EB41 – Siân Jones Interviews Inside Bitcoins London: Lawyers Amor Sexton and Marco Santori

Transcript

[Music] hi there welcome to epicenter Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is cucho this is episode 41 on September 24th 2014 so as I mentioned last week we've been a little short on Thursday content for the last few weeks that's primarily because we haven't attended any conferences since coin Summit in London and that's been that was a couple months ago so so uh the good news is we've got a whole lot of events lined up for the next 2 months in October and November and in fact we start this week with two interviews that Shan Jones did for us in London at the inside Bitcoins

London conference the first is with marus centuri he's chairman of the Regulatory Affairs Committee of the Bitcoin foundation and recently appointed Global policy Council for blockchain and so as the New York Department of Financial Services bit license proposal nears the end of its 45-day challenge period uh the Second Challenge period uh Mr centu gives his predictions on what the legislation will look like when it gets passed which he expects to happen by the end of this year and got to say the Outlook isn't really that good the second interview is with Amore seon she's a lawyer at Adroid which is a a law firm based in Sydney Australia which specializes in Bitcoin and also does some liaising with the Australian government on behalf of the

Bitcoin industry to establish what the regulatory framework should look like and in her talk talk with Sean uh she spoke about the Australian government's recent guidance and draft ruling on the tax treatment of cryptocurrencies with regards to income tax capital gains tax and GST and they point out how these draft rulings differ from those proposed in other jurisdictions and how they will affect merchants and Bitcoin holders in Australia in the future so thanks a lot Sean for those interviews and in fact Sean will be back next week with interviews from crypto Valley Summit in the a of man so speaking of conferences will be at at least three events in the next 2 months starting with Europe Bitcoin uh which is the first

frankophone Bitcoin conference in Europe organized by the French Swiss and Belgian Bitcoin associations that H that's happening on October 8th in Paris if you want to attend that you can get 10% off by using the code epicenter next is BTC 2B that's happening in Brussels on October 16th and 17th now as the name States this is a businessto business cont conference it's really designed to be some sort of a networking event so if you're a startup if you're looking for visibility from investors other entrepreneurs uh you really need to be attending this event there is a startup show and if you want to register for that startup show you can do so at btc2 be.com and those startups that get uh chosen uh will get a free stand so that they can uh be on

location and uh and show off their startup so if you want to attend that you can get your tickets at BTC tp.com and you can get 15% off by using the code epicenter so those those are two events happening basically a week from each other why not make it a trip uh come to your B to EUR Bitcoin in Paris stfe for the week it's an hour and a half Euro star uh uh ride away and then you can go to Brussels on the 16th and 17th how about that and we'll also be attending inside Bitcoins Paris and that's on November uh 20th and 21st we don't have a coupon code for you yet we are partnering with that event we will be there uh getting uh interviews as we normally do but we don't have a coupon

code just yet that's coming we'll we'll have that for you in the next few weeks so I hope you enjoy interviews by Shan Jones at inside Bitcoins [Music] London so this is Shan Jones I'm at inside Bitcoins in London and I'm sitting down right now with uh Marco santor Marco santor is the um chairman of the Regulatory Affairs committee the Bitcoin Foundation he's been involved with um advising Bitcoin businesses as a lawyer now a counsel at Pillsbury Windthrop Shaw and Pitman uh in New York and uh recently

congratulations you've been appointed um Global policy Council for blockchain that's right that must be an exciting new new position for you it is and you know it's really it's sort of a continuation on the Outreach work that I been doing for some time on behalf of the company and um really this is a global situation that that we're in and it's C certainly a global Focus or sorry I should say it's a it's a global offering that the company has this is not a United States story it's not a European story it's a global story and in fact you know I I believe that blockchain has gone on record anytime saying that they've seen the biggest growth outside of the US market and that's what we're seeing generally in

