Constitutional Appeal Against South Korean ICO Ban Gains Traction

Journalist: April Cho, Editor: Tong Bee

In December of 2018, Seoul Economics Daily reportedthat Korean blockchain startup Presto filed a constitutional appeal against the South Korean government. The case called for amendments to the blanket ICO ban that has characterized the South Korean crypto regulatory environment since 2017. 

There have since been developments in the Presto case gaining the attention of those in South Korean crypto and legal circles. As the case nears, Presto spokespeople and government officials have publicly offered their stances on the case. 

Prestois a blockchain project that aims to provide a “total solution to development teams from website building to token issuing.” Rather than launching a traditional ICO, Presto launched a Decentralized Autonomous Organization-based Initial Coin Offering (DAICO). DAICOis a model for more responsible ICO fundraising proposed by Ethereum founder Buterin.  

Unlike traditional ICOs, the DAICO differs by allow for refunds should the investor change his or her mind about the legitimacy of their investment. The DAICO is a response to the widespread lack of accountability in the ICO fundraising process that had deteriorated trust in the cryptocurrency market. 

The South Korean government enacted a blanket regulatory ban on ICOs in September of 2017. Despite largely unsuccessful calls by government officials like Min Byung Dooand projects to legalize ICOs, ICOS have largely remained under strict regulatory scrutiny in the Asian country. South Korea has yet to find a compromise that government officials feel balances investor safety with the rights of blockchain projects that want to raise money. 

The DAICO, what Presto uses to raise money, is an investment framework that combines the benefits of Decentralized Autonomous Organizations with the flexibility of ICOs. It allows for ICO fundraising which focuses more on investor protections than traditional ICOs. Despite the key differences between DAICO and ICOs, Presto continues to face challenges when raising money with a DAICO due to South Korea’s blanket ICO ban.

In response what it deems to be an infringement upon constitutional rights, Presto filed an appeal against the government’s ICO regulatory ban. The company filed its case on the basis that the ICO ban was “against the rule of law and the principle of proportionality.” In this case, the court will have to make a judgment on whether a prohibition on the cryptographic monetary policy (ICO) indeed violates core principles of the Korean constitution.

In sum, Presto is asking the South Korean government to revise or overturn an ICO ban that has heavily regulated the crypto-sphere in Korea since 2017. Presto seems to base its legal grounds mostly on the idea that a blanket ICO ban is an infringement upon Korean citizens’ constitutional rights: namely, the people’s right to freedom of occupation, property, equal rights and scientists’ basic rights.

According to SEDailyPresto CEO Kang also suggests that the regulatory environment puts Korean crypto and blockchain projects at a debilitating disadvantage on the global stage: 

In this era of the Fourth Industrial Revolution and unbounded competition, one year or two in the science and technology community is comparable to 100 years in the past Industrial Revolution. Such unconstitutional and pre-modern measures as the ICO ban should not exist any longer”

Presto’s request for a constitute complaint has been approvedand will be considered on the basis of Korea’s constitutional legal system. The case has since continued to gain traction in blockchain communities and legal scholars alike,  because the issue has become more urgent in the context of South Korea’s rapidly rising trade volumethrough the last quarter of 2018.

The comments of Presto lawyer Gwangham Park suggest that Presto will legally frame the regulatory bans as a setback for Korea’s technological research and development writ large. He recently released statements about the status of the case: 

We have been referred to the trial court for the requirement and sent to the trial court. hope that this will be a chance to regulate the block chain of the future high technology…It is up to the Constitutional Court to open the future of Korea.

The Constitutional Court ruling on the Presto case, is important for two reasons. The first is the court statements will provide more regulatory guidance to similar projects looking for more regulatory guidance. Further, a favorable ruling also sets a legal precedent for other projects to challenge Korea’s draconian approach to ICO regulation.

The South Korean government officials will eventually have to reckon with the high levels of cryptocurrency trading with the restrictive bans on the activity. The high-profile Presto case, whether successful or not, is likely to push regulators to reconsider the current regulatory framework. Alternatives include a more comprehensive set of laws and guidelines that ensure bad actors are regulated, and regulations for investment protections and damage relief remain high. 

Amendments to the draconian South Korea regulatory environment seems to be less an question of whether and more a question of when and how. The government needs to agree on a strict regulatory frameworkthat sufficiently incorporates KYC and AML laws to protect Korean investors.  The Korean government has taken steps to the allow crypto exchanges to use traditional South Korean banks. Whether or not this happens with the Presto case will be determined in the next six months.