Bitcoin Regulation

An interesting article offers this short overview of the legal hurdles to bitcoin’s acceptance

Legal Issues – Needless to say there are serious risks on further growth of bitcoin on account of the uncertain legal status of bitcoin as a financial tender type. Some jurisdictions have deemed bitcoin to be a commodity whereas others treat it as currency. Some countries have outlawed bitcoin altogether and treat the possession of bitcoin as a criminal activity.

At the time of writing the United States treats bitcoin as a commodity. Any agency involved in the transfer of bitcoin with fiat currencies comes under the purview of banking and money laundering laws and requires licensing in every state, thus there is a high entry bar for exchange activities. For consumers, the act of purchasing a commodity in bitcoin is a taxable event. This treatment certainly hinders wider adoption.

Regulators clearly see the bitcoin features of anonymity, decentralization and lack of a central control as detrimental to control. However, it is fair to assume that a complete ban on bitcoin would continue to take place only in totalitarian jurisdictions. In western countries, it is unlikely for governments to impose a categorical ban on bitcoin. It is more likely that tax reporting, VAT, etc. would be based on some kind of honor system. There are some successful examples of parallel currencies that are recognized as legal tenders. An example is the WIR franc developed in Switzerland in 1934 and still in use at this time.

The PACER Problem

The PACER system is supposed to provide better digital access to US federal court filings. But it is not working very well. The bottom line?

The bottom line is that fixing PACER is not a technological challenge, but a political one, and technology has yet to solve the problem of getting the politically powerful to focus on the right things at the same time.

The political challenge has to do with who is actually accountable for making our court systems more responsive to public needs. And let’s face it, a lot could be done to improve that responsiveness.

Lawyers and Legal Policy Debates

The recent dust up over corporate inversions raises an interesting side issue. The debate itself is whether US corporate tax policy should be changed. The side issue is who should be leading the debate.

I think we can agree that the debate should be led by the folks who can offer the best perspectives on what should be done over time. Ideally, that would include academics who have the time to gather data and expertise. And from the link, you see Harvard Law Professors playing this role. But it should also include practitioners who live with the day to day realities of how the corporate tax system works.

Here is the problem. Legal practitioners don’t think this way. They are more like intellectual plumbers than creative thinkers. And to be blunt, that greatly weakens the integrity of our global legal community. How to change this? It might start with re-thinking legal ethics. Lawyers should maintain their obligations to their clients. But they should also embrace obligations to strengthen the functioning of the legal system.

Will this happen? Not if lawyers get to decide what their role should be. But notice that while this might be obviously the case, it is not an ringing endorsement for building accountability of legal system performance to society.

European Law Firms Love Inversions

We have all heard about the crisis on the US southern border. We hear a bit less about the crisis on the US European border. This crisis is not about foreigners trying to get into the US. It is about US firms fleeing high US corporate tax rates. They are doing it via “inversions”, taking advantage of laws that enable them to move earnings overseas. And while the IRS and the Obama Administration in general may not like it, European law firms love it. Reuters reports that European firms are marketing themselves as inversion specialists. And there is competition between European countries to get more US companies to do inversions in their jurisdictions. So where is this headed? Good question.

Thinking about Litigation Alpha

First, you might ask, “what is Litigation Alpha?” Good question. I just found out the other day. It is a web platform that offers US court activity tracking services on a fee basis.  So you can monitor cases pending involving a given party or lawyer. Gaston Kroub wrote about it for “Above the Law” and his firm sponsored it.

My reaction: clients will need a lot more tracking than they used to and this type of service will grow.  Why is it needed? There are a bunch of reasons. But if this is needed, who will provide it? My guess is that law firms won’t take this on. They are too busy practicing law. We will need a new type of market player.

The Hague Arbitration Award Against Russia

A big news item today – the Permanent Court of Arbitration located in The Hague, has just awarded $50 billion to former shareholders of Yokus for their claims against the Russian government for expropriation. The award is roughly half of the original demand. Russian foreign minister Lavrov says Russia will appeal.  But there is a time bomb here  – interest on the judgment begins to accrue early next year. Indeed, it is not clear what appeal rights Russia has — if any. One source on court procedure sets forth

Awards are final and binding, and there is no right of appeal.

This generally means that mistakes of fact and law are not subject to further review. Well, that would make winning an appeal challenging.  A source said there may be some limited “technical grounds” for appeal to Dutch courts. These technical grounds are usually about jurisdiction, arbitrator misconduct —  these types of things and they rarely succeed. That doesn’t sound very promising for Russia, but we can expect Russia to make the arguments to the dutch courts at least to buy some time.

Looking down the road, it will be more interesting to see what Russia may do to make enforcement difficult. Equally interesting, assuming that Russia will not just pay up or settle, what steps will be taken to execute on the award. $50 billion represents a big collection case. And I imagine that more than one global collection firm would love a piece of this action.

According to Bloomberg,  Shearman & Sterling’s Emmanuel Gaillard is among the lawyers representing the shareholder group.  Shearman’s Yas Banefatemi is also a member of the team. Claudia Annacker, a partner with U.S. law firm Cleary Gottlieb Steen & Hamilton was among those who represented the Russian government.

This comment from the Bloomberg article  offered a few tidbits on the enforcement adventure that may be about to unfold

Russia will probably refuse to pay the damages, and seizing state assets abroad will be a difficult task, according to (former Yukos legal counselor Dmitry Golobov).

“Russia has the money to hire the best international lawyers, who won’t give up without a fight,” said Golobov by e-mail before the ruling was announced. “So the Yukos affair could easily go on for another 10 years.”

BTW, how many global collection specialists does your firm work with? Do you have a sense of how this market works? I will be following up on that here. Stay tuned. This matter may prove rather illuminating on how well private litigants are able to use the New York Convention to pursue assets located in diverse jurisdictions in enforcement proceedings against powerful defendants.

More on all of the above as news breaks. You can track this story in the “Russian arbitration award” category.

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