Bitcoin as well and I suppose that really leads me nicely onto the thing I want to talk to you about today which is the impact of um New York's bit license proposals um on the rest of the world everywhere outside the US because the the the proposals as they're drafted at the moment and we're speaking in September and we're at the first draft stage the proposals at the moment are very wide reaching in terms of scope of businesses that are covered and in terms of um extra ter torial reach yeah I think I think that's right so like a lot of things in Bitcoin this is another Global story it's the New York bit license right it's it's something that we like to say is just just one jurisdiction and

yeah maybe it's maybe it's one of the largest financial jurisdictions in in the world but it's just one jurisdiction right I think that that would be the case if we weren't dealing with Bitcoin since obviously we know that Bitcoin is a global story The regulations that lead the proposed regulations are drafted accordingly and they're they're incredibly Broad in scope and also in jurisdictional reach any any transaction involving a New York person um is captured by the regulations um and any entity wherever located in the world uh servicing uh a New York person or really engaging in any way with a New York

person is at least on the face of the regulations captured so could be an exchange in somewhere like Paris France and have someone walk in if you have a appr premises walk in and if they happen to live in New York or have some business involvement with New York they would be captured by the regulations and therefore the bit Bitcoin exchange in Paris would would have to um technically I suppose have a bit license would it to deal with you I I think that's I think that's reasonable and the at least this is that's on the face of the regulations as they're drafted um and it could be even broader broader than that I could I I could see a United States Attorney um

in a prosecutorial capacity arguing that um anybody who has wired money from a US bank account uh to uh say the perisian exchange would trigger the extr territorial application of the laws because dollars are all transferred even if that person resides in Iceland or colia or Georgia has never even visited New York and has no dealings with New York conceivably that's how they're drafted but and so that there's another side to the coin of course that a lot of regulations are drafted like this there's there's there's nothing uh particularly special or onerous or offensive about these particular

regulations it's it's it's actually fairly common in the us and what we see is that when these laws are applied they're applied strictly and they're constrained in their jurisdictional scope because in the US we have a Federal Constitution we have the US Constitution which Limits The Reach of uh what's called longarm jurisdiction extr territorial jurisdiction uh and I expect that to happen here regardless of the language of the regulation that ultimately becomes effective so will for example you on behalf of the foundation be making representations in this feedback period that says you know you can't do that Mr lski the the your the Constitution prevents you or is it

something you think might get challenged at a latest stage once it does become regulation if it's becomes regulation in the as proposed at the moment well I can tell you that the foundation will be submitting comments MH um further comments we've we've we've already sent in one letter uh I can't tell you what the contents of that will be just yet but I can tell you that in in response to your second question we can expect and I can almost guarantee based on my knowledge of of the industry participants that there will be some challenge to this regulation if it is ever enforced I think that what we're what we're seeing is right now sort of the a frenzy of

some people taking deep offense to it other people saying well you know it's just power for the course and everybody in between uh but this industry is is a very vocal industry it's um from an economic standpoint an irrational one at times and I think that there are plenty of people who will proudly act uh economically IR rationally rationally and stand up for their principles okay and um I think we can we we we we can expect some opposition to the bit license in whatever form it takes can can uh any challenge take place before it becomes regulation or there's there's horse trading that goes on it has to then become regul and then there's a challenge later yeah that

that's absolutely right so um until this regulation becomes effective until it becomes law there's very really very little that that anybody can do to challenge it under New York state law or under federal law it's it's it's not yet ripe okay and what do you see as being the timetable from from this point onwards I know they've recently extended the deadline for feedback but where does it go from here yeah so the original deadline was somewhere in September the current deadline is October 21st and I would expect to see um new effective regulations uh quarter 1 of 2015 right and then from there uh at least if let's

just assume this portion of the regulation becomes effective and untouched from there uh Market participants or bit license Seekers will have a 45 day window during which they can operate before they have to submit an application for the bit license so for some because there were some very onerous um uh requirements in terms of um identification in terms of background checks and uh Financial records and just about everything um businesses that that are intending to go down a bit license route in whatever form that takes needs need presumably to start planning for that now 45 days will

