Crypto is Thriving Through Offshore Corporate Structures. Mark Piano, Senior Associate at global offshore law firm Harney. Is a member of the Investment Funds, Corporate. Banking & Finance teams in the Cayman Islands office. Phil Graham, partner at Harneys. Is the global head of investment funds and regulatory groups. Head of the transaction team in the British Virgin Islands. The buzz around a Virtual Asset or Web 3 project. Will typically focus on the ‘front end’ – product offering, team, partnerships, and performance. How this is going to change the world. Accepting that the corporate structure behind the front end is far less exciting. Can make the difference between the success. Sustainability of a project or its failure and disastrous consequences.
Many web3 projects aspire to decentralization but initially consist of a small and highly centralized team. Like any early-stage startup. A crypto project will typically want to establish a corporate structure to protect. The project team. Its assets, secure funding. start doing business with real-world counterparts. Similar considerations will apply to principals who wish to establish. A crypto-asset-based fund, which will seek and provide attractive returns. A better tax structure, and, while protecting investments. The full Will appeal to the investor base in the world. Management vehicles and other fund service providers use a flexible. Properly regulated structure for their launch
mind, international financial centers (IFCs),
Crypto is Thriving Through Offshore Corporate Structures. such as the British Virgin Islands (BVI). The Cayman Islands provide attractive solutions for both crypto projects. Crypto funds. For decades, IFCs have offered tax-neutral. Properly regulated financial services products to their customers through sophisticated. Experienced financial service providers. Including the majority of the world’s crypto funds. An estimated 63% use Cayman Islands and BVI vehicles.
A shining example of IFCs’ innovation to create vehicles for specific uses is the Cayman Islands Foundation Company. Foundation companies do not need to have charitable or non-profit purposes and, unlike most corporate vehicles, do not need to have members to exist. These two factors make foundation companies attractive to projects that aim for decentralization because they can act as a memberless vehicle with the sole purpose of supporting the project or its governance protocol.
Additionally, virtual asset regulations in the BVI and Cayman Islands allow BVI or Cayman Islands entities to act as token issuers, with private sales largely unregulated and public sales of tokens subject to regulatory oversight. Subject to appropriate levels. A structure that is frequently used involves the establishment of an Isles of Man foundation company, which owns the token issuing vehicle, usually formed in the BVI. The directors of these companies will often be professional service providers, who may be guided by the governance protocols adopted by the decentralized autonomous organization (DAO). This approach properly separates the functions of each entity as well as reduces some risks and simplifies accounting for the project and team. For many projects, this can increase decentralized governance and further remove the founder and team that will carry out the activities from the corporate structure.
All this being said, there is no one-size-fits-all
Crypto is Thriving Through Offshore Corporate Structures. All approaches to structuring a crypto fund or crypto project. Each team must consider its commercial needs, risk appetite, and legal, regulatory, and tax position. Simply copying structures used by other projects is a risky game. Especially without understanding the project’s objectives. Legal and tax advice, and risk appetite in the changing regulatory landscape. Engaging crypto-experienced service providers early in the process means that a fund or project fully understands its legal and regulatory position, and the tax implications (for founders, users, and both) of the proposed structure to avoid costly mistakes. Can get proper advice early to avoid. project vehicles), minimize risk where possible, and avoid consequences that may arise well after the fund or project commences that may be difficult or impossible to remedy.
Task Force (FATF) – the global anti-money
In addition to choosing the right structure, the global crypto regulatory landscape is in flux. The Financial Action Task Force (FATF) – the global anti-money laundering and terrorist financing watchdog – has published anti-money laundering standards and recommendations for certain crypto businesses to avoid sanctions such as blacklisting. The authority must be implemented locally. Not all crypto businesses will be similarly affected by the new crypto regulations and of course other laws and regulations, such as securities, investment, banking, substance, and data protection legislation may apply to a project, so local legal and regulatory frameworks A regulatory analysis may be required for each vehicle.
In this context, it is incredibly important for readers to understand that using an IFC-domiciled vehicle will not absolve crypto projects of their obligations to comply with relevant laws and regulations in the countries where they do business. are or are based on their clients or customers, especially given the fact that a large number of digital asset projects often involve a mix of IFC vehicles and onshore vehicles.
Crypto continues to grow and thrive regardless of market failures and downturns. Many of the world’s largest crypto funds and businesses use IFC vehicles to streamline their corporate structures, and with the right advice, start-up projects can also benefit from the jurisdictional and structural advantages offered by IFCs and their corporate vehicles. can pick up IFC jurisdictions recognizing the value of crypto to strengthen their global offering, so local governments and regulators understand and comply with the trends to position themselves to gain crypto market share. Regularly consult industry to implement.