The clash between regulators and the crypto space has led to the genesis of a whole field of lawyers who are experts in the gray area where crypto laws, banking laws, and money laundering laws all overlap.
The primary goal of these crypto lawyers is to help clients trade large amounts of cryptocurrency into fiat while ensuring that the crypto exchange, the bank, and the government do not seize the money along the way.
During an interview at the North American Bitcoin Conference, a lawyer who asked us to use his first name only described what he does for a living.
“We help people protect their assets, both crypto, and fiat, and help them fill the gap in-between crypto and fiat, in terms of compliance, regulation, know your customer (KYC), and anti-money laundering (AML) protocols,” said Leo.
Leo said he helps people incorporate offshore while maintaining as much privacy as possible. Then this company can be used to open bank accounts to trade crypto on offshore exchanges, like Bitstamp, Bitfinex, Binance, and Huobi. Further, the corporations Leo helps to set up are not so simple. They use a multi-layer and multi-jurisdictional structure.
An example of this, according to Leo, is a Panamanian Foundation starts a Costa Rican Trust, the Costa Rican Trust is the beneficiary and manager of a corporation with a bank account “so when they try to sue you, they’ll never be able to find you.”
Essentially, lawyers like Leo push the envelope so that their clients can have access to offshore crypto exchanges while simultaneously not having to worry about legal backlash.
Apparently the situation is particularly tough for Americans since, no matter which country an American opens up an account in, the financial institution must report directly back to the Internal Revenue Service (IRS). This doubles the cost of compliance for financial institutions, partially explaining why most major crypto exchanges have banned Americans.
Leo says his specialization is much needed since people with lots of cryptocurrency eventually need to turn it into fiat, but regulatory problems can happen at both the crypto exchange and bank level. Leo describes how banks are generally ignorant of crypto, but simultaneously highly demanding of KYC/AML information, and Leo helps his clients navigate this process so they don’t end up losing their cryptocurrency.
Leo provides compliance departments with sensible explanations as to why clients have the money that they have.
“We kind of translate what happens in the crypto world into standard fiat transactions that bankers can wrap their heads around,” he said.
Leo said he has a lot of clients who are early adopters, and even for people with a tremendous amount of Bitcoin (BTC), Leo has techniques that can help them safely access their money while maintaining privacy, such as by using trusts and adding a fiduciary in the middle.
Accounting is one of the most critical aspects of this process, and Leo says he helps provide clients with sensible explanations regarding the origin of the funds and the reason they grew to the value they are now.
One of the key advantages of hiring a crypto lawyer is that the lawyer can talk directly with the compliance department, unlike the customer who simply receives a letter saying their money is frozen or their account is closed, oftentimes without an explanation.
“Compliance wants to know two things, and two things only,” he said. “The first one is you actually earned your money doing legal stuff, and the second one is that having you as a customer is not going to create a problem.”
Leo said compliance departments often shut down accounts preemptively out of fear to ensure the safety of their institution.
An example that Leo gives is a bomb exploded in Bulgaria, and simultaneously a Bulgarian bank was revealed to have $1.7 billion from Venezuela, specifically from Nicolas Maduro and his people. When this information was leaked, the United States acted aggressively since it was a clear violation of the sanctions on Venezuela.
As a result, the entire Bulgarian system had a massive shutdown which led to a run on the banks. To this day, European citizens cannot form a Bulgarian corporation or open a Bulgarian bank account, and this has hurt the Bulgarian economy.
“One bad client can really hurt a financial institution,” he said. “Our job is to prove to compliance departments that you are not this one bad client… The vast majority of the time we are the solution that prevents you from having to deal with this headache.”
When asked if there are other lawyers like himself, Leo flatly said “yes” and pointed at the Grand Cayman booth a few feet away, where other crypto lawyers were standing.
“Having a great lawyer is very expensive,” he said. “But not having one is way more expensive.”
It’s clear that this is not a legal niche that is going away soon. In fact, crypto lawyers like Leo are becoming increasingly essential as the crypto space becomes more and more wealthy and the regulatory environment becomes harsher and more complex.