go by very quickly yeah I think that's right and the worst really the worst of all possible outcomes is that somebody builds a product they pour their heart and their soul into it they pour a lot of time resources money sometimes other people's money into it and they build a product that doesn't fit the regulation or they build a product that can't be easily modified to fit the regulation to satisfy those obligations um and and then you've seen months of work uh go to waste and that that's that's really one of the primary things I I work on with clients is helping to structure their offering so that they can comply with or avoid uh

regulations that shouldn't apply to them um so your your forecasting bit licenses becoming effective in q1 of next year [Music] 2015 um what's the road map from here to there will it go through another set of comments a new draft or do you think it's going to go here's all the comments Here's the final version and it's going to kick in next year how how do that work well what we've what we've seen from DFS is a real sense of urgency about this and like I I've I I hope that I've gone on record and given sort of a a balanced critique of that and that I think that the bit license is a good thing I think it's it's too early at this time um but nonetheless we've seen

a real sense of urgency from DFS they were they initially granted the the industry the statutory minimum time to respond um and much of the industry pushed back against that in several contexts and in response DFS said okay they listened they said okay that's that that makes sense we we should have more time for comments and so now they've extended the deadline but I don't think we'll see another extension okay um I don't think we will see another draft mhm I think that this and the foundation has suggested that DFS take an iterative process where they send us another draft and we can give more feedback but I think that that's pushing against this

real sense of urgency internally with DFS and they're they're not going to permit that and so I I expect that that the next thing we'll see from DFS is uh a new set of regulations and that will be it then that'll be it and they'll give um does it become a effective within a certain statutory period of time once it's been published or how does that work built into the statute there's there's that 45 day period so at minimum we can expect that okay so well we're September now you think it's going to be a few months towards the end of the year beginning of next year that something will be published and then people have got 45 days to I do it I think that DFS is is really pushing for a 2014 launch of this

okay I think that you know despite their best efforts it's the government so at times it's at times it's uh it's not as quick as I think the stakeholders in the government want it to be and what other predictions do you have for for bid license I think that um some of it will be paired down MH I think that uh wow it's really going on back there my goodness I think that um I think that we'll see primarily the the definitions be uh cut a little bit so right now the definitions are very broad prettyy much anybody doing anything with Bitcoins with another person's Bitcoins uh is regulated I think we're going to

see that paired back a little bit for example we'll see the securing prong uh probably removed or or lightened a bit um right now anybody who simply quote secures somebody else's Bitcoins is uh is captured under the licensing requirement so that would capture conceivably companies like melium or Armory or these local or even anybody Distributing the QT wallet um QT client rather um is technically I mean just linguistically right helping to secure somebody's Bitcoins and I and DFS has now gone on record recently I think in

in a coindesk interview saying um that that's not what they meant but um I guess we'll see the proofs in the pudding we'll see what what the final laws really say Okay um any other predictions I know um at a earlier in the conference on a panel you thought about 90% of um of of the proposals will see the light of day yeah I think that's right I think that I think most people are going to be shocked by the requirement to identify parties on both sides of the transaction I think that as an industry we look at that regulation and immediately dismiss it we think well that's that's ridiculous that's like trying to put a saddle on a Ferrari I mean why why would you you know what's what's the point of using Bitcoin if you

have to do that um and we just assume that that won't make it through I disagree I think that is going to make it through and I think that um and that's that that rule monit mirrors something called the travel rule on the on the federal level which requires that certain transactions over three over $3,000 and certain transactions between Financial intermediaries the information of the customer has to travel with the transaction right and if we're going to take any lesson from the federal level we can take the lesson that finson expects Financial intermediaries in the Bitcoin space to follow that rule and recently they were in one meeting they were shocked to find that nobody was

following that not nobody very few were were following that rule um and the the opposition from the Bitcoin space was well it doesn't apply to us it just clearly doesn't apply to us then senses no if you're going to be a financial intermediary you need to play by the same roles as every other Financial intermediary I think we're going to see that in New York to okay well Marco um thank you very much for spending the time this afternoon to to talk to our talk to me and talk to our listeners um I know it's been very very interesting and really appreciate your time today well thanks for asking I'm happy to happy to participate this is Sean Jones again at at inside Bitcoins in London it's um a

