Choice-of-law Problems with Blockchain-based Negotiable Instruments

I have written a paper on choice-of-law problems with blockchain-based negotiable instruments, with particular reference to bills of lading and investment securities. In this paper, I have examined the emerging substantive rules as well as choice-of-law rules of some legal systems and made suggestions for choice-of-law rules. The information is current as of August 2021. This paper is to be published as a chapter from Andrea Bonomi and Matthias Lehmann (eds) Blockchain & Private International Law (Brill). The text, subject to formatting and copy-editing, may be obtained from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3937664.

The role of law in smart contracts

My article, "スマートコントラクトと法の役割"(The Role of Law in Smart Contracts), came out from a Japanese journal last June. The text is attached to this post.

At the outset, I tried to dispel the confusion of "smart contracts" with legal contracts. That expression came to be used in the blockchain context after it first appeared in the Ethereum white paper. While the use of this catchy phrase seemed successful as a marketing ploy, the author of the white paper, Vitalik Buterin, later regretted adopting that term, saying that he should have used more boring and technical expression like "persistent scripts."

After clarifying the concept of "smart contract", I began my analysis with the private law issues arising from the hacking of a smart contract. Smart contracts are capable of storing crypto-assets and, since their code is open to be inspected, their bugs are also exposed. Due to these characteristics, smart contracts attract many hacking attempts.

I then proceeded to examine the possible criminal liability of the actors surrounding a smart-contract prediction market. A prediction market, though capable of offering socially useful functions, may be seen as a venue for gambling which would constitute a criminal offence under many legal systems.

I concluded this paper with discussions on the regulatory issues of Defi (decentralized finance) in some details. 

Conflict of laws in blockchain and cryptoassets

I gave a paper on the above theme at a meeting of the Study Group of Private International Law of the Kansai Region (Japan) on 23 January 2021.

Conflict of laws is an abstract subject. So I structured my analysis along typical scenarios which are partially taken from real cases. They include the bankruptcy of an exchange provider, the misappropriation of crypto-assets, the mistaken transfer of crypto-assets, the use of crypto-assets to purchase goods or services, the hacking of a smart contract (or decentralized autonomous organization) and the use of crypto-tokens for securitization. I gave detailed considerations to proprietary issues in particular, as these are a theoretically challenging area.  I also gave comments on the works of others including the project of the Hague Conference on Private International Law.

The handout distributed to the audience (in Japanese) is attached here.

Presentation at the conference “UNCITRAL Asia Pacific Day" (4 December 2020 at the University of Macau)

I gave an online presentation on blockchain-based bills of lading under the UNCITRAL Model Law on Electronic Transferable Records in Session III of the conference.

I attach here the slides and the transcript of my presentation as well as the conference timetable. Preparing for this presentation, I built on my Japanese paper given at a symposium in Tokyo one and a half year earlier and published subsequently. This conference was a fitting occasion to convey my thoughts in English and take stock of the latest developments in actual practice.

Work of the Hague Conference on Private International Law

I have been discussing the issues of private international law since this blog was started five years ago (See the posts with labels "choice of law" and "jurisdiction"). The Hague Conference on Private International Law has now turned its attention to the blockchain.

The Council on General Affairs and Policy (CGAP) of the Hague Conference met from 3 to 6 March 2020. According to its report, the Council invited the Permanent Bureau (the secretariat of the Hague Conference) to monitor developments with respect to the private international law implications of distributed ledger technology (para. 15). It is part of the work relating to possible new legislative instruments.

As a preliminary document for the CGAP meeting, the Permanent Bureau had authored (with the assistance of Prof. Matthias Lehmann) and published a proposal for the allocation of resources to this task. It sets out a list of the specific issues to be addressed with some indications of possible solutions.

The list rightly contains proprietary issues, which in my view should receive the greatest attention of any work in this field because of the theoretical difficulties involved (See my previous post here, in particular pp. 6-8 of the attached slides). In this connection, a restitutionary claim arising from a constructive trust should also be addressed. Its significance is illustrated in my paper "Implications of the Blockchain Technology for the UNCITRAL Works" in particular at p. 92 (See the post here). 

The proposal defines the Decentralised Autonomous Organisations (DAO) as "quasi-corporate entities based on the blockchain" and asks whether the DAO should be characterised as a corporation or a contract for the sake of conflict of laws. In my idea, the DAO is nothing but a computer code, albeit of a special kind. The expression "decentralised autonomous organisation" is only an eye-catching phrase that IT people like using (another example being "smart contract"). No useful purpose will be served in legal analysis by accepting it at face value as an organisation. Thus, it would be pointless trying to sue a DAO as hardly any State would grant it locus standi. The legal issues surrounding the DAO could, and should, be resolved by targeting real-life individuals and companies (See pp. 7-8 of my paper "Blockchain and Smart Contract for Contract Management" presented at the APEC meeting).

