To help businesses navigate the complex world of cryptocurrency transactions, we asked six industry experts to share their insights on common legal issues and how to protect against them. From sanctions violations to data breaches, these co-founders, CEOs, and other professionals provide valuable advice on safeguarding your business in the ever-evolving crypto landscape.
- Sanctions Violations
- Compliance with AML and KYC
- Smart Contract Disputes
- General Legal Uncertainty
- Data Breaches
Sanctions Violations
One of the serious risks people run into using crypto transactions is violating sanctions. Sanctions refer to U.S. laws prohibiting people from doing business with individuals such as terrorists, drug cartels, and war criminals.
When using fiat currency, companies don’t worry about sanctions much, as anyone on a sanctioned list won’t have access to a central bank or credit card. Banks perform due diligence on customers to ensure they’re not serving sanctioned individuals. As a result, the fiat financial system has already weeded out most sanctioned individuals.
When operating a business that accepts cryptocurrency, you run the risk of doing business with a sanctioned individual, which could get you into trouble even if you don’t realize you’re doing business with a sanctioned individual.
To mitigate this risk, crypto companies should employ a due diligence firm offering screening services to check crypto wallets for associations to sanctioned individuals before transactions are made.
John Joy
New York Whistleblower Attorney, FTI Law
Compliance with AML and KYC
A key hurdle for cryptocurrency transactions is adherence to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Given their capacity for anonymity or pseudonymity, digital currencies can be manipulated for unlawful actions like money laundering.
This has prompted rigorous AML and KYC rules across various regions, compelling enterprises involved with digital currencies to authenticate their clients’ identities and scrutinize dealings for any dubious activities. Non-adherence could lead to substantial monetary penalties and legal repercussions.
Enterprises ought to enforce robust AML and KYC protocols, encompassing the validation of client identities, and the investigation of suspicious activities. As the cryptocurrency industry’s regulations change, it is the responsibility of every related business to stay up to date. This will benefit both the customers and the businesses in the long run, through existing legal frameworks.
Charis Louca
Content Creator, Crypto Academy
Smart Contract Disputes
Smart contract disputes can be a common legal issue in cryptocurrency transactions. To protect themselves, businesses can carefully draft and test their smart contracts and include dispute resolution mechanisms.
For example, they can include an arbitration clause in their contracts, which specifies the rules and procedures for resolving disputes. They can also appoint a neutral third party to act as an arbitrator. By doing so, businesses can reduce the risk of legal disputes and ensure that their contracts are legally enforceable.
Roy Lau
Co-founder, 28 Mortgage
General Legal Uncertainty
Cryptocurrency is a relatively new technology, and as a result, there is still a lot of uncertainty about how it is regulated. This can create legal risks for businesses that accept cryptocurrency payments. For example, businesses may be held liable if they facilitate transactions that are used for illegal activities.
Before you start accepting cryptocurrency payments, it is important to do your research and understand the legal landscape. This includes understanding the laws in your jurisdiction and the risks involved in accepting cryptocurrency payments.
Also, get legal advice. If you are still unsure about the legal risks involved in accepting cryptocurrency payments, it is a good idea to get legal advice from an attorney who specializes in cryptocurrency law.
Brenton Thomas
CEO, Twibi
Data Breaches
One common legal issue that arises with cryptocurrency transactions is data breaches, which can lead to lawsuits and regulatory penalties. To protect themselves, businesses can implement strong privacy measures, such as encryption and multi-factor authentication, to ensure that sensitive customer information is not compromised.
For example, Coinbase, a leading cryptocurrency exchange, employs various security measures to protect user privacy, including the use of crypto hardware wallets and biometric authentication. By prioritizing privacy, businesses can avoid legal issues and maintain customer trust.
Jason Cheung
Operations Manager, Credit KO