pleasant but foggy September day and I'm sitting down with Amore Sexton who's a lawyer with Adroid lawyers in Sydney Australia um you've traveled a long way to to to to to this conference what what what Drew you all these MTH well you've probably got loads of air miles now haven't you no not quite um I really I was really really curious to see what the Bitcoin industry was like in other countries we've got a really strong um but small Bitcoin industry in Australia and um I I guess I just wanted to see what was happening in the rest of the world in that space because you read about it on coindesk and and online but it's nice to actually be here and put

some faces to the name and and your your The Firm you work for um does that specialize in in Bitcoin and cryptocurrency business we do now yeah we're a commercial law firm that's always dealt with technology companies and I think as the industry grew and our clients started to get more interested in um Bitcoin we started to learn more about it and we've got both um a lot of clients that are Bitcoin companies and we also um have played an active role in liasing with the government on behalf of the industry to establish exactly what the regulatory framework is in Australia and and really I suppose that's what I wanted to talk to you about because just a few weeks ago the um tax authorities in in Australia

came out with a very important announcement um if I understand correctly not necessarily a very welcome announcement do you want to tell us a little about that yes so um essentially what they did is they released official guidance and draft ruling so which is actually going to be a binding ruling um on what the tax treatment is of cryptocurrencies um and specifically Bitcoin it was um a very important thing for them to release because it shows that crypto currencies are definitely on the map um they spent a lot of time thinking about it put a lot of resources into it and I actually think that although the final outcome wasn't necessarily what the industry wanted um to see the fact that they put so much time and effort into

understanding the technology and thinking about how the technology should be um treated from a tax perspective I think that boods well for the future because sometimes getting Regulators attention is step one in the process so so um essentially what happened is they looked at um income tax capital gains tax and GST which is the Australian version of sales tax and and in Europe we'd know that as value added tax and it works in a similar kind of way if I very similar yeah um uh on the the good news was with capital gains tax they said that capital gains tax does apply because Bitcoin is property but they said it doesn't apply if it's under $10,000 so that's good because it means

that consumers can use Bitcoin without having to account for any Capital gam and that's very pragmatic because in the states it's it's it's quite the the opposite and uh technically virtually every cup of coffee you buy with a Bitcoin is is something you've got to maintain records on it's it's it's it's hard work to do that so it's more pragmatical and and and it's consistent with their approach to other forms of personal use assets so um it wasn't a surprise but it was very that that part of it was quite welcome I think what um the industry and and the businesses are concerned about is the fact that they have said that the supply of a Bitcoin is a taxable supply

for sales tax purposes and what that means is if you're registered for GST and it's in the course of your business and you pay with Bitcoin or Supply Bitcoin as an exchange you've got to put 10% on that 10% of the value of the transaction um in some situations that means that there would be 10% for the goods and services and then 10% for the Bitcoin and you have a double um tax uh double taxation situation so this is effectively treating it like barter that's exactly what they're doing they're saying that it's a commodity and it's a barter Arrangement and that it's not money or a currency so yeah it's exactly what it is a barter Arrangement and I guess um that creates a lot of

distortion um the moment you move out of businessto business transaction so if you've got busines to business transactions well yes you've got to put your 10% on top but you can take it back off claim it back as part of of your input but um the moment you have a consumer transaction that changes the the true cost yes and I think I think aside from the actual Financial cost just the fact that it's increased paperwork and increased compliance is what's concerning because the beauty of Bitcoin is that the transactions are so seamless and quick and efficient and once you introduce this level of complexity you really undoing some of the benefits of uh Bitcoin as a currency

and as a payment um method itself so um especially for small businesses and startup businesses where paperwork is a cost to them because they have to pay accountants bookkeepers lawyers to figure it all out so um even even in a businesses to business situation where there's input tax are still think it's going to affect um affect the industry how has the industry reacted in Australia I think look it's very early days um it's just the news has just come out um the industry there's kind of a concern about how it's going to affect it long term I think at the moment nobody quite knows what's going to happen so there's a lot

