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Crypto Law/Level I · What crypto is in law/1.1 Why law reaches crypto/Lesson 4

Jurisdiction: whose law applies to a borderless coin

Why a network that runs everywhere still answers to particular countries, and how courts decide where a crypto transaction happens.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. For US citizens there is no zero-tax move without renouncing: worldwide income stays taxable, and covered expatriates face the §877A exit tax on unrealised gains. The lean route is holding over one year for the 2026 0% long-term rate, up to $49,450 taxable income single.
  2. Non-US persons can lawfully reach zero tax on long-held coins by residence: Germany exempts private sales held over one year (§23 EStG), Portugal gains on crypto held 365 days or more. Catch: genuine tax residency, and departure taxes in the country you leave.
  3. Switzerland generally leaves private investors’ crypto gains untaxed and the UAE has no personal income tax; both still levy or report something: Swiss cantonal wealth tax applies, and UAE platforms start CARF reporting of residency and activity, with international exchanges from 2028.
  4. Using a provider licensed where you live, such as a MiCA-authorised firm in the EU, costs no more and keeps a local regulator and court; foreign accounts still trigger FBAR or Form 8938 reporting for US persons once thresholds are crossed.

MaterialsMorrison v. National Australia Bank, 561 U.S. 247 (2010), the Supreme Court case on where US securities law reachesThe Second Circuit opinion in Williams v. Binance (No. 22-972, 8 March 2024)The US Justice Department’s press release on Binance’s guilty plea (21 November 2023)The terms of service of an exchange you use, open at the sections on the contracting entity, governing law and disputes

Wonder

  1. If a coin has no home country, whose law applies to it?
  2. Can a country punish an exchange that has no office there?
  3. Where does a trade ‘happen’ when the buyer, the seller and the servers are in different places?

Explore

  1. Jurisdiction is a country’s or state’s power to make rules for, judge, or enforce against a person or a transaction. A public blockchain runs on computers around the world, but law does not attach to the network itself. It attaches to people, companies, customers, bank accounts, servers and transactions, all of which are somewhere. The result is that several countries can claim the same activity at once: the one where you live, the one where the exchange is incorporated, and the one where its customers or computers are located. Being ‘borderless’ usually means more laws apply, not fewer.
  2. Serving a country’s residents is the most common link. On 21 November 2023 Binance, then the world’s largest crypto exchange, pleaded guilty in the United States to charges including Bank Secrecy Act violations, failing to register as a money transmitting business, and sanctions violations, and agreed to pay over $4 billion. The Justice Department said that between August 2017 and October 2022 US users made trillions of dollars of transactions on the platform. Treasury’s FinCEN imposed $3.4 billion and OFAC $968 million as part of the coordinated settlement. The Deputy Attorney General summed up the principle: ‘if you serve U.S. customers, you must obey U.S. law.’
  3. Courts also ask where a transaction takes place. In Morrison v. National Australia Bank, decided on 24 June 2010, the Supreme Court held that the main US anti-fraud provision for securities, section 10(b) of the Securities Exchange Act, does not reach every fraud with some US link. It covers securities listed on US exchanges and domestic transactions in other securities. Lower courts then asked where ‘irrevocable liability’ arose, meaning where the parties became bound to the deal, or where ownership passed. That test now decides many crypto cases.
  4. In Williams v. Binance, decided on 8 March 2024, US buyers of tokens sued Binance under US securities laws. Binance had described itself as operating ‘in a decentralized manner’ for users in more than 180 nations. The Second Circuit held that the buyers had plausibly alleged domestic transactions, because their orders were placed from the United States and matched on servers mostly located there, so the parties became bound in the US. It reversed the dismissal and sent the case back. This was a ruling at an early stage on the buyers’ allegations, not a final finding.
  5. Other countries apply their own tests. Tax usually follows where you are resident (lesson 7.2.6). The European Union requires crypto service providers serving EU clients to be authorised under MiCA, with a narrow exception when a client approaches a foreign firm on its own initiative (lesson 3.3.7). Courts in some countries have frozen crypto held by ‘persons unknown’ (lesson 9.3.5). Contract terms add another layer: exchange terms usually choose a governing law and a forum, often arbitration (lesson 9.3.2), which can decide where a customer may sue but cannot stop a regulator or prosecutor.
  6. A practical check for any service you use: open its terms and note the exact legal entity you contract with, the country where it is registered, the law chosen to govern the terms, and how disputes are handled. Then check whether that entity is licensed or registered where you live, using your regulator’s public register. If the entity, its licence and your home country do not line up, you may find that no local regulator supervises the business and that a dispute must be pursued abroad. Lesson 8.1.1 shows how US federal and state layers stack on top of this.

Key facts

  • On 21 November 2023 Binance pleaded guilty in the US to Bank Secrecy Act, unlicensed money transmission and sanctions-related charges and agreed to pay over $4 billion.
  • As part of the coordinated Binance settlement, FinCEN imposed $3.4 billion and OFAC $968 million.
  • Morrison v. National Australia Bank, 561 U.S. 247, was decided on 24 June 2010.
  • Morrison limits section 10(b) to securities listed on US exchanges and domestic transactions in other securities.
  • In Williams v. Binance (2d Cir., 8 March 2024) the court held that US buyers plausibly alleged domestic transactions because irrevocable liability attached in the United States.
  • The Williams v. Binance court relied on allegations that buyers’ orders were matched on servers mostly located in the United States.

Exercise nine, six, three, one

9CollectList up to 9 places connected to your own crypto activity, or to an example you know: where you live, where each service is registered, where its servers or staff are, and where the people you trade with are.
6ClusterSort them into 6 categories: your residence, your tax home, the service’s legal entity, its licences, its stated governing law, and places you are unsure about.
3DistillReduce the 6 categories to 3 groups: jurisdictions that clearly apply, jurisdictions that might apply, and gaps where no regulator seems to supervise.
1CrystallizeWrite 1 sentence explaining, in your own words, why a ‘borderless’ coin can be subject to the law of several countries at once.

Fact check

Dates, figures and claims checked against the published sources listed below.

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