Thread by @finhstamsterdam

So, here's an update from the Netherlands on the (lack of) supervision by formal crypto supervisors DNB and AFM with repect to illegal operators in the Dutch market. It will be a bit long with referrals to Dutch items but I'll try to navigate you through Dutch and EU rules.

While non-EU operators of cryptoservices may make a business decision to wait for harmonised EU-license rules instead of registering on a state-by-state basis under the current AMLD5 legal regime, this could turn out to be a costly decision considering EU fair market rules.

In particular under Dutch rules, the consequence of not showing one's true colours -by not disclosing the lack of compliance with the EU and Dutch ruleset for cryptocompanies- will mean that quite realistically all illegally offered services to Dutch residents can be annulled.

However, both European and Dutch supervisory authorities lack the rigour and agressiveness of their US counterparts with respect to enforcing the crypto-registration rules to illegal (non-EU) operators. And most do overlook the important role of unfair market practices laws.

So if you bear with me, as this might become a big thread, I'll guide you through the jungle of relevant legislation. It's gonna be a long walk, but I have a nice classic tune for you lined up to accompany the read.

Enjoy Herbie Hancock.

open.spotify.com/album/108uNBYG…

Our journey starts with a practical burning problem. Serious scams channeled by scammers via the systems and services of not adequately registered crypto-providers. These not only duck administrative law but generally civil law liability as well, using a mix of legal arguments.

This week I was invited to explain the relevant rules of the game on a consumer-tv-show here in the Netherlands. Here was a case of a man and his wife being cleverly played by scammers, leading to a loss of 600.000 euro with funds moved via @coinbase

radar.avrotros.nl/uitzendingen/g…

Just by itself, this was a sickening scam but the victims had the guts to go public to explain their story to warn other people of these kinds of scams. And the guy in the story was the control-type. He had checked all relevant terms and conditions and such. But still scammed.

Now, this made me wonder. What do the terms and conditions of coinbase look like (you may want to read this mr @brian_armstrong). Because Coinbase has only last month received a registration in the Netherlands, while they should have one since end of 2020.

Ok, let's zoom in now. I see Coinbase Europe being registered at september 2022 for the exchange of virtual currency against fiat money (using the e-money entity) and Coinbase Custody for holding coins/virtual assets. But I don't find Coinbase Custody to be the contract entity.

So observation #1. Coinbase that has a registration in the Netherlands for storing virtual assets does not bind it's users to that legal entity, rendering their operation as a virtual asset storekeeper in the Netherlands still illegal as of today.
coinbase.com/legal/user_agr…

Now let's check out the contract further, as this contract may actually demonstrate a lack of professional diligence by coinbase. This term is borrowed by the way from the EU Directive on unfair business-to-consumer commercial practices in the EU.

eur-lex.europa.eu/legal-content/…

What strikes me is the lack of a date regarding the validity of the actual terms and conditions that are applied to EU residents in this contract. I can't see when this applies. Which is in contrast to normal practices applied by Paypal for example. Showing date of change.

Now let's take a closer look with respect to policy and terms update. These are quite interesting. Have a read here.

In essence Coinbase says: our contract terms may not be our true contract terms. Check out the truth yourself. Shifts liability fully in the process.

We see an anglo-saxon approach to contract law that doesn't work here in NL. Because if you won't committ to deliver services as promised on the website my immediate hunch is you're using a blacklisted condition. Little professional diligence here.

dutch-law.com/general-terms-…

Now I'm digressing to this clause as I want to see what Coinbase explains on itself on its own website. Coinbase will say: check out the truth itself, but that argument doesn't hold under Dutch law. It should adequetely inform. And that is relevant.

Let's have a closer look.

As a way of ducking responsibility and shifting blame, Coinbase lays out a risk disclaimer to consumers. That deserves credit, so well done !

But then it says there is no Irish legislation on crypto services at present. Huh? Like no AMLD5 implementation?

So I checked, are the Irish being lazy? I thought I'd seen Gemini Partners being entered into the Irish AMLD5 register this summer. And I had another look. Yep, law in place since April 2021. And no registration for Coinbase Europe or Coinbase Ireland.

Fixed the Coinbase terms.

As the website of Coinbase clearly states. You have to do your own research on what is the truth and reality. Well, we've now seen the use of a blacklisted consumer term under Dutch law and outdated+insufficient information on applicable legal regime and legality of the offering.

