Thor Regulatory Explainer

by

Ben Lambert

Director of Legal Operations and Business Development at Thor

San Francisco, June 1, 2018—As we transition from our token sale to full platform implementation, we continue to keep an eye on the evolving regulatory landscape and its impact on our unique solution for the Gig Economy. As Director of Legal Operations and Business Development, my primary mission is to ensure we remain compliant with current regulations while breaking into new and uncharted regulatory waters.

At Thor, we pride ourselves on taking an ambitious and creative approach to product development and implementation but are acutely aware of the regulatory impact on multiple aspects of our core platform. Similar to the mechanics of the token sale, we must balance both federal and state regulations. For example, deposit and withdrawal functions via our native platform wallet require a detailed analysis of state money transmitter laws and federal regulations related to consumer protection and anti-money laundering. The Department of the Treasury contains a number of distinct bureaus and offices responsible for laws and regulations designed to monitor and control the flow of currency and similar forms of value (this includes digital currency). One such department, the Office of Terrorism and Financial Intelligence, oversees two parts of Treasury that have a direct connection to digital currency companies — Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC).

FinCEN is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes. In a letter sent to U.S. Senator Ron Wyden in February of 2018, FinCEN’s assistant secretary for legislative affairs, Drew Maloney, explained that both developers and exchanges involved in the sale of an ICO-derived token would be liable to register as a money transmitter and comply with the relevant statutes around anti-money laundering and know-your-customer (KYC) rules. Additionally, FinCEN issued guidance in March, 2013 to clarify the applicability of the Bank Secrecy Act (“BSA”) to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.

OFAC of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. Under OFAC’s newly issued FAQs, U.S. persons will have the same sanctions compliance obligations regardless of whether transactions involve “real” currencies or cryptocurrencies. OFAC will work with law enforcement to ensure that the use of “new payment mechanisms” will not create a blind spot for sanctions enforcement. Specifically:

  • FAQ 559 defines the key terms of “virtual currency” (an expansive definition), “digital currency,” “private keys,” “wallet,” “digital currency address,” “hosted wallet provider,” and “wallet provider.”
  • FAQ 560 explains that compliance obligations “are the same, regardless of whether a transaction is denominated in digital currency or traditional fiat currency,” meaning that companies and other persons are expected to develop “tailored risk-based compliance programs” that address the risks posed by virtual currencies.
  • FAQ 561 states that “OFAC may include as identifiers on the SDN List specific digital currency addresses associated with blocked persons.”
  • FAQ 562 states that “parties who identify digital currency identifiers or wallets that they believe are owned by, or otherwise associated with, an [Specially Designated Person (SDN)] and hold such property should take the necessary steps to block the relevant digital currency and file a report with OFAC.”
  • FAQ 563 explains the format that digital currency addresses will take on the SDN List.

In addition to Federal requirements, each state has unique money transmitter laws. Today, nearly all state money transmission regulation is permission-based; a person (or company) may not engage in money transmission until they first obtain a license to do so from the applicable state regulator. With the exception of Montana, every state now requires businesses performing money transmission as a service for customers in their state to be licensed. Money transmission regulations are extraterritorial; a person (or company) must have a license in every state in which they have customers. What matters from a jurisdictional standpoint is the location of the customer, not the location of the transmitter.

As a result of the many (and necessary) consumer protection and anti-money laundering regulations, we are taking a thoughtful approach to our product development strategy. Our initial Beta platform will have limited functional capabilities depending on the location of the user.

  • U.S.-Based Users: Wallet functions will be limited to THOR and fiat deposit capabilities only. Due to the required money transmitter licenses mentioned above, we cannot allow withdraw functions until such licenses are secured. We will roll-out additional platform functionality as Thor satisfies specific state and federal regulatory requirements. US based users will be able to purchase goods and services on the Thor platform.
  • Non-U.S. Users: While there are no deposit and withdrawal restrictions on non-U.S. wallet users, non-U.S users will be subject to the laws of their own country along with OFAC regulations. Thor does not permit access to its website or mobile application in any jurisdiction that is subject to the sanctions programs administered by the U.S. Treasury and other governing bodies. Users attempting to log in from one of these prohibited regions will be prevented from accessing our services. Should a user attempt to access the Thor website or mobile application, access will be denied and the customer will receive a pop-up message informing the customer that he/she is attempting to log in from a prohibited region. Subject to the conditions set forth above, non-U.S users will be able to purchase goods and services on the Thor platform.

We remain committed to providing a long-term solution to the rapidly growing Gig Economy and believe our attention to regulatory detail will position Thor for long-term success. We will provide real-time updates related to licensing and other regulatory milestones via our social media platforms.

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