Cryptocurrencies, including Bitcoin, Ethereum, and their numerous counterparts, have long been not only an investment tool but also an important instrument for businesses worldwide. International companies, startups, and even individual entrepreneurs use cryptocurrencies for settlements. This allows them to significantly reduce transaction costs, shorten transfer times, and bypass the limitations of traditional financial systems. However, despite the obvious advantages, using cryptocurrencies for international payments involves several legal risks that could affect your business.
In this article, we will examine the main legal risks of using cryptocurrencies for international transactions and provide some tips on how to reduce them.
One of the biggest risks is the lack of unified global rules for the use of cryptocurrencies. Cryptocurrencies are regulated differently in various countries, and in some, they are even banned. Therefore, if your company works with partners in different countries, you must consider local laws, which can change very quickly.
One of the biggest legal risks for companies dealing with cryptocurrencies is related to Anti-Money Laundering (AML) and Know Your Customer (KYC) practices. Due to the anonymity of cryptocurrencies, they can be used for illicit transactions. This means that companies dealing with cryptocurrencies must implement procedures to identify their customers to avoid violations.
Failure to comply with AML and KYC requirements can lead to fines and even the suspension of business operations in international markets.
Another significant legal aspect is the high volatility of cryptocurrencies. The value of a cryptocurrency can fluctuate by several percentage points within a short period, which poses a major challenge for international settlements.
For example, if your business makes payments to suppliers in cryptocurrency, the risk of changes in the transaction amount due to price fluctuations is high. If the cryptocurrency’s value drops after the settlement, you could receive fewer goods or services than expected.
To mitigate such risks, some companies use stablecoins — cryptocurrencies pegged to stable currencies like the US dollar or the euro. This helps minimize risks related to volatility.
Tax authorities worldwide are paying increasing attention to cryptocurrencies. Since in many countries, cryptocurrencies are not recognized as traditional currencies, they are taxed differently. For example, in many jurisdictions, cryptocurrencies are treated as assets, and capital gains tax is due when they are sold.
This means that every international transaction involving cryptocurrencies may be subject to taxation, which significantly complicates accounting and reporting requirements. Failure to meet tax obligations could result in hefty fines and legal consequences.
Despite the anonymity and security offered by cryptocurrencies, transactions on the blockchain network cannot be disputed or canceled. This means that if an error or fraud occurs, it may be difficult to recover the funds.
For international settlements using cryptocurrencies, it’s important to take steps to ensure the security and fairness of every transaction. Interacting with verified counterparties, using smart contracts, and even insurance can help reduce the risks of fraud and errors.
Using cryptocurrencies for international transactions has many advantages but also involves several legal risks that must be taken into account. These include regulatory issues, AML and KYC challenges, currency risks, tax complications, and the inability to dispute transactions. To minimize these risks, it is important to comply with local legal requirements, ensure proper counterparty verification, and be prepared for cryptocurrency volatility.
Don't want to take risks? Let our experts help your company properly set up cryptocurrency use for international transactions. We will provide legal advice on how to comply with all regulations and minimize risks. Contact us today!
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Serhii Floreskul
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Violetta Loseva
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