President Trump issued an Executive Order imposing economic sanction on the initial coin offering (“ICO“) by the Government of Venezuela, called the Petro coin (the “Petro ICO“).
The Executive Order makes it illegal to engage in transactions, dealings or financings in connection with the Petro ICO, which would include buying, selling, trading, marketing, listing or facilitating, in any way, the Petro ICO by any US person or any person in the US.
It is also illegal to attempt to violate the Petro ICO sanctions, as well as to conspire to violate the sanctions or to avoid or evade them (sanctions avoidance that occurs, for example, when money is moved through a secondary country to hide its illegal origin). Effectively, this means that any digital currency exchange in the world that has a bank account, is subject to the Petro ICO sanctions to the extent any of their funds transit through the US financial system.
World’s 1st Sanctions Against a Digital Currency
The economic sanctions against the Petro ICO are the first sanctions issued in the world against a digital currency.
The Petro ICO is concerning from a financial crime perspective for a number of other reasons:
- It’s the issuance of a securities without securities law considerations or disclosure to protect investors;
- It is represented to investors as allegedly backed by both oil and gold but is likely backed by neither and no evidence is provided as to that backing;
- It is available for sale to non-Venezuela citizens provided they pay in Euros, Yuan, Rubles and Turkish Lira;
- One can also buy the Petro ICO with Bitcoin, Ether and NEM. The digital currency NEM has its own controversy – it was allegedly the victim of theft from hacking. A reporting issuer company in Vancouver (e.g., a public company) issued a press release alleging that it had traced millions of dollars worth of that stolen NEM to a Vancouver digital currency exchange. But no law enforcement agency followed through, if true, to investigate or obtain the identity of the wallet holder, or to forfeit the assets as proceeds of crime. No Canadian digital currency exchange lists NEM for trading which means that the company that issued the press release had information in respect of the OTC trades of that exchange, which is only possible if the information is insider information or confidential information, which raises a number of other questions about disclosure of information as part of a possible investigation but it also confirms that in Vancouver, the Petro ICO may also be capable of being OTC traded in Vancouver at that unidentified exchange, to avoid US sanctions law;
- According to the Petro ICO White Paper, Venezuela has said the Petro coin is available all around the world (irrespective of sanctions law impediments); and
- Venezuela claims it has already sold over $5 billion worth of Petro coins to people in over 127 countries but it’s unclear how anyone will be able to hold them or cash out with sanctions in place. It also means that such sales were OTC which is problematic because OTC trades occur without visibility.
NEM Confirms that Venezuela Is Using its Blockchain
According to the Venezuelan government’s White Paper for the Petro ICO, NEM is the Blockchain it is using for the coin. NEM went so far as to publish on Twitter, hence confirm, that the Venezuelan government is using NEM for the Petro coin.
The official website for the Petro ICO is here.