I've been diving deep into the actual text of the Frank Dodd Act lately. I've hit a huge snag with accessing swaps internationally as a retail trader, so I'm working on setting up my own international business entity.
Right now, I'm trying to figure out if I can stay a resident while being the manager or director of a Cayman LLC or something similar and trade through this entity with brokers outside the US that allow swaps but don’t work with American residents.
The tricky part is understanding what Dodd and Frank define as an eligible contract participant and how the IRS views a non-natural US person or entity. Plus, where do the swap registration exemptions come into play? There’s one possible route I could remain a US resident but operate internationally with a foreign entity, making sure no business activity happens in the States, with two non-natural 'persons' trading swaps together.
For tax reasons, I'd be viewed as a Controlled Foreign Corporation. The Trump tax cuts pretty much eliminated the tax-deferred structure for expats. But big companies set up 'non conduit affiliate' offices overseas owned by foreign partners, which lets them avoid some IRS and CFTC issues... I’m curious if I can just pay my taxes while being considered a non-natural entity for the CFTC’s purposes.
I saw Tone Vays recently said he’s renouncing his citizenship to trade leveraged Bitcoin. But honestly, I don’t think you need to go that far, right?
Upon the expiration of this definition on October 9, 2013, the U.S. person definition set forth in the Final Guidance will apply. The Final Guidance provides that the CFTC will interpret the term U.S. person generally to include, but not be limited to:
(i) any natural person who is a resident of the United States;
(ii) any estate of a decedent who was a resident of the United States at the time of death;
(iii) any corporation, partnership, limited liability company, business or other trust, association, joint-stock company, fund or any form of enterprise similar to any of the foregoing (other than an entity described in prongs (iv) or (v), below) (a legal entity), in each case that is organized or incorporated under the laws of a state or other jurisdiction in the United States or having its principal place of business in the United States;
(iv) any pension plan for the employees, officers or principals of a legal entity described in prong (iii), unless the pension plan is primarily for foreign employees of such entity;
(v) any trust governed by the laws of a state or other jurisdiction in the United States, if a court within the United States is able to exercise primary supervision over the administration of the trust;
(vi) any commodity pool, pooled account, investment fund, or other collective investment vehicle that is not described in prong (iii) and that is majority-owned by one or more persons described in prong (i), (ii), (iii), (iv), or (v), except any commodity pool, pooled account, investment fund, or other collective investment vehicle that is publicly offered only to non-U.S. persons and not offered to U.S. persons;
(vii) any legal entity (other than a limited liability company, limited liability partnership or similar entity where all of the owners of the entity have limited liability) that is directly or indirectly majority-owned by one or more persons described in prong (i), (ii), (iii), (iv), or (v) and in which such person(s) bears unlimited responsibility for the obligations and liabilities of the legal entity; and
(viii) any individual account or joint account (discretionary or not) where the beneficial owner (or one of the beneficial owners in the case of a joint account) is a person described in prong (i), (ii), (iii), (iv), (v), (vi), or (vii). [7]
If you want to trade on platforms like BitMEX or Deribit, you can't be a US citizen. It's a violation of their terms of service:
My reading is the same as yours regarding the CFTC definition of "US person." It doesn't appear to extend to citizens, only residents.
There may be some issues with your desire to remain an American resident, though. How exactly are you planning to engage in swaps? Regarding point (vi) if it applies, due diligence on your counterparties may be required to ensure you aren't engaging with US persons.
wow the tos on bitmex say that. That is surreal I almost wonder if they changed it. I could have sworn that it was a resident ban and not a citizen ban for like ages. Even the forex exchanges offshore don't always necessarily discriminate against citizens that are expats with foreign banks. wow. just wow.
I double checked with some guys and they said the UK/EU/AU won't accept foreign corporations owned by us citizens unless they have ECP status. But some international companies will (probably aren't suppose to). apparently even a individual person's LLC is an affiliate conduit or a subsidiary....yeah total crap.
I can't be the only one. There are probably thousands of thousands of traders from America using VPN. The real economic value is god only knows. Apparently they are oblivious to what's coming....
I guess bitmex and deribit aren't taking any chances so they banned citizens too....I swear they changed the wording because I don't remember that part at all.
i didn't realize it either but tbh i never read the fine print. they've been posting a warning at the top of all pages for ages now when you access bitmex from an american IP. it says "residents" but nothing about citizens. so this was news to me as well.
there are lots of american traders on bitmex, there's no doubt about that. i personally know nearly a dozen.
bitfinex allows some USA residents even without ECP status. if "established or organized outside of the United States or its territorial or insular possessions" then bitfinex may "at its sole discretion" allow you to trade there: https://support.bitfinex.com/hc/en-us/articles/115003461254-US-Residents-Frequently-Asked-Questions
but this is just margin trading and p2p lending. plus you'd have to use bitfinex (yuck) and leverage maxes out at 3.3x.
You do know that what they just prohibit are American citizens right? If I'm right there is no one prohibiting you to use their services under a corporation which is identified as a juridical entity, even if its owned by American citizens it's identity as a sole company exempts them from this kind of prohibitions. That's how corporation laws works and I think for you to have a more professional legal help you must ask for a real legal assistance in one of your local firms.