11 December, 2018
The short answer is that ICO/STOs themselves are not regulated yet in Vietnam (as in most other countries). That doesn’t mean that every initial coin offering (ICO), security token offering (STO), private sale, presale, crowdsale, token generating event, airdrop or whatnot and underlying blockchain token is legal. Many laws and regulations could apply and render participating legally impossible in practice.
On the other hand, the question in Vietnam is always whether the laws are implemented and enforced. If they are enforced, what are the potential sanctions and other risks?
Illegal payment method
“Issuing, providing, and using” bitcoin or other cryptocurrencies as non-cash payment method is illegal in Vietnam. That’s the only thing that is relatively clear under the law (Decree 101/2012/ND-CP and the Criminal Code). The State Bank of Vietnam (SBV), which is the monetary authority here, has published an opinion on 30 October 2017 supporting this view. The administrative fines can be up to VND 500,000,000 (about USD 22,000) for unlicensed operation.
By implication:
- Issuing a payment token is illegal – Are you generating a utility token that can be used to pay for accessing the system?
- Providing payment tokens is illegal – Airdrop anyone? Or are you selling cryptos?
- Paying with cryptocurrency is illegal –
- Are you paying for ICO tokens with ether, bitcoin, or Vietnam dong?
- Will the platform reward users who have contributed to the ecosystem with tokens?
- Are you paying with cryptos to receive fiat currency or other cryptos (i.e., exchange or trading)?
While the above could be narrowly interpreted to apply only to cryptocurrencies as payment method, what about other characteristics and functionalities of blockchain tokens? Vietnam has no guidance yet on how to differentiate what a token represents or is used for. This might change soon.
What is a blockchain token under the law?
Reportedly, the Ministry of Justice has submitted a proposal for crypto-assets to the Prime Minister of Vietnam for approval. The details are not public yet. The plan is to recognize crypto-assets as “property” (or “asset” as the Vietnamese term “tài sản” is sometimes translated) under the Civil Code. What kind of property? Either securities or non-securities.
If the proposal is approved, the implications of being recognized as property under the law could be vast. Potentially, non-security crypto-assets would be tradeable as commodities on exchanges. Security tokens would have to comply with Vietnam’s Securities Law, which is currently being revised. Compliant ICO/STO could become reality.
From a government perspective, the main issues are how to protect investors and prevent uncontrolled capital outflows. Recognizing crypto-assets as property under the law will strengthen the legal basis to go after fraudulent ICOs and tax evaders.
Cross-border issues
The legal framework for outbound investments from Vietnam is extremely restrictive. Investing in tokens from an ICO/STO launched outside of Vietnam could be subject to capital controls, foreign exchange regulations, and offshore investment regulations. Vietnamese individuals and organizations must first apply to register their offshore investment with the authorities in Vietnam. Not many receive the necessary offshore investment registration certificate. The legality of providing tokens cross-border from outside Vietnam to Vietnam is questionable as well.
If the token is deemed a security, most individuals in Vietnam would be precluded from purchasing them legally. Individuals are generally not allowed to invest in securities outside of Vietnam. The only exception: employees of foreign companies may participate in bonuses share schemes (e.g., employee stock options). Securities companies, insurance companies, banks and a few other organizations may invest in foreign securities, but only in those securities approved by the SBV.
In addition, all profits derived from offshore investment activities must be repatriated within 6 month of tax finalization, unless they are used to expand the offshore investment (which requires another registration procedure in Vietnam).
Outlook
A legal way for conducting an ICO/STO could be boon for Vietnamese start-ups and small and medium-sized enterprises who have difficulties in accessing traditional funding channels. If capital cannot be raised in Vietnam in a legal way, such activities will stay underground. Entrepreneurs will seek other venues. However, with overwhelming enthusiasm in Vietnam for blockchain technology and cryptos, hopes are high that the country will adopt a workable legal framework that will promote compliant ICOs and STOs.
For further information, please contact:
Manfred Otto, Duane Morris
motto@duanemorris.com
