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What risks do startups have performing ICO?



The main criminal risks are mentioned in performing ICO in Russia.



15.Feb.18 4:26 AM
By Daria Zaytseva
Photo Toinnov.com

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What risks do startups have performing ICO?

On December 28, 2017, a draft law on the regulation of ICO was published. This document is extremely important for the further development of the cryptocurrency market in Russia and investment activities in general. ICO is a new way of raising funds for the development of projects, and therefore is associated with a high risk of speculation and fraud. Only a few countries have legalized this procedure. For example, in the US, tokens were equated to securities. Due to this step on December 11, the startup Munchee for the first time made a return to investors under the decision of the Securities and Exchange Commission (SEC) because of the violations revealed. According to the commission, the company put up unregistered securities for trading.What risks does ICO carry in Russia?

Lack of guarantees to investors

Performing ICO is associated with an increased risk due to lack of guarantees. Buyers of tokens are not insured from possible project failure or hacker attacks. According to the statistics of the Russian Association of Cryptocurrency and Blockchain (RACIB), in 2017 only 3% of ICO proved to be successful. The remaining projects were never launched. And 67% of the projects have not been able to overcome the lower investment threshold due to the low conceptualization. The situation for the economy is not new and repeats the story with a boom of startups, most of which could not attract investors for the same reason.

When ICO is performed without the relevant documents, there is a risk of violating Article 160 of the Criminal Code of the Russian Federation (Assignment and embezzlement), Article 171 of the Criminal Code of the Russian Federation (Illegal Business), Article 172 (Illegal Banking).

Now the problem is at the stage of solving. In Russia, during 2018, standards for the evaluation of projects emerging on ICO should appear. It is necessary for developers to have a clear strategy for the development of the project, a road map and legal documents that confirm the existence of a startup. In addition, it is necessary to obtain a license for those activities that require special permission.

Fraud and default to investors

The risk of default is the main reason for the failure of ICO in many countries around the world. The main requirement imposed by regulators is to ensure fulfillment of obligations to investors. For example, in the US, tokens are equated to securities, respectively, the conduct of ICO is regulated by the Securities Act and the Securities and Exchange Commission (SEC). In case of detection of violations, the SEC has the right to force refunds.

Failure to comply with obligations entails a violation of Article 177 of the Criminal Code of the Russian Federation (Malicious evasion of payment of accounts payable) and 160 of the Criminal Code of the Russian Federation (Fraud) and Article 159.5 of the Criminal Code of Russia Fraud in the field of computer information).

In preparing for ICO, it is necessary to work out options for compensation of damages and settlement of obligations. At this stage, it makes sense to consult with an expert on the use of alternative financial instruments, such as options or redemption of tokens from discounts.

Taxation

Startups performing ICO are a business and therefore are also taxed. The attempt to evade taxes on ICO is regulated by the same rules as normal business. Tax evasion violates Article 199 of the Criminal Code of the Russian Federation (Evasion of payment of taxes, fees payable by the organization, or insurance contributions payable by the organization paying the insurance premiums).

A tax advisor may be required to resolve this issue, since the taxation system depends on the scale of ICO and the specifics of the startup.

The provenance of money and the manipulation with cryptocurrency

One of the main risks in performing ICO the acceptance from investors fiat money of doubtful source. In this situation there is a risk of violating Articles 174.1 of the Criminal Code (Legalization and Money Laundering).

When performing ICO, the organizers must have detailed information on the provenance of money in order to avoid suspicions of fraud and the financing of terrorism at the expense of the ICO. To avoid this situation can help the acceptance of confirmed currency and the prevention of the insider information which would exclude manipulations with cryptocurrency.




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