The proposal does not mention the blockchain-based negotiable instruments. Whether and in what circumstances tokens on blockchains are deemed in law to be negotiable instruments are vital questions on which depends whether "token economy" will fly or not. In my view, these questions should be determined by the law governing the right embodied in the instrument in question (See p. 9 of the slides attached to my previous post here).

The borderless feature of a blockchain network makes it legitimate to spend resources at an international level. The Hague Conference is the obvious forum for the work on private international law.

Dematerialization of Negotiable Instruments

My article, "Legal Issues Arising From the Use of Blockchains for the Dematerialization of Negotiable Instruments: with a Particular Focus on Bills of Lading and the UNCITRAL Model Law" has just been published. It is in (2020) 5 Yearbook of the Japanese Association of International Business Law 24-39 and is attached to this post.

I wrote this article on the basis of a paper I gave one year ago at the symposium "UNCITRAL Model Law, Cryptocurrency and Blockchain" (Waseda University, 16 March 2019). As the presentation was made in Japanese, this article, too, was written in Japanese. The accompanying English abstract reads as follows:

This article considers the legal challenges which will be encountered when blockchains are used to dematerialize negotiable instruments such as bills of lading. The digitization of negotiable instruments yields a lot of benefits to the society but has been hampered by various technological and legal obstacles. On the technological side, this article examines the advantages and drawbacks of the blockchain as a tool for dematerializing negotiable instruments. On the legal side, there is a lot of uncertainty over the permissibility of, and the legal requisites for, dematerializing negotiable instruments. To improve certainty, the UNCITRAL created the Model Law on Electronic Transferable Records in 2017. The Model Law lays down the attributes which an electronic record needs to possess before it is deemed to be functionally equivalent to the corresponding "transferable instrument," a term broadly synonymous with "negotiable instrument." Thus, the electronic record must, by virtue of a reliable method, be identifiable (which implies the consistency of the record) and amenable to exclusive control. This article considers whether blockchain-based electronic records have these attributes. Among such attributes, the reliability of the method poses a particular challenge to the current law since the latter is not accustomed to evaluate the reliability of blockchains. Prior to the emergence of the blockchain technology, electronic records could only be maintained by an administrator of the database. It follows that under the conventional approach, the reliability of the method would be ensured through the regulation and oversight of the administrator. The blockchain, on the other hand, is a trustless technology which is founded on the notion that a system dispensing with the need for administrators is reliable for the very reason that it is distrustful. Whether the law is ready to embrace this notion will be tested if the society is to harness the full potential of the blockchain.

Prescriptive Jurisdiction in Securities Regulations: Transformation from the ICO (Initial Coin Offering) to the STO (Security Token Offering) and the IEO (Initial Exchange Offering)

As noted previously, I presented a paper on the prescriptive jurisdiction on securities regulations and ICOs at the Konkuk University (South Korea) last year (2019). Subsequently, I was invited to write an article on that theme for the Ilkam Law Review, the journal of the Konkuk University Law School. I submitted my manuscript towards the end of last year. While awaiting publication, let me share the submitted version here.

It contains some illustrations with parts highlighted in red. I have been told that the published version will be printed black and white. So those illustrations would be better understood in the version attached here.

The abstract reads:

This article examines how the ICO (Initial Coin Offering) has been impacted by the States’ assertion of prescriptive jurisdiction in securities regulations and analyzes the STO (Security Token Offering) and the IEO (Initial Exchange Offering) as alternatives to the ICO. The analysis begins with examining the principles underpinning prescriptive jurisdiction such as the territoriality principle. It then proceeds to examine the three tests – the conduct test, the effects test and the transactional test - which support the operation of the territoriality principle. Attention is then turned to the impact of the Internet which has facilitated cross-border fundraising. An analysis is given to the way the effects test is interpreted where the Internet is used for the solicitation of investment. More recently, the blockchain technology has given birth to the ICO. It has enabled borderless fundraising, a feature which contributed to the initial popularity of the ICO. While the ICO is technologically borderless, it is legally not so. To illustrate the point, the article examines the way the aforementioned three tests are to be applied in the ICO. With its borderless feature undermined by the fragmented regulatory regimes, the ICO has lately lost popularity. The article concludes by examining the STO and the IEO to see how they differ from the ICO and whether they fit better with the fragmented regulatory regimes.

A further note (8 April 2020): This paper has come out from (2020) 45 Ilkam Law Review pp.31-50. The document attached below has accordingly been replaced by the published version.