of people going okay well can we move to another jurisdiction you know it all sounds very easy from a technical perspective but practically it's not easy to necessarily pick up and relocate and to do it right um it's a can be a complicated and expensive process in itself um it I think what will be really interesting to see and again it's only been a few weeks but it'll be really interesting to see if it affects the um Merchant adoption whether or not companies are willing to accept payment in Bitcoin if they think it's too complicated um I think that one of the ways that you can mitigate the impact is the fact that um Bitcoin merchant services providers can automate a lot of

that paperwork process so because it's not cash if you can build into your payment systems a a way that paperwork can be done very easily you might be able to um mitigate some of the impact of the tax rolling I I I can imagine it's it it's a little bit of a nightmare for a merchant I can imagine someone who uh who runs a coffee shop and a sideline is a catering service to local businesses so consumers come in and buy their cup of coffee and a sandwich and that's very easy because if they want to pay with Bitcoin they're not going to add the GST to it the moment um they have a a sale of plate of sandwiches to

the business around the corner that they then deliver at lunchtime uh well if they want to pay with Bitcoin they're going to be faced with tax on top of the the Bitcoin that's being used to pay and then they've got to put that in as their input I mean I can imagine that's just a nightmare this whole promise of Bitcoin being something uh simple and easy and and and and with um huge cost reduction implications that just goes out the window yeah definitely um what's interesting though is that Bard is quite successful in Australia and that's a system that is being taxed um with B transactions as well so I think it is whilst I think it definitely has an

impact long-term I I'm not sure I mean if you can take some of the pain out of the process you may find that there's other benefits of Bitcoin that will outweigh it I think what the industry needs to do is I know the industry at the moment is focusing on well how can we get the government to change their mind that of course does need to be something people think about but I think as well we need to think think about well how can we make this work for consumers how can we make it work for businesses um and is there benefits in Bitcoin that we can talk about to them like I guess voicing your dissatisfaction with the tax treatment

is important because the government needs to hear your opinion but there needs to be some positivity out there too so that you don't scare the general public away from adoption yes because the the audience isn't always just the government or the regulator it's it's all the people who are listening and at the moment there's a a big audience of passive listeners waiting to find out what what what this thing of crypto is really about yeah um is there a a way of appealing this uh decision or this decision is an interpretation by the tax authority of the law as it stands as they believe it stands and it's only

um no it could it's in it's in draft stage at the moment um it's an interpretation and they've got some draft um public rulings and they've invited submissions it is possible that they could change considering they've given it so much thought I'm not sure how likely it is that they will change their mind um there are some other ways that um that that you can look at trying to change the decision one is that um you could challenge it through the courts and what would essentially have to happen there somebody would have to get an assessment and then challenge that um tax assessment right that's a long process a long and expensive process um even if you take advantage of the some of funding that's available for

tax appeal cases it's still usually only about 40% of the costs um and you know 2 to four years oh well so you what is going to look like in and the results may be just to uphold the the decision absolutely there's always that risk um so the other Avenue that you you can um choose do is lobbying for legislative change one of the difficulties with this specific um specific piece of legislation is that it's um a we've got a series of States we're like um the United States we're a Federation of states which a lot of people don't realize um so it's a federally a federal act and a federally administered act but the money actually goes to the states

and territories so in order to change that act you have to get approval from all the states and territ right which is difficult very very very difficult and are some states in Australia more friendly towards Bitcoin than others there certainly hasn't been any indication one way or another I think just even the administrative and logistical process of that would make it complicated so there'll be a lot of work to be done at the state level and at the federal level to get to get a change through that's right um you're going to say that that's another 2 to four years maybe even longer I mean at the moment there that the government doesn't have a solid majority in the upper house either so trying to pass anything is incredibly difficult so there's a lot of kind of

political reasons why that's difficult um one of the things that probably isn't very clear is the main question that was being asked is whether uh Bitcoin is money for purposes of just using um Bitcoin as payment but for the exchanges the exchange of Fiat to bitcoin it was always relatively clear that the ACT interpreted that to be a taxable Supply um and that's going to require legislative change so even if you manage to get up on the money argument youve for um payments you're still going to have the exchanges are still going to have that extra step that extra hurdle so I think what you might see is that a lot of exchangers start to

