently said that it considers initial coin offerings (ICOs) to be money transmitters, and as such, must be registered and compliant with appropriate rules and guidelines. In a letter addressed to a US Senator Ron Wyden, FinCEN assistant secretary for legislative affairs Drew Maloney stated that Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements apply to MSB (Money Services Business) developers and exchangers, which should include ICOs.
Coin Center director of research Peter Van Valkenburgh said this was “a highly consequential interpretation”.
“Any group or individual developer who both (A) sold newly created tokens to buyers (i.e. had an ICO) involving U.S. residents and (B) failed to register with FinCEN as a money transmitter, and perform the associated compliance KYC/AML obligations, can be charged under a federal felony criminal statute, 18 U.S.C § 1960, with unlicensed money transmission. If found guilty one could face up to five years in prison. Criminal liability may also extend to employees of, and investors in, the business that sold the tokens,” Van Valkenburgh said.
Ripple chief executive Brad Garlinghouse says crypto exchanges only have three options available to them.
Considering federal law generally takes precedence over state regulations, Wyoming’s legislation may become redundant. However, at the very least, the state’s interpretation means these matters can be heard in court.
Earlier this week, Securities and Exchange Commission (SEC) chairman Jay Clayton reinforced the regulator’s message to potential digital currency traders on the risks involved with ICOs. “We’re watching,” he warned.
This is the fourth out of five bills to pass through Wyoming’s Senate in 2018. There was a blockchain records bill, which passed both houses, and would allow businesses to store internal documents and databases on distributed ledgers. There was also an act that encourages Limited Liability Companies (LLCs) to apply for corporate registrations for blockchain business in Wyoming, rather than Delaware.
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