Law School course on crypto-assets and blockchain

Starting September this year, I am teaching a course devoted to the legal issues on crypto-assets and blockchain at my university (Doshisha University in Kyoto, Japan). It is a 2-credit course (90 minutes x 15 classes) and is one of a kind in Japan. The link to the syllabus (in Japanese) is here. As noted there, the course aims to cover a broad ground encompassing the law of obligations, property law, currency law, anti-money laundering, payment law, securities law, the law of negotiable instruments, private international law, procedure law, criminal law, the law of data protection and tax law. Special thanks go to two guest lecturers, Mr. Ken Kawai (partner of Anderson, Mori & Tomotsune) and Mr. Kimihiro Mine (director of bitFlyer), who have agreed to deliver one class each.

Prescriptive Jurisdiction in Securities Regulations and ICOs (A further thought)

I presented a paper on the above theme at the conference “Recent Issues on Virtual Currency in the Financial Market” held at the Konkuk University (Seoul, South Korea). The program of the conference is attached below. Many thanks to Prof. Byoung Youn Kim for his invitation.

In the paper presented, I developed my thought which I had expressed in my article written last year (and published earlier this year: See this link for a summary.). I noted the decline in the number of ICOs and attributed it partially to the fragmentation of legal regimes. While the blockchain has technologically enabled borderless fundraising in the form of the ICO, the latter is not legally borderless. 

An idea of global unification of regulations should, however, be resisted because the optimal balance between the facilitation of fundraising and the protection of investors should be sought through regulatory competition. Attempts at the international level should instead be directed towards the coordination of different regulatory regimes. In this connection, whether the conduct test should be maintained is doubtful. It is a classic test for the territoriality principle. Yet, few would support it if asked whether regulations should be applied on the sole basis that the place of the relevant conduct is in the territory of the regulating State even if the conduct only targets foreign States. The effects test, on the other hand, has a good foundation as it allows the regulator to protect the interests affected. The coordination effort on the international level should also be directed towards developing a network of assistance in cross-border enforcement of regulations, especially those of the place of effects.  

For the enterprises wishing to conduct fundraising, the choice will be either to address the investors of the whole world save specific States to avoid being captured by the regulators of such States or to address the investors of the specific States by consciously complying with the regulations of such States. The latter may be called STO (security token offering).

The powerpoint slides used in the presentation are attached below.

Choice of law issues in crypto-assets

I presented a paper entitled "Conflict of Laws in Blockchain-Based Crypto-Assets" at the Journal of Private International Law Conference on 12 September 2019 in Munich. As the time was limited, I focused on choice of law issues and discussed four broad categories of issues. They were (1) contractual issues, (2) issues of non-contractual obligations, (3) proprietary issues, and (4) issues pertaining to negotiable instruments.
The powerpoint slides prepared for the presentation are attached here. Some takeaways are set out in the last slide. It was meant to make the following points there.

The crypto-assets are unfit to be deemed to be money for the choice-of-law purposes because, inter alia, none of them is currently used as a medium of exchange and it is not possible to draw a line between the crypto-assets which are deemed to be money and those which are not so deemed.

The crypto-assets are difficult to be localised in a single country because they are contained in distributed ledgers on a borderless blockchain. The localisation may exceptionally be possible where all the nodes validating the blocks are by design located in a single country.

The crypto-assets will pose no particular difficulty in relation to the connecting factors which rely principally on real-life facts and events. Thus, for example, the country with which a contract, tort, or unjust enrichment is most closely connected may be ascertained without particular difficulty stemming from the use of crypto-assets. The ascertainment of the country with which a proprietary issue is most closely connected would be more difficult because the relevant events are mostly on-chain facts.

The crypto-assets will pose no particular difficulty in relation to the principle of party autonomy because the only question for the latter is whether to give effect to the parties' own choice. Given the difficulty of finding an appropriate connecting factor for proprietary issues in crypto-assets, it is arguable that the principle of party autonomy should be extended to proprietary issues where there is a uniform network-wide choice of law clause. How a single choice of law can be secured is, however, another question.

Symposium on MLETR and blockchains

I gave a paper in a symposium on the UNCITRAL MLETR (Model Law on Electronic Transferable Records) and blockchains (Here is link to the program) on 16 March 2019 at the Waseda University in Tokyo.
The proceedings were conducted in Japanese except the presentation by Luca Castellani, the legal officer of the UNCITRAL Secretariat who was responsible for this Model Law. So my powerpoint slides and handout (below) are also in Japanese.
I have underscored the potential of public blockchains for disrupting the society and considered whether they meet the requirements of the MLETR. Throughout the analysis, I have compared public blochains with permissioned blockchains and central registries. Each of the requirements of the MLETR poses an analytical challenge with respect to public blockchains.
I will try to write an English version of the paper once I have cleared a backlog of work on my desk.

"Prescriptive Jurisdiction in Securities Regulations and ICOs (Initial Coin Offerings)"

My article "Prescriptive Jurisdiction in Securities Regulations and ICOs (Initial Coin Offerings)" has been published ((2019) 117-4 Journal of International Law and Diplomacy pp. 1-25). It is based on my presentation in Japan and written in Japanese. The original title and citation are: 高橋宏司「証券関係法規の規律管轄権とICO (Initial Coin Offering)」国際法外交雑誌117巻4号(2019年) 1-25頁. Here is an English abstract.

