Terra’s Do Kwon reportedly had millions of dollars in a Swiss-based Sygnum bank account. US officials want to take action. But complex jurisdictional issues arise with involvement from the Securities and Exchange Commission (SEC).
Swiss banks have a reputation for being a haven for investors and their strict privacy laws. While Swiss banking secrecy laws have been relaxed recently, the country’s banks are still known for their discretion and confidentiality. However, this reputation has also made Swiss banks a popular destination for those seeking to hide their assets, including funds acquired through illegal activities.
Terra and Sygnum
Regulators and prosecutors have faced difficulties in dealing with Swiss banks due to the complex nature of their operations and the strict privacy laws that govern them. Swiss banks typically have multiple subsidiaries and affiliated companies in different jurisdictions, making it difficult to trace the movement of funds and identify the individuals behind them.
The bank in question in the Terra and Do Kwon affair is Swiss-based Sygnum Bank, which offers custody, trading, and lending services for cryptocurrencies and other digital assets. It is one of several banks that operate in the rapidly growing crypto finance industry. While it is true that the bank holds billions of dollars in crypto assets, the bank is subject to Swiss banking laws and regulations, as well as international laws regarding anti-money laundering (AML) and counter-terrorist financing (CTF).
The Crypto Connection
Regulators have recognized the unique challenges posed by crypto finance, including the difficulty of tracking the movement of funds and identifying the individuals behind them. However, there have been efforts to establish regulatory frameworks and guidelines for the industry and ensure that it does not abet financial crimes.
Seoul prosecutors suspect that Terraform Labs and its co-founder, Do Kwon, still possess a great deal of money. A Swiss bank account held some 130 billion won ($100 million). This comes after recent legal action against ten associates of Terraform Labs. Including co-founder Shin Hyun-Seong, also known as Daniel Shin. On the other hand, Do Kwon, now under arrest over forged documents in Montenegro, was the alleged orchestrator in the $60 billion implosion of the Terra stablecoin and the collapse of its LUNA token.
South Korean prosecutors and the SEC see a Swiss bank account connection. According to a local journalist, following the February 16 indictment of Terraform Labs, Do Kwon and his associates allegedly transferred 10,000 bitcoin (BTC) to Sygnum Bank.
The Seoul Southern District Prosecutor’s Office has been closely monitoring the movement of Terra-linked Bitcoin and revealed this information during a press conference discussing the indictment.
However, lawyers representing Do Kwon argued that the SEC violated the law with its actions against the company and the bank. And asserted that American regulators acted outside their jurisdiction in the Terra case.
Identifying the Problems
When the SEC takes action against a bank registered in a foreign country. Several jurisdictional issues may arise, as in Terra’s case. These issues can complicate the legal process and make it difficult for the SEC to pursue its actions.
One of the jurisdictional issues is which country has authority over the bank in question. This can be particularly tricky if the bank operates in multiple countries or its activities cross international borders. In such cases, the SEC may need to work with other regulatory bodies, such as those in the bank’s home country, to coordinate its actions and ensure that its efforts do not conflict with those of other regulators.
A related issue is determining which laws and regulations govern the bank’s activities. This can be highly complicated if the bank is subject to different regulatory regimes in other countries. For example, a bank registered in a foreign country may be subject to US securities laws if it sells securities to US investors. Even if it is not registered with the SEC. At the same time, the bank is subject to the laws of its home country.
Another complex question is whether activities that are legal at home violate laws or regulations in other countries. For example, the bank may comply with the rules and regulations of its home country. Still, it may violate US securities laws if it sells securities to US investors without proper registration or disclosure. In such cases, the SEC may need to work with foreign regulators to figure out what actions to take.
World’s Financial Cop?
Additionally, what determines whether the SEC can bring an action against the bank? This may depend on the bank’s connections to the United States. Such as whether it has a physical presence there, and has done transactions with US investors. Or has engaged in other activities that could subject it to US jurisdiction. In some cases, the SEC may need to establish jurisdiction over the bank through legal proceedings in US courts.
Finally, the SEC may need to consider the potential impact of its actions on other countries and their regulatory regimes. For example, if the SEC takes action against a bank registered in a foreign country, that country may respond against US banks operating within its borders. This could lead to a tit-for-tat escalation of regulatory actions, ultimately harming the global financial system.
To address these jurisdictional issues, the SEC may need to work closely with foreign regulators and other stakeholders to coordinate its actions and ensure that its efforts are effective and appropriate. This may involve formal agreements and protocols for sharing information. Coordinating enforcement actions, and engaging in ongoing dialogue and cooperation with foreign regulators.
Playing the Global Hunting Game
The SEC takes a firm stance against foreign companies and individuals that violate US securities laws. Including companies listed on US stock exchanges or that issue securities to US investors. See Section 21(a)(2).
The agency has taken an increasingly active role in enforcing US securities laws globally in recent years. This has included pursuing cases against foreign companies that engage in fraudulent or manipulative activities. Further impacting US investors, individuals, and companies that violate US sanctions or engage in other forms of financial misconduct.
Critics have accused the SEC of acting as the “world’s financial cop.” Further overstepping its authority by pursuing cases that do not directly involve US investors or companies. They argue this can create tension with other countries and their regulatory agencies. This then leads to conflicts over jurisdiction and sovereignty.
Proponents of the SEC’s global enforcement efforts argue that they are necessary to protect US investors and ensure the integrity of the US financial system. They point out that financial misconduct often involves complex international transactions. Also, networks and that cooperation between regulatory agencies in different countries is necessary to combat these activities effectively.
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