The EU directive mentioned earlier defines misleading actions as not representing the nature of your offering properly. I think we can fairly state that Coinbase ticks a couple of boxes there. To be fair: almost all non-registered other crypto-players in EU tick those as well.

I can see you reading this thread think: that's a bit of nitpicking. Are you saying that most non-EU registered providers of crypto might be misleading consumers? Think DYOR.

What's the big deal?

Well, liability under contract law is the big deal here.

The above contract terms check is literally 15 minutes of time required. It's not rocket science. Any supervisor could do it but even better: each customer can do it. That's what my remarks were in the Dutch tv programma Radar. Recall the guy that lost 600.000 euro's worth?

He was the kind of guy that spells out terms and conditions and as you have seen, those terms and conditions were inaccurate, had no date on them, contained a black list clause and shifted all liability away. But if he had read truthfull terms (as fixed) he would have stopped.

To wrap up the part on professional diligence: in the terms and conditions of Coinbase, we may also look at how they construct the role of other entities. There is something as a Coinbase Group described. But the 2 Coinbase entities in Ireland have separate liability.

If I look at the contract structure I see an effort by Coinbase to try and create some corporate mist, using Coinbase Group with unknown entities. But hey, doesn't matter, as the contract is not a contract with the Coinbase Group.

Fixed that for you as well @brian_armstrong

So where are my coins then, if I am a Dutch user?

Well, they are still with Coinbase Inc, Delaware. Which is not registered at DNB for provision of virtual asset custody services and thus technically still violating the Dutch laws.

Little professional diligence here.

Back to this weeks tv-programme on crypto-fraud. They asked me: should'nt the Dutch supervisors DNB and AFM be more prominent in ensuring compliance with Dutch law?

Well, perhaps, but you know what?

Administrative law may not only be relevant here. It's civil law and damages.

We have legal precedent here in the Netherlands where CFT-brokers from other countries (Cyprus etc) scammed people out of their money by applying unfair commercial practices. So the contract got annulled: all money back for consumer.

Have a look here: uitspraken.rechtspraak.nl/inziendocument…

There will be grades of nuances and grey colours when looking at contract terms and the role of illegal crypto-operators in Europe, but for the case of Coinbase I think it is evident that there are multiple violations of the EU fair practice rules. While operating illegally.

Now, in Europe we have implemented fair practices in different ways. In the Netherlands we have as a sanction that contracts will be annulled. However in other EU member states there are administrative fines for providers, as a consequence of violating fair disclosure rules.

So let's have a look at the Netherlands. Binance got fined >3M for being illegal in the Netherlands. They still don't have a registration and I can't see how they will ever get it because our laws contain a reputation test for the Ultimate Beneficiary Owner (@cz_binance).

We could also look at another example: E-toro. This is a relevant precedence which showed an example of a company small enough to be stopped operating by the Dutch supervisor as they did not comply with all rules at the right moment in time (end of 2020).

siliconcanals.com/news/startups/…

Now, another specific element: as the Dutch AMLD5 law had a migration phase, there is legally no possibility for DNB to extend itself the period in which a registration should be gotten. So Coinbase, Binance, but also OK Coin were all illegal since end of 2020.

I could DDOS Twitter by listing all illegal operators in the Netherlands and Europe and their unfair practices since 2020 but I won't do it.

Let me just paraphrase.

'I have a truly marvelous demonstration of this proposition which this margin is too narrow to contain.'

So where does this get us?
1- All illegally operating crypto companies in EU are liable under civil law and vulnerable to paying fines/compensations for reason of not complying with the proper consumer disclosure rules in the EU

2- This needs adressing before MICAR enters here.

I respect that companies may want to make a business decision to willingly or unconsciously not comply with rules to consumer disclosure or company registration requirements.

They may only look at administrative law rules and the risk of being penalised by supervisors.

But if you choose to duck those rules you leave yourself open for civil damages that may be bigger than the administrative fines and that should also be part of your business decision.

So if you're sued by regulators or citizens, take responsibility and pay up.

We should respect that companies may make different choices with respect to their risk appetite for complying with local laws. But with each choice come consequences. Can't have your cake and eat it too.

So if you chose to gamble: you must be willing to pay the price or leave.

In this respect I look with interest at the public statements and actions demonstrated by Binance in the Netherlands and EU.

I see @cz_binance being aware that wrong ethical decisions come back to bite you.

In his case: stay out of NL or resign as UBO.

https://twitter.com/finhstamsterdam/status/1580505139709808640

For Europe we see some companies waiting for harmonized MICAR-rules and thus choosing not to comply with EU rules.

