Making cryptocurrency less cryptic: A look into an employer's obligations regarding the use of cryptocurrency at work or on work systems – transcript
The following is a transcript of an interview with Phil Trinca, Partner and Jennie Mansfield, Partner, conducted by Julie Mills, Head of Workplace Learning.
Hello and welcome to the Australian episode of our March 2018 Ashurst Employment World@Work podcast series. I'm Julie Mills. I head up our Workplace Learning practice and I'm an Expertise Counsel based in our Sydney Employment group.
Now in this episode we're looking at cryptocurrencies and particularly issues that employers may want to consider when they're looking at employee involvement with these things either at work or on work systems.
Now it's obviously very topical at the moment, particularly given the lack of regulation in this area, obviously in contrast to the fairly heavy regulation over traditional currencies and banks.
Now to help us consider these issues I'm joined by Phil Trinca, a partner in our Financial Regulation practice in Melbourne, and Jennie Mansfield, a partner in our Employment group in Sydney.
So Phil, if we start with you, what is cryptocurrency?
Phil: Yes, thank you. Look, cryptocurrency is just essentially an electronic token and the beauty of the token is that it's backed up by a distributive ledger which keeps track of all of the tokens that have been issued and facilitates the peer to peer exchange of the tokens between two different people. So, essentially you're buying an electronic asset and the value of it is going to be determined by how many other people want it. That in turn is determined by how you can use it and how many tokens there are, or will be, issued. So it's a supply and demand type of thing. It is essentially electronic. It has no physical reality and so it's entirely a whimsical thing and depends on what people think it's useful for and can be used for.
Wow, that's a selling point, isn't it? A whimsical thing. So if it's whimsical, is it legal, Phil?
Phil: It's entirely legal and not only that, it's largely anonymous. So people who are not engaged in legal activities use it and are keen to use it and one of the issues with cryptocurrencies is that they facilitate criminal activity because it's hard to trace who the owners are, or often impossible, and where the money is or where the cryptocurrency is.
So it's legal to use it but, by the sound of it, it's being used for potentially illegal purposes. Is it regulated?
Phil: It's not regulated, by and large, so it's not considered a financial product. It's very hard to regulate because it doesn't exist in a particular jurisdiction and it doesn't have a physical presence. So it exists as a record on a large number of computers or computer servers all around the world. So, to the extent it gets regulated, it's more at the taxation level and to a lesser extent and more recently, at the anti-money laundering level. So in Australia now we have new laws to apply identification requirements to people who are buying or selling cryptocurrencies through an exchange and we have capital gains tax potential for people who make a profit buying and selling cryptocurrency.
And are there plans to try and increase the level of regulation of cryptocurrencies?
Phil: Not really. It's an issue that's exercising minds all around the world. The difficulty is how do you regulate it if you don't control it and you don't know who owns it and there isn't a company or anything else that is running it. So it operates autonomously, it's essentially a set of computer programs and so it's very hard to regulate. All you can do is regulate the people that are involved in it when you know that they're involved in it and that's not necessarily easy.
And I've read lately that, at least in Australia, some professional firms or professional services firms have said that they're accepting payment in Bitcoin. How does that work given the whole anonymity situation?
Phil: Well, if you're willing to receive Bitcoin or another cryptocurrency, then someone can pay you in that currency. There was a well-publicised person in New South Wales who said they were willing to sell their house for Bitcoin. The problem is, you get the Bitcoin but the Bitcoin is fluctuating quite dramatically. You know, just this year it's gone to 21,000 then back down to 10,000. So if you get some Bitcoin then you have to decide very quickly: do you want to sell it and turn it into real money, or do you want to hold it as an investment and manage the currency fluctuation exchange risk on it? So that's one way in which Bitcoin can be used or cryptocurrency can be used.
There are also products which allow you to use a Bitcoin to pay something in a real currency and that would involve someone providing an exchange medium in the middle. So, for example, you could have a credit card that spent your Bitcoin currency but as part of the transaction process there's a conversion to Australian dollars which then go to the merchant who's accepting the transaction. So there are lots of different ways that you can spend them. And, finally, you can spend them in the software world. So you can buy into ventures or initial coin offerings or whatever using cryptocurrencies. So you can go and buy digital assets online using a digital token or a cryptocurrency.