The ICO is a new method of fund raising using the blockchain technology. It enables tokens to be issued on a blockchain in return for the contribution of funds in either fiat or crypto currencies. It is in vogue in recent years but has generated concern over fraud in a large number of cases. This has kindled the interests of regulators around the globe, who have been watching the space closely. While some countries have introduced an outright ban on ICOs, others have begun to see certain types of ICO tokens as securities with a view to protecting the investors. There is, however, much uncertainty as to the geographical reach of securities regulations as applicable to ICOs. As it is a question of prescriptive jurisdiction, this article begins by examining in the context of securities regulations the various principles underpinning prescriptive jurisdiction, such as the protective principle, universality principle, personality principle and territoriality principle. Since the territoriality principle is the cornerstone of prescriptive jurisdiction in securities regulations, this article proceeds to examine the various tests for the operation of the territoriality principle, such as the conduct and effects test and the transactional test to see how well they suit the regulation of securities of the traditional type. This article concludes by considering whether those tests are also fit to be applied to ICOs. Throughout this article, an intense analysis is conducted on the way the internet has affected the prescriptive jurisdiction in securities regulations and how the blockchain technology may affect it in the future.

Bahraini legislation based on the UNCITRAL MLETR

(This entry was originally posted at https://wordpress.com/view/blockchaincryptolaw.wordpress.com on 12 February 2019.)

Bahrain became the first to enact a statute based on the UNCITRAL Model Law on Electronic Transferable Records. I have been provided with an English translation of the statute by Jameel Al Alawi, Senior Legal Adviser for the Bahrain Economic Development Board, who was in charge of drafting the statute. With his permission, I post it below.

The Model Law sets out the conditions which must be met for an electronic record to be treated as a "transferable document" (Article 10). The latter is defined as a document that entitles the holder to claim the performance of the obligation indicated in the document and to transfer the right to performance by means of the transfer of that document (Article 2). Bills of lading and warehouse receipts, for example, are covered.

The Model Law adheres to the principle of technology neutrality, which means that the law should neither require nor assume the use of a particular technology for communicating or storing information electronically. Thus, the blockchain technology is not excluded from the Model Law's scope of application. It is in fact a technology well suited for creating and managing electronic records which purport to replicate transferable documents because it is capable of guaranteeing that there is a single true version of electronic records. 

The Model Law requires the use of a reliable method to establish an exclusive control of an electronic record that replicates a transferable document (Articles 10(1)(b)(i)(ii) and 11(1)(a)). In my previous work, I noted:

The reliability of the above-mentioned methods will be assessed by adjudicators on an ex post (i.e. after the occurrence of a dispute) basis. It would, however, be unfortunate if there were no foreseeability as to which methods would pass the reliability test since the use of such methods would then be deterred. A thought should, therefore, be given to the possibility of compiling a list of reliable methods on an ex ante basis. Such a list would need to be reviewed from time to time because neither the configuration of a central registry nor the algorithm of a blockchain is permanently fixed.

The Model Law lists a number of circumstances by reference to which to evaluate the reliability of a method, including the existence of a declaration by an accreditation body (Article 12(a)(vi)). But it leaves the details to the national laws.

What is interesting about the Bahraini legislation is that it provides for the accreditation of an "operator", the latter being defined as a person who operates an information system for managing electronic transferable records (Article 1(l)). It sets forth the procedure and conditions for accreditation (Articles 15 and 16), though it delegates to the competent authority to lay out the details of the conditions by means of a regulation. It also provides for the withdrawal of an accreditation. Once an operator is accredited, the reliability of the method used by the operator is to be presumed unless evidence to the contrary is adduced (Article 8(2)). Furthermore, where reliance on an electronic transferable record has caused damage and the electronic record is managed by an accredited operator, it is to be presumed that the damage was due to the operator’s intention or negligence unless otherwise proven (Article 17).

The Bahraini legislation is applicable to electronic transferable records "whether or not an operator is used in respect of these records" (Article 2(1)). Accordingly, it seems applicable to electronic transferable records managed with the use of the blockchain technology. In view of the definition of an "operator" (Article 1(l)), it seems unlikely that any accreditation will be issued with respect to public blockchains. But the administrator of a private blockchain may fall within that definition. It will be interesting to see whether the conditions for accreditation issued by the competent authority will actually cover private blockchains as well as central registries.

Postscript (15 Feb. 2019): Jameel has informed me that the Bahraini statute entered into force on 1 February 2019 but the regulation is still being debated.

