Initial Coin Offerings (ICOs) has become a major tool for fundraising for a lot of start-ups. With cryptocurrencies, these companies have been able to bring in millions of dollars in capital by issuing virtual tokens to investors in exchange for money. These start-up companies create and issue digital tokens that can be used to pay for goods and services on their platform or stashed away as an investment. All told, start-ups have raised more than a billion dollars this year in coin sales and in recent months, just four crypto projects have raised over $660 million combined, according to Smith + Crown, a blockchain research and consulting group. With the spike in investment through cryptocurrencies and its increased usage, this has ignited the debate on risks of money laundering and fraud that investors face when buying into a digital token sale. On the same lines, on August 1, Singapore’s financial regulatory body and central bank, the Monetary Authority of Singapore (MAS), said that ICOs are “vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raised in a short period of time.” Let’s just understand how ICOs may support money laundering through an example –
  • Bob buys into an ICO of Token$$$ because he hopes it will appreciate
  • Bob could either sell his supply of Token$$$ on a major exchange (which is spending money to record customers’ information to be compliant for regulators), or he could go to a fly-by-night exchange where the prices are better
  • The prices are better on that second exchange because would-be money launderers are willing to pay a premium to wash their funds
  • Rob, who is looking to make his dirty money appear clean, buys Token$$$ from Bob
  • Bob makes more money than he would have at a more regulator-friendly exchange, and Rob now has Token$$$ that isn’t tied to a criminal enterprise
  • Rob can then go to any exchange and sell his Token$$$ for common digital or fiat currencies
Alternately, criminals could just buy into an ICO themselves, hoping that the fledgling technology does not have robust know-your-customer practices. To prevent money laundering and protect investors from fraud, many argue that cryptocurrencies need some form of regulation — particularly digital coins that sometimes act like securities but are not subjected to any of the stringent mainstream regulations. Let’s take a look at the “For” and “Against” reasons of having compliance in place for these ICOs – For –
  1. A regulated ICO market, with proper checks in place, could draw in professional investors. If the industry opens up to professional investors, who have more capital to invest, companies can raise more money – as per Syed Musheer Ahmed, a senior financial technology consultant and a member of the board at the FinTech Association of Hong Kong
  2. Regulatory clarity would result in token sales being conducted in a more professional manner and better disclosure and transparency for the entire process
  3. Regulation would “reinforce the need for sellers to have appropriate anti-money laundering and terrorist financing policies in place as part of the overall campaign.”
Against –
  1. Implementing poorly planned policies may do more harm than good. For this reason, MAS had issued a notice as early as March 2014 that said virtual currencies were not regulated per se, but intermediaries in virtual currencies would be regulated for money laundering and terrorism financing risks.
  2. There’s also a general misconception among investors and companies that ICOs are not regulated already, according to David Tee, chief financial officer at Hong Kong-based Fintech firm ANX International. As a result, he said, many of the ICO campaigns are being done with little or no professional or technical guidance. That likely results in misleading information and unfair sales processes, inappropriately designed token features and poorly written smart contracts that are vulnerable to hacking.
Legitimacy to this technology is certainly needed – when and how it is to be implemented is what we will soon to see transpire.   GET IN TOUCH  

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Online Training
Anti-Money Laundering and Countering the Financing of Terrorism
Friday, 29 October 2021
02:30 – 04:00 SGT

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