By Zia Ullah, Mark D. Herlach, James Lindop and Victoria Turner
Reprinted with permission from Eversheds Sutherland.
President Trump announced last week that the US will withdraw from the Iran nuclear deal and will begin re-imposing those sanctions which were lifted as part of the Joint Comprehensive Plan of Action (“JCPOA”). In a move which former President Obama has described as “misguided” and a “serious mistake”, President Trump signed a National Security Presidential Memorandum directing relevant US agencies (including the Treasury) to take actions necessary to start re-imposing sanctions, meaning that secondary sanctions, which impact on non-US persons, will come back into effect. President Trump’s announcement also leaves open the possibility for new and additional sanctions to be imposed in the future.
Last week’s announcement confirmed that there will be wind-down periods before sanctions are fully re-imposed.
By Sammy Naji
As the Securities and Exchange Commission greater asserts itself against non-compliant Initial Coin Offering tokens, an increasing number of ICO issuers have attempted to comply with SEC regulations by offering tokens pursuant to SEC exemptions or by framing the tokens as utilities rather than securities. Utility tokens are tokens that represent a service or a good to which the token holders are entitled. Notable brands like Kodak, Atari, and Telegram have already issued or are planning to issue such tokens as a way to raise large amounts of capital as well as to stimulate interest from the public to their services. The issuance of utility tokens typically involves two stages: a pre-functional phase and a post-functional phase.
By Sammy Naji
A. What Are ICOs?
With the recent emergence of Initial Coin Offerings (“ICOs”), financing for startups has never been more accessible. The term ICO refers to the process of raising capital through the issuance of digital coins, known as tokens, on a blockchain ledger. These tokens, unlike cryptocurrency coins, not only serve as a medium of exchange or a store in value. Instead, ICO tokens also represent either equity in an issuer’s entity (“equity tokens”) or an entitlement to a good or service (“utility tokens”). The presence of these tokens on a blockchain ledger allows the token issuer to bypass traditional venture capital firms and raise equity directly from the public through the sale of the tokens. These tokens can then be resold without the need for traditional markets such as Nasdaq and the Dow Jones. The opening of this previously untapped market for capital has been dramatic, with $6.5 billion raised through ICOs in 2017 alone.
B. ICO Fraud
The consequence of this massive democratization in access to early stage investment opportunities is the potential for investors to be subject to excessively risky investments and fraud. In fact, out of 760 token issuers that successfully raised their desired capital in 2017, 276 were not in operation by February of 2018. The large amount of risk and fraud that ICOs carry has caused the Securities and Exchange Commission (“SEC”) to take a much more assertive role in regulating the phenomenon. For example, the SEC recently issued around eighty subpoenas on individuals and entities involved with ICOs. These subpoenas follow numerous SEC enforcement actions against ICO issuers for fraud and/or failing to register their sales of securities with the SEC.
C. SEC Regulation
Unlike cryptocurrencies which are regulated mainly as commodities rather than securities by US regulators, ICOs almost always operate as securities and fall under the regulatory regime of the SEC under the Supreme Court’s Howey test. This test defines an investment contract security as an investment of money in a common enterprise with the investor expecting a profit solely from the efforts of the promoter or a third party. ICO tokens that are securities must either be sold pursuant to registration with the SEC or through exemptions from registration. The consequence of these requirements is that an ICO issuer seeking to comply must either be willing to spend a large amount of money to register its security tokens with the SEC or severely decrease its access to investors by issuing pursuant to an exemption.
As of this past December, there have been zero ICOs registered as securities with the SEC. Instead, a large number of ICOs have been conducted with no regard to compliance with SEC regulations. Furthermore, despite the default requirement that exchanges hosting securities trading must register with the SEC, a majority of the ICO exchanges have not properly registered, which has caused the SEC to issue a statement warning investors from investing in these exchanges. The SEC will face difficulties in fully enjoining noncompliant ICOs and exchanges as they both often exist as decentralized entities with anonymous investors and development teams located across the globe. In the next installment of this two-part primer on ICOs, I will discuss the various ways that issuers are attempting to balance the need to comply with SEC regulations with their desire to utilize ICOs to raise large amounts of capital.
By Kemal Su
Mehmet Hakan Atilla, a high level banker at the Turkish state-controlled Halkbank, was convicted on January 3, 2018 of helping Iran circumvent international sanctions and gain access to billions in restricted petrodollar funds. Throughout the trial, witnesses described a conspiracy to avoid U.S.-imposed Iranian sanctions that was allegedly supported by the highest levels of the Iranian and Turkish governments. Although six (6) other banks were named during the trial, Halkbank appeared to be at the center of the conspiracy. While the guilty verdict applied only to Mr. Atilla, the fallout for Halkbank is only just beginning. If the U.S. government finds that Halkbank engaged in wrongdoing, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) can impose a range of potentially debilitating penalties that will affect the future viability of the bank and may trigger a Turkish financial crisis. In order to understand what actions the OFAC may take, it is useful to have a look at what happened when U.S. authorities investigated BNP Paribas SA (BNPP).