Migration to another website

Google has announced its plan to discontinue Blogger, the site which hosts this blog, with effect on 1 April 2019. So it has become necessary to migrate this blog to another site. This site will no longer be updated at this site. For updates, please refer to the new site: https://blockchaincryptolaw.wordpress.com.

A further note (21 March 2019): It was only the Google+ function in Blogger which had been discontinued. So let me retract the statement above. This blog will continue to be updated at this site.

Conflict of Laws in Blockchain-Based Crypto-Assets

The Journal of Private International Law will be holding its 8th Conference at the University of Munich from 12-14 September 2019. In response to a call for papers, I have submitted the following abstract. I only mentioned choice-of-law issues because of the word limit. In my actual paper, I may as well touch on jurisdictional issues.

This paper will consider a range of choice-of-law issues arising from crypto-assets on blockchains.

(1) Contractual issues. Suppose that a contract is concluded pursuant to which bitcoins are offered to purchase goods. Given that cryptocurrencies are not a fiat currency and might not be seen as goods, is that contract to be characterised as a “sale of goods”, a “barter of goods”, or a “barter of service for goods” for the choice-of-law purposes? Aside from the question of characterization, blockchains will not raise particularly difficult choice-of-law questions in contract since party autonomy is almost universally adopted.

(2) Issues of non-contractual obligations. If bitcoins are stolen and the victim seeks redress from the offender in tort, where is “the country in which the damage occurs”? Again, if bitcoins are transferred by mistake and the transferor demands restitution from the transferee in unjust enrichment, where is “the country in which the unjust enrichment took place”? Such connecting factors raise difficulties because crypto-assets are recorded in distributed ledgers on a borderless network and accordingly cannot be localised in any specific country. But since obligations are owed by, and to, specific persons, it should not be too difficult to identify, as an alternative connecting factor, the country with which the issue in question is most closely connected.

(3) Proprietary issues. If the provider of a cryptocurrency exchange is entrusted with bitcoins from its customers and becomes bankrupt, the customers may seek proprietary restitution from the bankruptcy administrator. Then, what law is applicable? Unlike tangible assets, for which the prevailing choice-of-law rules specify the lex situs, there is no settled choice-of-law rules for intangible assets. With respect to emissions quotas, a species of intangible assets which, like crypto-assets, are financially valuable, I previously argued for the application of the law of the country where they are registered ("Conflict of Laws in Emissions Trading" (2011) 13 Yearbook of Private International Law 145). But this connecting factor would be unworkable with crypto-assets since they are not recorded on a national registry but on distributed ledgers. So proprietary issues of crypto-assets pose a great challenge to the approach of choice of law. Noting this challenge, I previously suggested applying the law of the country with which the issue in question is most closely connected (A note on 4 November 2015 in my blog: Blockchain, Cryptocurrency, Crypto-asset and the Law). While the task of ascertaining that law is not always easy, the subsequent emergence of consortium blockchains and a “constitution”-based public blockchain should make it easier for such blockchains.

(4) Issues pertaining to transferable documents. Suppose that a company purports to issue its stocks or debentures on a blockchain. What law determines whether they are legally valid stocks or debentures? This question is important because the blockchain technology ensures the uniqueness of record, an essential feature of any electronic form of transferable documents. The clarification of law in this area will be a key to developing the “token economy.”

Cryptocurrencies entrusted to an exchange provider: Shielded from the provider’s bankruptcy?

My article, "Cryptocurrencies entrusted to an exchange provider: Shielded from the provider’s bankruptcy?", has been published in Charl Hugo (ed.) Annual Banking Law Update 2018: Recent Legal Developments of Special Interest to Banks (2018) at pp. 1-21. The book is a collection of peer-reviewed articles written as a basis for the presentations at Annual Banking Law Update. The full text of my article is reproduced here with permission from the publisher, JUTA.

Annual Banking Law Update

I presented a paper at the ABLU (Annual Banking Law Update) on 27 September. The ABLU is a prestigious conference with decades of tradition organised by the Centre for Banking Law of the University of Johannesburg with the sponsorship of multinational law firms. This year's programme reflected an emerging interest in cryptocurrencies.

The topic of my paper was the same as for the earlier KLRI/UNCITRAL Trade Law Forum. But I revised the slides with some additions (attached below), reflecting a longer presentation time. Among the added slides are the first and last.

Here is what I said on the first slide.
The topic of this presentation concerns cryptocurrencies in a bankruptcy setting: the bankruptcy of an exchange which acts as an intermediary for trade. The word intermediary might sound strange because the transactions of cryptocurrencies are recorded in a blockchain which permits disintermediation: it dispenses with intermediaries. It is indeed possible to send and receive cryptocurrencies on a P2P basis without any middle person. It does not, however, mean that the users of cryptocurrencies cannot use any intermediary. If they find it more convenient to use third parties, they can use them. That is in fact what most of us do when we trade cryptocurrencies because it would otherwise be difficult to find suitable trading partners. This is why we sometimes still have to talk about intermediaries when we discuss cryptocurrencies.