look at jurisdictions outside of Australia for example Singapore they have a similar approach to taxation but you don't have to be registered for GST until you hit I think it's a million in revenue and it's only 7% wait a million in revenue of which currency sorry oh Singaporean dollars yeah so um I think the exchanges are definitely going to look at other jurisdictions until does that present problems for them when they're then um uh when their customers are based in Australia do they then have uh to be registered in for VA sorry for GST in um in Australia or they can break completely offshore from Australia this this is a fascinating question that I

actually did raise with the tax office and they said it's a very fascinating question I don't think anyone has the answer um if it's a normal good or a normal commodity you've got import export rules that you can take advantage of because Bitcoin doesn't necessarily exist anywhere like in theory you could move a Shore off a digital asset but in theory you could go off store you could import it in you could try and you know take advantage of um different uh tax situations in that way but does a Bitcoin ever exist in a jurisdiction I'm not sure it exists only as a set of keys recorded on a blockchain which exists everywhere and nowhere so it'll be

interesting to see how how that um how that that that idea develops and how people decide to try and structure things I gather there are some very attractive um uh Pacific Islands not too far away from Australia that uh uh that that are attractive as offshore jurisdictions so maybe we'll start seeing uh a newe um Bitcoin exchange or or somewhere I've been hearing a lot about the barley Island project ohley that sounds so yeah I'll have to do some interviews find out what the Bitcoin scen is like in we need to have a Bitcoin conference in Bora Bora I think well um definitely I think that'll

probably be the next time I I'm going to interview you for an update so we'll we'll look forward to that thank you um any other predictions for Bitcoin in Australia either as a consequence of GST this GST decision or from any anything else that's happening there's there's a couple of interesting things to note about Australia as a Marketplace and one of the things is that we're one of the biggest adopters of mobile payments in the world the Reserve Bank recently talked about the decline of cash in Australia contactless payments in particular are very very popular um and with Bitcoin having the ease of that but without the risk of fraud because it's a push technology I actually think that as even though it's a small Market it's a

good Market to prove your concept and and to solidify your your um your business um I think the other interesting thing about this drain Market is to put it bluntly we're quite used to being ripped off um we have um a lot things are cuz we're quite isolated geographically we get a lot of things are more expensive we pay Bank fees for example if you take money out of an ATM and it's not your bank you pay $2 every transaction things like that so it will be interesting to see if that mentality means that people aren't that fussed about the extra 10% on bitcoin I'm not sure but it's certainly um there's certainly various factors in the

Australian Market where I I think it will be interesting to see how it develops and and from a cultural point of view is it a sort of anti-establishment um uh Society where where where the average person whoever he or she is so quite happy to to to rail against the the banks and the there's certainly not the same I mean there's always the old joke about everyone hates hates Banks but um see we didn't go through the same thing and what I've I've been told no one else calls the GFC that's what we call the global financial crisis back home and I've been told this trip that only Australia calls it the GFC um but we we didn't suffer quite as bad really well

at all really in that process and part of that was our banking system and I think that since then there there seems to be more of um I wouldn't even I wouldn't even say trust but I certainly think that there's a level of comfort with austrain banks in the in the general population okay so so so Bitcoin isn't going to win because you know because it's it's seen or perceived to be an anti-bank no it'll win I think because Australians like new technology they like easy ways of payment we're also we travel a lot we've got lots of relatives that live overseas I think it will win because it is a technology that offers so many choices

to Consumers and I think that's what will really allow um it to get fo hold in the train and on that very optimistic note I I I'd like to thank you for for for sharing your thoughts with epicenter Bitcoin our listeners will be grateful and thank you for your time today Amo thank [Music] you so thanks so much for listening and thank you to Shan Jones for capturing those interviews in London like I said Shan will be back next week with uh interviews from the crypto Valley Summit in the aisle of man now if you want to support the show there are multiple ways you can do that you can start by leaving us a review on iTunes that really helps us in getting discovered by new

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