In a blog/open letter to Europe I proposed that such behaviour should come with a penalty, like being last in line for a MICAR-license.

moneyandpayments.simonl.org/2022/06/open-l…

But even more important/powerful is the European context of consumer laws on fair practices and its ramifications.

I can't grasp the legaltities of other countries, but for the Netherlands this may well mean frauds via illegals could be part of anullment rulings!

I expect @brian_armstrong to understand this and do the right thing.

So in the end, this couple that lost 600.000 euro via Coinbase could (should and will) get all their money back.

With that sunny outlook I wish all cryptoreaders and lawyers a good weekend.

#weekendreading

PS 1. Thread was inspired by Freedom of Information request of 2000plus pages clearing up the rules as to when companies offer service in the Netherlands.

threadreaderapp.com/thread/1576929…

PS 2. The intention and act of servicing consumers in the Netherlands are well demonstrated of course, but just to clarify and be complete (and to save Coinbase money otherwise spend on lawyers disputing the local activity) here's the ticket.

help.coinbase.com/en/coinbase/tr…

PS 3. It does have the looks as if Binance is getting nearer to a registration every day as we see CZ cycling on a bakfiets and Binance now publishing this on Linkedin. Like: demo-ing that in Amsterdam, the Binance card is being used hits all buttons of illegal presence/focus.

PS 4. Card is available to everyone in EU since September 2020. This is a violation of Wwft precense and offering of services in the Netherlands. As the fine of 3M for Binance only pertains date until dec 2021, may we please see a next fine from december 2021 until today @DNB_NL

PS 5. Getting the tickets in order. Focus on the Netherlands and offering in the Netherlands.

Not stopped at all. Still ducking Dutch Wwft.

PS. 6. Binance is legally and technically, demonstrating its transgressions of the Dutch law (Wwft) on Linkedin while they could know it's an economic crime. So it's brave, audacious or has informal backing/condoning arrangements in NL already).

wetten.overheid.nl/BWBR0002063/20…

PS 7. Nope. Binance is not in our register. It's 100% illegal.

Ps 8. This is the relevant entry in our civil law code that says contract can undone if prior to contract unfair market practices were used/visible.

Paging all illegal crypto-companies in NL up their game in the Netherlands to an EU-compliant content of terms and conditions.

PS 9. Fair point.

Also: you are illegally operating in the Netherlands if you don't comply with Dutch law and don't stop/compensate the frauds that pass over your platform.

https://twitter.com/cz_binance/status/1586418335239241730

PS 10. I have a read-confirmation, that's always good.

PS 11. The charm-offensive of Binance in the Netherlands is till ongoing. See this podcast.

anchor.fm/techleapnl/epi…

As is the US oriented charm offensive by @coinbase and @brian_armstrong

https://twitter.com/brian_armstrong/status/1589956833472835585

PS xx. Coinbase has updated its terms. Too bad they didn't follow my proposed wording and still the disclosure is marginally better than the previous one.

See old and new.

Ps 13. 1,5 years too late Coinbase has its registration in Ireland arranged.

coinbase.com/blog/coinbase-…

PS 14. But their terms still suggest that there is no law for digital currencies in Ireland. Meaning these terms and conditions are really outdated, flawed and not up to standard.

PS 15. Kucoin being warned, still advertising in the Netherlands. Will be in for a nice fine, if Binance is the precedent. Let's estimate 3M.

PS 16. Gemini claiming to have en EA passport in Europe for crypto is only true for the payments part, but not for the crypto part. Why is that clarity missing?

This is misleading information, a break of Dutch law and contracts of Dutch customers with Gemini are thus void.

PS 17. Gemini offers contract terms for digital currency services in Dutch. While not having a registration as obliged under Dutch law.

Terms have some blacklisted conditions in them as to choice of jurisdiction.
gemini.com/legal/gdal-use…

PS 18. If I try and click on the list of acceptable jurisdictions in the Gemini terms, there is a remarkable page popping up.

Not sure if they understand the implications themselves but indeed I'd say. Gemini certainly has a problem. No proper disclosure and contract terms.

PS 19. Gemini already has a problem of course. Is being sued by many entities/investors and tries to sue DCG in the process.

coindesk.com/business/2022/…

PS 20. Coinbase New York, not doing enough in the area of compliance and such. Now settling for a 50M fine with a 50M investment in further compliance.

It confirms that if the outside structure and terms look weak, the inside most likely is as well.

dfs.ny.gov/system/files/d…