Here is what I said on the last slide.
Towards the beginning of this presentation, I identified two causes of uncertainty of law in this area. Let me wrap up by coming back to them to see where in the legal analysis they fit into.
The first cause lies in the novelty of cryptocurrencies as assets. They are intangible assets registrable on a blockchain. The novelty will raise the question whether cryptocurrencies can be owned in the context of rei vindicatio and the similar question whether they can be classified as “property” in the context of the tort of conversion. It will also raise the question whether they can comprise trust property.
Another cause is the need to scrutinise legal relationships between an exchange provider and its customers. The legal relationships between them matter when we address the question to whom the entrusted cryptocurrencies belong in the context of rei vindicatio. In the course of addressing this question, it has been observed that depending on the terms of the contract with the customers, an exchange provider sometimes acts as a counter-party to transactions and other times merely facilitates transactions between customers. The legal relationships between an exchange provider and its customers also need to be scrutinised to consider whether there is a trust between them. This is so under the legal systems which allow a trust to be created by the inference of a trust agreement as well as under the legal systems which impose a constructive trust by operation of law.

Very many thanks to Prof. Charl Hugo for his kind invitation.

KLRI/UNCITRAL Trade Law Forum

I was invited to speak at the KLRI/UNCITRAL Trade Law Forum 2018 (Incheon in South Korea on 10-12 September 2018. For the programme, see a link here). The KLRI, Korea Legislation Research Institute, is a government-financed think tank.
My topic was "Cryptocurrencies entrusted to an exchange provider: Shielded from the provider’s bankruptcy?" I attach my powerpoint file below.
Very many thanks to the organisers for invitation and to the audience for stimulating questions.

ICO (Initial Coin Offering) に対する証券関係法規の適用の国際的局面

　標記の題目で、国際法学会研究大会で報告した(2018年9月4日於札幌コンベンションセンター)。当日のレジュメ(改訂済み)を添付するとともに、以下に報告要旨を掲げる。
　ICOは、その件数の飛躍的な伸びに伴い、詐欺の疑われる案件が横行する事態となったため、各国の規制当局から注視されている。禁止する国々も現れる一方で、一定の要件を備えたICOトークンを証券であるとみなし、証券関係法規の適用によって、投資者保護を図る方向性を打ち出す国々も現れている。
しかし、各国の証券関係法規がICOに対して国際的にどのような範囲で適用されるかは、現時点では不明確である。例えば、米証券取引委員会(SEC)は、昨年7月公表のThe DAOに関する調査報告書(“Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO” Release No. 81207 (2017))において、発行体のウェブサイトが米国内の個人も含めて、一般にアクセス可能であったことを指摘しているが、それ以上具体的には、米国法が適用されると考える根拠を明らかにしていない。また、同委員会は、昨年末、ICOを行っていたPlexcorpsと呼ばれる団体およびその関係者を相手取り、ニューヨークの連邦地裁に訴えを提起した(Securities and Exchange Commission v. Plexcorps et al. District Court for the Eastern District of New York (Case 1:17-cv-07007))が、被告らは、自らがカナダを拠点としていること、そのICOトークンが米国外に所在するコンピュータから発行されたことなどを理由として、米国の連邦証券諸法の適用を争っている。
　ICOの強みは、ボーダレスなネットワーク上に流通する仮想通貨やトークンを用いて、世界中から円滑に資金を調達できることにある。しかし、各国の規制の国際的な適用範囲が不明確な状態が続くと、実務に萎縮効果も生じる。そこで、本報告では、まず、既存の証券について、米国法を中心に、証券関係法規の国際的適用範囲を決める基準を検討し、インターネットの普及の影響も分析した後、ICOに対して同じ基準を当てはめる場合の解釈論を検討した。
　証券関係法規の国際的適用範囲は、国際法上は規律管轄権の問題である。規律管轄権を基礎づける原理には、保護主義や普遍主義もあるが、証券関係法規はそれらの対象とはならないと考えられる。かつては米国法には属人主義の考え方も見られたが、現在では、属地主義が基本となっており、より具体的には、「行為地」、「効果発生地」、「取引地」を基準として、証券関係法規の国際的適用範囲が決定される。「効果発生地」を基準とする効果理論は、属地主義に対立する概念として捉えられることもあるが、自国内で行為や事実が生じたことを根拠として管轄権の行使を認める原理として属地主義を広く理解すると、効果理論は、属地主義の一態様であると見ることができる。「取引地」基準も、「行為地」や「効果発生地」の基準と同様、属地主義の一態様であると整理することが可能であろう。
　国境を越えた証券取引は、インターネットが普及する前から、機関投資家を中心に行われていたようである。しかし、一般投資家に対する投資勧誘は、証券会社の店頭や電話によるのが普通であったので、その効果は、通常、勧誘行為がなされた国で発生したものと推察される。したがって、法の国際的適用範囲も、属地主義によって決めると言っていれば通常は十分であり、あえて「行為地」と「効果発生地」とを分けて考える必要性は大きくなかったのではないかと考えられる。ところが、インターネットの普及により、一般投資家に対する国境を越えた勧誘が容易になったため、「効果発生地」を「行為地」とは別途に観念し、効果理論を受け入れる必要性が高まったものと思われる。さらには、「効果発生地」の基準をインターネットに則して具体化する必要も生じた。というのは、電話やファクスといった従来のメディアを使って投資勧誘を行う場合には、証券の発行者や仲介業者が対象国を自ら特定することになるのに対して、インターネットを使う場合、ウェブサイト上の情報は、世界中どこからでも閲覧できるので、投資勧誘の効果が発生しているとみなされるのがどのような状況かが自明ではないからである。
　インターネットの普及は、国境をまたぐ(cross-border)資金調達を容易にしたものの、法的には国境が意味を持つことに変わりはなく、証券関係法規の国際的適用範囲を画する基準として、「行為地」、「効果発生地」、および「取引地」がそれなりに機能してきた。これに対して、ブロックチェーン技術の登場は、いわば国境のない(borderless)資金調達を可能としたと言える。なぜなら、ICOにおいては、国境のないネットワーク上で流通する仮想通貨を資金として受け入れることができ、その見返りに付与されるトークンも、やはり国境のないネットワーク上で取引されるからである。とは言え、ICOの投資勧誘の方法は、従来の証券の投資勧誘をインターネットも活用しつつ行う場合と本質的に異ならない。したがって、ICOの投資勧誘に関しても「行為地」や「効果発生地」の基準が適用されるならば、それらの地の特定に、ICO特有の問題は生じないと思われる。これに対して、ICOトークンに「取引地」の基準が適用されたり、ICOトークンの相場操縦のように、不公正取引が市場に与える効果が問題となる場合において「効果発生地」の基準が適用されるならば、それらの地の特定には、ICO特有の問題が生じるように思われる。ICOトークンは、ボーダレスなネットワークにおいて取引され、グローバルな市場の一体感が強いからである。ICOトークンの発行および流通において、ポータルサイトや仮想通貨交換所が使われる場合であっても、それらの運営業者の所在地を「取引地」や「効果発生地」として観念するのが妥当かは疑問なしとしない。現段階では実務の蓄積も乏しいことから、指摘した問題についての確たる解答は用意できていないが、今後の検討に譲りたい。

