What are some legal issues to be aware of when working with cryptocurrency?

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 themselves against them. From sanctions violations to data breaches, these co-founders, CEOs, and other professionals offer valuable advice on how to protect your business in the ever-evolving crypto landscape.

  • Violations of Sanctions
  • AML and KYC compliance
  • Smart contract disputes
  • General legal uncertainty
  • Data leaks

Violations of Sanctions

One of the serious risks people face when using crypto transactions is sanction violations. Sanctions refer to US laws that prohibit people from doing business with individuals such as terrorists, drug cartels, and war criminals.

When using fiat currency, companies are not much concerned about sanctions, as anyone on a sanctioned list does not have access to a central bank or credit card. Banks conduct due diligence on clients to ensure they are not serving sanctioned individuals. As a result, the fiat financial system has already eradicated most of the sanctioned individuals.

When you run a business that accepts cryptocurrency, you run the risk of doing business with a sanctioned person, which can get you in trouble even if you don’t realize you are doing business with a sanctioned person.

To mitigate this risk, crypto companies should engage a due diligence firm that offers screening services to check crypto wallets for associations with sanctioned individuals before making any transactions.

John Joy
Whistleblower Attorney New York, FTI Law

AML and KYC compliance

A major hurdle for cryptocurrency transactions is compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Given their ability for anonymity or pseudonymity, digital currencies can be manipulated for unlawful actions such as money laundering.

This has led to strict AML and KYC regulations in several regions, forcing digital currency companies to verify the identities of their customers and investigate transactions for questionable activity. Non-compliance can lead to significant fines and legal consequences.

Enterprises must enforce robust AML and KYC protocols, including validation of customer identities and investigation of suspicious activity. As the regulations of the cryptocurrency industry change, it is the responsibility of any related company to stay up to date. This will benefit both customers and businesses in the long run, thanks to the 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, companies 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 sets out the rules and procedures for resolving disputes. They may also appoint a neutral third party to act as arbitrator. By doing this, companies 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, companies can be held liable if they facilitate transactions that are used for illegal activities.

Before 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 associated with 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 seek legal advice from a lawyer who specializes in cryptocurrency law.

Breton Thomas
CEO, Twibi

Data leaks

A common legal issue that arises with cryptocurrency transactions is data breaches, which can lead to lawsuits and legal fines. To protect themselves, companies can take 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, uses several security measures to protect user privacy, including the use of crypto hardware wallets and biometric authentication. By prioritizing privacy, companies can avoid legal issues and maintain customer trust.

Jason Chung
Operational Manager, Credit KO

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