South Korean Cryptocurrency Exchanges Stranded Due to Pressure from South Korean and Foreign Governments

Jun 13, 2018

Foreign governments and foreign cryptocurrency exchanges are ruling over South Korean cryptocurrency exchanges that have been pushing for ICOs (Initial Coin Offering) in foreign countries as South Korean Government has completely prohibited ICO tyrannically. South Korean exchanges that have been preparing for ICOs in foreign countries are in a state where they have to either postpone their plans or rethink about setting up foreign corporates. Some are even pressured by foreign governments and exchanges that request corporate taxes that are identical to a level of high interest loans or hiring of at least 4 of their own local employees. Guarantee of millions of dollars of annual income is a must.
According to industries, exchanges and governments from Switzerland, Singapore, Estonia, Philippines, and Hong Kong are requesting unreasonable conditions from South Korean cryptocurrency exchanges with an approval of ICO as an excuse.
CEO of a South Korean blockchain company that has been preparing for a reverse ICO in Switzerland recently received ridiculous proposals from authorities of Switzerland. They requested the CEO that the company must establish a limited liability company rather than a foundation to receive an approval of ICO. They requested the company to set up a corporate since a foundation does not help since it is a non-profit organization and to hire 4 local employees from Switzerland (1 president and 3 executives). Corresponding company gave up its ICO project in Switzerland due to unreasonable requests.
Another South Korean company received similar requests. Although it was told to hire one or two local employees with annual income without lower limit in the past, now it is being told to pay millions of dollars as annual income for these employees and to hire them without asking any question.
CEO of a company that already succeeded in procurement through a foreign ICO received corporate tax that is close to 35% of amount of procurement. When South Korean Government has completely prohibited ICO, there is an increasing number of incidences where governments are making a list of South Korean companies and levying taxes that are more than 30%.

South Korean Cryptocurrency Exchanges Stranded Due to Pressure from South Korean and Foreign Governments

It is estimated that South Korean companies pay additional taxes that are related to ICO between $92.6 million and $139 million (100 billion and 150 billion KRW) to foreign governments. Some South Korean companies are pushing for ICOs in Japan and China recently when governments and exchanges from Switzerland and Hong Kong are proposing unreasonable requests. However, situation is same in Japan and Hong Kong.
CEO of a South Korean company that has been preparing for ICO through a Chinese exchange became dumbfounded due to ridiculous requests from the Chinese exchange. Working group from Chinese exchange suddenly requested CEO of the South Korean company to visit China within 2 days while the companies were at the last stage of an agreement. Although CEO of the South Korean company told the Chinese exchange it would be difficult to visit China without a visa, the Chinese company was very hell-bent on its request. Ultimately, CEO barely got a plane ticket that passed through 3 different countries. However, the Chinese company postponed a meeting by saying that it had other things to do.
Exchanges from Singapore are even requesting South Korean companies t submit accurate white papers and specifications of corresponding technologies. This is the point when South Korean companies were seen as ‘suppliers of fund’ by foreign governments and companies and were depreciated.
Despite these situations, South Korean Government is still regarding an act of procuring funds by using cryptocurrencies through equity security and debt security as an illegal act and it is still prohibiting ICOs strongly. ICO-related South Korean companies have become sandwiched by South Korean Government and foreign governments when it was found out that South Korean prosecutors had carried out search and seizure on a company that had carried out an ICO process in a foreign country.
Level of concerns towards opportunity costs and outflow of national wealth is growing as South Korean Government continues to prohibit ICOs.
Staff Reporter Gil, Jaeshik | osolgil@etnews.com