Extra-territorial application of Japanese law to ICOs: Payment Services Act

Japanese law currently has no specific regulations for ICOs. But Japan's financial watchdog, the FSA (Financial Services Agency) issued an open letter of warning, stating its view that "ICOs may fall within the scope of the Payment Services Act and/or the Financial Instruments and Exchange Act depending on how they are structured." (October 27, 2017). Since we have examined the Financial Instruments and Exchange Act in the last post, we will now turn to the Payment Services Act to see the extent of its geographical outreach.

The Payment Services Act regulates the "exchange services of virtual currencies" by imposing registration and other requirements for providing the services (Article 63-2, etc.). It defines the concepts of "virtual currencies" (Article 2(5)) and "exchange services of virtual currencies" (Article 2(7)). At the time of writing, it is uncertain whether any tokens issued in ICOs are deemed to be "virtual currencies." We will assume, for the sake of the following analysis, that some of them will be so deemed. The "exchange services of virtual currencies" signifies carrying out any of the conducts listed in Article 2(7) "in the course of trade", a phrase which is usually interpreted as implying repeated and continuous conducts. The listed conducts include the sale and purchase of virtual currencies and exchanging between different virtual currencies. Thus, cryptocurrency exchanges, or entities so called, will generally be seen to be providing "exchange services of virtual currencies." Some commentators seem to believe that the issuers of ICO tokens (if deemed to be "virtual currencies"), too, provide "exchange services of virtual currencies" on the basis that ICOs would involve the purchase of tokens (deemed ex hypothesi to be "virtual currencies") or exchanging them with other virtual currencies. But I doubt the correctness of this interpretation since the issuance of ICO tokens can hardly be described as repeated and continuous conducts. The appropriateness of such interpretation is also doubtful since the issuer of ICO tokens, if treated as a provider of "exchange services of virtual currencies", would be subject to disproportionately heavy duties of compliance. The Payment Services Act also contains the definition of "foreign provider of exchange services of virtual currencies": it refers to any person who pursues the "exchange services of virtual currencies" in a foreign country who has effected registration of the same kind as required under Article 63-2 (or has received other similar administrative authorization such as a permission) pursuant to that country's statutes or statutory instruments which are equivalent to the Act (Article 2(9)). Even if the words "other similar administrative authorization" are construed broadly, it would be rare for any ICO issuers operating from outside Japan to have received such authorization. It follows that although the following analysis - which concerns the "foreign provider of exchange services of virtual currencies" - will be relevant to some of the foreign cryptocurrency exchanges dealing in ICO tokens which are deemed to be "virtual currencies", its relevance to the issuers of such ICO tokens operating from outside Japan is doubtful.