West Legal Ed’s Federal Publications Seminars will host a free one-hour briefing on legislative and policy developments relating to the Committee on Foreign Investment in the United States (CFIUS). CFIUS reviews proposed foreign investment in U.S. companies for potential national security concerns. U.S. companies that serve the federal government must stay abreast of how the Trump administration is implementing the CFIUS review process and how this process could change as Congress debates the first major CFIUS reform legislation in over a decade.
Join top business lawyers and international law practitioners in Pinehurst for two days of North Carolina Bar Association CLE and networking.
Thursday kicks off at 8 a.m. with a three-hour ethics medley video replay, followed by the 2018 Business Law Institute, planned by the NCBA Business Law Section, in the afternoon.
On Friday, the 2018 North Carolina Bar Association Business Law and International Law & Practice Sections Joint Annual Meeting begins at 8 a.m.
With a total of 13 sessions, there is something for everyone. A February favorite, the agenda includes practice-oriented program, panels with experienced practitioners on crowdfunding and international transactions, the annual business law update and programs on ethics in transactional matters and attorney wellness.
Click on any of the links above to register.
By Jennifer Cory
The recent U.S. Immigration and Customs Enforcement nationwide I-9 Employment Eligibility Verification Audit of 7-Eleven stores reminds us that no one is above the law. In the early morning hours of Jan. 10, 2018, ICE reportedly visited 98 7-Eleven locations and made 21 arrests in what is being called the largest worksite compliance operation targeting an employer since President Trump took office.
The agency’s intent is clear as delivered by ICE Deputy Director Thomas D. Homan:
“Today’s actions send a strong message to U.S. businesses that hire and employ an illegal workforce: ICE will enforce
the law, and if you are found to be breaking the law, you will be held accountable. Businesses that hire illegal workers
are a pull factor for illegal immigration and we are working hard to remove this magnet. ICE will continue its efforts to
protect jobs for American workers by eliminating unfair competitive advantages for companies that exploit illegal
By Jennifer D’Arcy Maher
For the past several years, members of the International Law and Practice Section have enjoyed meeting international Master of Laws (LL.M.) students from North Carolina law schools at a reception hosted by the Section. In the beautiful setting of the Bar Center in early fall, members have connected with LL.M.s such as
- Young lawyers from the Japanese law firm of Nishimura & Asahi, which hosted the Section members who went on the Section’s exchange visit to Japan;
- Students from Middle East and African countries where members’ companies are doing business; and
- Students from countries where members have lived, worked, or traveled.
The conversations have resulted in follow-up meetings and invitations to Thanksgiving meals and other activities that help students appreciate Southern hospitality. The reception has also resulted in many students joining the Section as student members.
By Kemal Su
One of the most important functions of antitrust law is fighting against abuse of dominance or monopolization. Companies with high market shares and strong market power can exclude incumbents or potential entrants. Although national legislation and decisions of national authorities may differ, abusive behavior of a dominant firm in a given country should be deemed a violation of antitrust laws in all territories where the relevant company is dominant.
The near-similarity of antitrust laws throughout the world allows multinational companies to easily comply with the antitrust laws of countries in which they operate. However, this also generates a significant risk because such companies can face antitrust investigations in more than one country, due to a single decision or behavior.
Nonetheless, not only do market conditions or local strategies of the multinationals differ from one territory to another, so does antitrust enforcement. Those differences may stem from the willingness and determination of the antitrust authority to stop such abuses, market conditions due to the local competitors, the lack of relevant laws, or even implications on relations between countries.
By Patrick Togni
To many readers of this page, December thoughts regarding the North American Free Trade Agreement (“NAFTA”) might commonly arise in the context of preparing annual NAFTA certificates of origin. Origin documentation and other aspects of NAFTA compliance have become commonplace as the realities of a North American trading region have taken root and affected the way that companies source and manufacture their goods over the past quarter century.
NAFTA’s place in the U.S. economy became a key focus during the 2016 presidential election. Following the inauguration of President Donald J. Trump, the Trump Administration initially pivoted from positions taken during the campaign to terminate NAFTA to renegotiation with Canada and Mexico. For much of 2017, this process has played out in hotel conference rooms from Mexico City to Ottawa and Washington, D.C. Negotiating teams from Mexico, Canada, and United States (comprised of more than 30 different topical groups) have held five rounds of talks regarding the renegotiation and modernization of NAFTA.