■Current status of ICO regulations by different countries

▲U.S: U.S. Government considers ICO as an act of issuing securities and applies regulations that follow IPO (Initial Public Offering).  It allows only official investors to participate in ICO.  Companies that carry out ICOs on these investors must report SAFT (Simple Agreement for Future Tokens), which includes information such as information related to projects and cryptocurrencies and protection of investors, to SEC (U.S. Securities and Exchange Commission).  
▲Japan: Japanese Government does not have specific regulations on ICO currently.  However, FSA (Financial Services Agency) from Japan is looking into ICO guidelines made by private agencies.  These guidelines include information such as standards for distinguishing identities of investors, prevention of illegal acts such as money laundering, monitoring of progress of projects, and protection of investors that possess current stocks and bonds
▲Switzerland: FINMA (Swiss Financial Market Supervisory Authority) established guidelines for ICO in February and it differentiated ICO regulations into three parts depending on a type of cryptocurrency.  Tokens that are used for company stakes and profit distribution are classified as security-type tokens and are applied with security act (free-sale tokens and etc.).  tokens that can be used as rest of payment settlement methods and tokens with service access authorities do not have regulations.  Swiss Government also established crypto-valley and it is actively attracting blockchain companies and startup companies that are looking to carry out ICOs.  It has generally legalized ICO and it has included ICO into its system.
▲Singapore: Monetary Authority of Singapore (MAS) introduced ‘Regulation Sandbox (a legal space where everything can be done without regulations)’ in November of 2016.  As part of the system, it announced ‘A Guide to Digital Token Offering’ in July of 2017.  It only regulates security-type ICOs that promise stakes or share part of profits and is relatively favorable towards ICO
▲Estonia: Estonian Government introduced e-Residency system.  This system allows anyone to become an e-resident even if he or she does not actually live in Estonia and it also allows anyone to establish a company or open an account without having to visit Estonia.  Estonian Government drastically eased regulations to promote Estonia as European FinTech and an ICO hub and it is actively attracting FinTech companies and ICOs.  More than 25,000 people globally are registered as e-Residents.
▲France: French Government is now planning to allow ICOs while it prohibited them in the past.  Its financial department and AMF (The Autorite des marches financiers) are looking to ways of allowing ICOs.  AMF is examining companies that are preparing for ICOs and is looking into ways of issuing personnel license.  Companies can collect funds after receiving this license from AMF.  Token issuers are obligated to provide information related to collection to investors
▲Germany, England, Hong Kong, Australia, Canada: These governments are favorable towards ICOs and are actively trying to attract ICO companies
▲China, South Korea: They completely prohibit ICO starting from September of 2017
<■Current status of ICO regulations by different countries ▲U.S: U.S. Government considers ICO as an act of issuing securities and applies regulations that follow IPO (Initial Public Offering). It allows only official investors to participate in ICO. Companies that carry out ICOs on these investors must report SAFT (Simple Agreement for Future Tokens), which includes information such as information related to projects and cryptocurrencies and protection of investors, to SEC (U.S. Securities and Exchange Commission). ▲Japan: Japanese Government does not have specific regulations on ICO currently. However, FSA (Financial Services Agency) from Japan is looking into ICO guidelines made by private agencies. These guidelines include information such as standards for distinguishing identities of investors, prevention of illegal acts such as money laundering, monitoring of progress of projects, and protection of investors that possess current stocks and bonds ▲Switzerland: FINMA (Swiss Financial Market Supervisory Authority) established guidelines for ICO in February and it differentiated ICO regulations into three parts depending on a type of cryptocurrency. Tokens that are used for company stakes and profit distribution are classified as security-type tokens and are applied with security act (free-sale tokens and etc.). tokens that can be used as rest of payment settlement methods and tokens with service access authorities do not have regulations. Swiss Government also established crypto-valley and it is actively attracting blockchain companies and startup companies that are looking to carry out ICOs. It has generally legalized ICO and it has included ICO into its system. ▲Singapore: Monetary Authority of Singapore (MAS) introduced ‘Regulation Sandbox (a legal space where everything can be done without regulations)’ in November of 2016. As part of the system, it announced ‘A Guide to Digital Token Offering’ in July of 2017. It only regulates security-type ICOs that promise stakes or share part of profits and is relatively favorable towards ICO ▲Estonia: Estonian Government introduced e-Residency system. This system allows anyone to become an e-resident even if he or she does not actually live in Estonia and it also allows anyone to establish a company or open an account without having to visit Estonia. Estonian Government drastically eased regulations to promote Estonia as European FinTech and an ICO hub and it is actively attracting FinTech companies and ICOs. More than 25,000 people globally are registered as e-Residents. ▲France: French Government is now planning to allow ICOs while it prohibited them in the past. Its financial department and AMF (The Autorite des marches financiers) are looking to ways of allowing ICOs. AMF is examining companies that are preparing for ICOs and is looking into ways of issuing personnel license. Companies can collect funds after receiving this license from AMF. Token issuers are obligated to provide information related to collection to investors ▲Germany, England, Hong Kong, Australia, Canada: These governments are favorable towards ICOs and are actively trying to attract ICO companies ▲China, South Korea: They completely prohibit ICO starting from September of 2017 >

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