The Payment Services Act provides at Article 63-22:
The foreign providers of exchange services of virtual currencies who are not registered pursuant to Article 63-2 shall not make solicitations aimed at persons located in Japan with respect to any conducts listed in the sub-paragraphs of Article 2(7).
(Annotation: Article 63-2 prohibits any person to pursue the "exchange services of virtual currencies" without registration. Article 2(7) lists the conducts which, if carried out "in the course of trade", would constitute the "exchange services of virtual currencies".)

The FSA published "Administrative Guidelines" for the providers of "virtual currency exchange services". It contains a sub-chapter concerning the treatment of the "foreign provider of exchange services of virtual currencies" (II-４: Framework of Analysis for Foreign Providers of Exchange Services of Virtual Currencies). So far as I am aware, the FSA has not published an English translation of those guidelines. For the convenience of foreign readers, I have translated the text (below).

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II-4 Framework of Analysis for Foreign Providers of Exchange Services of Virtual Currencies

II-4-1 Prohibition Against Solicitation by Foreign Providers of Exchange Services of Virtual Currencies
Foreign providers of exchange services of virtual currencies (excluding those who have been registered pursuant to the applicable law. Ditto under II-4-2 below.) shall not make solicitations of transactions involving their services with persons located in Japan, save to the extent otherwise stipulated by statutes or statutory instruments.

II-4-2 Cross-border Transactions Using Internet by Foreign Providers of Exchange Services of Virtual Currencies
Where a foreign provider of exchange services of virtual currencies posts on its website or elsewhere on the internet advertisements or other contents concerning transactions involving their services, it shall in principle be deemed to be a “solicitation.”
It shall, however, not be deemed to be a “solicitation” aimed at persons located in Japan if reasonable measures are taken to prevent the advertisement or other contents from resulting in transactions with such persons, the prime examples of such measures being those detailed below.

(1) Disclaimer
The disclaimer must clearly state that the exchange services are not targeted at persons located in Japan.
In judging whether the above measure is adequately taken, it is necessary to have regard to the following points:
(i) whether the disclaimer is legible simply by viewing the advertisement or other contents without any additional operations on the computer terminal required; and
(ii) whether the disclaimer is written in a language which it would be reasonable to expect the persons accessing the website in Japan to understand.

(2) Measures to Prevent Transactions
These are measures implemented to avoid concluding transactions involving the exchange services of virtual currencies with persons located in Japan.
In judging whether such measures are adequately taken, it is necessary to have regard to the following points:
(i) whether a procedure is put in place whereby the whereabouts of the users can be checked at the time of transactions by requiring them to present their details such as their place of domicile, postal address, e-mail address and their chosen method of payment;
(ii) whether care is taken to avoid accepting orders for transactions involving the exchange services of virtual currencies where there are reasonable grounds to believe that they have been obviously sent from persons located in Japan; and
(iii) whether care is taken to avoid inducing persons located in Japan to engage in transactions involving the exchange services of virtual currencies by, for example, refraining from establishing in Japan a call center for users or creating links from web pages which are targeted at persons located in Japan.
The above-mentioned measures are illustrative only. If measures which are equivalent or more effective are implemented, the posting of advertisements or other contents shall not be deemed to be a “solicitation” aimed at persons located in Japan.

(3) It should be noted that where reasonable measures, such as those detailed above, are not implemented, the posting of advertisements or other contents on the internet is highly likely to constitute a “solicitation” of transactions involving the exchange services of virtual currencies aimed at persons located in Japan. Such being the case, the foreign provider of exchange services of virtual currencies should prove that it is not engaged, by way of solicitations, in transactions involving the exchange services of virtual currencies with persons located in Japan.

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What is stated under II-4-1 is only a reiteration of Article 63-22 of the Payment Services Act (See above). It is worth noting that what foreign providers are prohibited to do is the solicitation of transactions aimed at persons located in Japan: Concluding unsolicited transactions with such persons is not prohibited unless it is done "in the course of business" (hence repeatedly and continuously) in violation of Article 63-2. However, II-4-2 gives a broad interpretation to the notion of "solicitation aimed at persons located in Japan" as it states that the posting of an advertisement on the internet is highly likely to constitute such a solicitation unless reasonable measures are implemented to prevent transactions with persons located in Japan. Moreover, it places the onus on foreign providers to prove that they are not engaged in such solicitations.