Considering an ICO? About AML/KYC Compliance Solutions

ICOs, also known as “token sales,” are relatively new fundraising phenomena used to launch new companies or fund a development project.

According to ICOStats, nearly $2.3 billion has been raised in 2017 in ICOs. This amount eclipses the amount of money raised by early stage venture capital (VC) funding for internet companies. This type of oversized growth is attracting the attention of folks on Sand Hill Road, but also regulators across the globe.

ICOs are similar in some ways to a crowdfunding campaign, but instead of offering a copy of a product like on Kickstarter, what is being offered are digital “tokens.” These tokens can take two forms: utility tokens or registered securities.

  • Utility Tokens: Companies issue “utility tokens” which are essentially digital coupons giving investors access to the features of a particular project starting at a later date. Tokens do not confer ownership, but they can be traded on the open market providing fast liquidity to those that desire it.
  • Securities:  In contrast to utility tokens, some ICOs are already being done as registered securities offerings. Most ICOs do not want to be considered a security because of the incumbent regulations, but many see a bright future with ICOs been categorized registered securities. This means the token offering may include equity or some form of an investment return.

In either case, more and more ICOs are considering voluntary compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for a variety of reasons. And that’s why we created this eBook: ICOs and Compliant Token Sales – A Best Practices Guide.  Get the full copy here:

In this post, we will arm you with the “Cliffs Notes” version of the guide and the 7 benefits of voluntary AML/KYC compliance.

1. Establish Credibility with Banks

Strong KYC during the token generating event will make it easier to work with banks and financial institutions to follow AML regulations. Voluntary compliance in a token sale seems to give a project a stamp of legitimacy. Many would-be regulators appear to be open to token sales as long as “know your customer” laws are obeyed.

2. Get Ahead of the Compliance Curve

Until the murky regulatory waters become a little clearer, it’s best to be transparent, especially when dealing with potential regulators. Because regulatory bodies in many large markets (e.g., US, Canada and the UK) are leaning towards classifying ICOs as securities, ICOs must be more proactive and comply with AML/KYC guidelines to operate in these markets.

3. Long Term Legitimacy

Any business that wants to succeed in the long run, and not just take the money and run, needs to understand the existing legal framework and ensure compliance. Legitimacy can be established by how well the initial crypto-asset and its governance contract are designed and protected.

4. Improved Public Perception

With all the current hype and excitement about ICOs, the lack of explicit regulations makes them a potential haven for fraudsters. The more your team communicates their overall plans, financial structure, use of funds, incentives, associated risks, and other details, the more the public can weigh the value of the offering.

5. Expanded Reach

Voluntary AML/KYC compliance may help issuing ICOs reach a larger audience and expand the number of jurisdictions in which they can participate. KYC and AML compliance lets you more easily reach investors in US, UK and Canada, albeit to a subset of “accredited investors.”

6. Post Funding Tracking

If you’ve opened up your ICO to U.S. investors, for example, you will need to think about how you can prevent them from selling your tokens in the first 12 months (if you raised under Regulation D). If you didn’t accept U.S. investors, how do you prevent them from buying your tokens in the future? By incorporating AML and KYC processes into your token sale, issuing ICOs can better track and communicate with its investors.

7. Avoid Regulatory Fines

In many jurisdictions, the regulatory bodies are levying heavy penalties if the ICO smells like a security because of money laundering concerns. As Jamal El-Hindi, acting FinCEN director, states, “We will hold accountable foreign-located money transmitters, including virtual currency exchangers that do business in the United States when they willfully violate U.S. AML laws.”

Complying with AML/KYC regulations – even if they are not currently mandated to do so—provides a broad range of advantages to the issuing company and its investors. That’s why forward-thinking issuing organizations are leveraging online identity verification during the token sale to:

  1. Verify and validate the investor’s identity
  2. Understand the investor’s profile, business and account activity
  3. Assess the potential for money laundering

As mature startups and existing businesses continue to explore ICOs, we expect more organizations will voluntarily comply with AML/KYC directives – not because they have to, but because it will better position their ICO, improve their credibility with banks and investors, expand their reach, and better protect their investors.

Blockchain and tokenization is emerging as one of the most powerful new technological and economic movements we’ve seen in decades and performing some basic due diligence will help ensure that ICOs remain a viable channel for early stage investment and evangelism.


When it comes to anti-money laundering, implementation of KYC for ICOs is critical. It aims to minimize the number of criminal acts and ensure the safety of token sales and cryptocurrency. Figuratively speaking, it’s a protective measure for ICО projects and their backers allowing them to run their business in a transparent way.

Take a deeper dive into the topic of ICOs and AML/KYC compliance with our latest eBook, ICOs and Compliant Token Sales – A Best Practices Guide.


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