And just going back to the example you gave of the credit card with Bitcoin, converting to Australian or to the currency at the time of the payment, does the merchant know they're being paid in Bitcoin or it started as Bitcoin before they, or at the time they, get paid?
Phil: No, in that example they don't. They simply receive payment from their own bank in the right currency. So the exchange with the Bitcoin is happening off-set if you like.
So the risk is sitting with the person who's making the payment as opposed to the person who's receiving the payment, in terms of the fluctuating value?
Phil: Well the risk is in various places. So as the owner of the Bitcoin you are trusting the person that's making the exchange to do that and to put the money into the banking system to enable the transaction to be paid through the credit card payment network.
And Phil are you aware of anyone paying employees in Bitcoin?
Phil: I'm not and you'd need to be a fairly game employee to accept it because of the currency fluctuation risk that I've mentioned.
And I think there's probably, Jennie, a few other legal issues in paying in Bitcoin aren't there?
Jennie: Yes, look, I think that last one that Phil's raised is fraught with danger and I'm not sure that many employees would like to take that currency fluctuation risk. There's also the risk for the employer, even if contractually they pulled off an agreement about that, I think it's fraught with danger from particularly an award compliance point of view.
But there are a range of other risks I think that employers need to think about and, of course, although there is a lot of publicity and excitement about Bitcoin and other cryptocurrencies, I don't think there's a universal level of understanding about them and how they could impact in the workplace. But the sorts of issues that our clients are grappling with are: Are employees using their working time or company systems inappropriately to trade personally in cryptocurrencies?
That sort of issue is exacerbated where an entrepreneurial employee is operating themselves as a cryptocurrency trader, perhaps setting up an exchange, trading on behalf of clients who could be also clients of the employer. There are concerns about whether employees are complying with laws when they engage in trading and then there's the potential reputational risk if it goes spectacularly wrong and the cryptocurrency bubble bursts.
So I guess, Jennie, in a lot of ways there are the same legal and HR issues, it's just applying them in a new context?
Jennie: Yes Julie, I think that's very insightful. These are exactly the same sorts of issues that have come up as technologies have developed over time. And the sorts of policies that employers have in place should respond adequately as long as they're reviewed, refreshed appropriately, and people have thought through whether they still are expressed in a way that's relevant to these new technologies.
So which particular policies, Jennie, do you think employers should be having another look at?
Jennie: Well, in a financial institution I think trading policies are worth having another look at, just to deal with the question of cryptocurrency trading and what the expectation is of employees who want to undertake that on their own account. Related to that, conflict of interest policies need to be pretty clear about what an employee's duty is if they're conducting business on their own account. And, of course, that doesn't just apply to a business with cryptocurrencies, that could be anything that they're doing, particularly if it touches on other customer relationships.
So I think those, particularly those conflict of interest disclosure type policies, are ones that employers need to refresh and think about again.
A lot of clients, Jennie, don't they have conflict of interest clauses in their contracts as well? So it might be worth just double checking those clauses?
Jennie: That's right. The obligation on the employee might be a policy based one, it might be a contractual one, but it is worth making sure that it's responding to the current environment where employees are exploring these exciting new opportunities to make a lot of money or at least make a lot of cryptocurrency.
And I guess there's also a definitional issue in terms of what a "business" means because if an employer requires someone to disclose a "business", someone doing a frolic in the cryptocurrency world may not see that as a "business". So there may need to be greater education and training around what is captured within those terms do you think?
Jennie: Yes, I think "business" is probably too limited a term in a conflicts policy. It really needs to look at activities that may be in conflict with the activities or interests of the employing entity. And then more general policies and employment obligations like the duty to spend your time on the business of your employer and duties not to use your employer's systems to pursue your personal activities probably extend to these sorts of cryptocurrency activities, whether or not those are spelled out specifically in the documentation.
Yes, I think that the use of systems is an interesting one. Phil, we might come back to you for this one. I've heard that cryptocurrency mining activity can use up a lot of data and a lot of power. Is that something that employers would be able to see in terms of a sudden change of volume of usage on their network?
Phil: I think you need so much electricity that it's very unlikely that anyone would be doing cryptocurrency mining on your work computer. Those days are largely past and the mining that goes on is getting closer to making aluminium in terms of the amount of electricity that's used. So the concern, I think, is not so much that people are using work systems to mine cryptocurrency unless you happen to have a very large power bill and someone's syphoning some off somewhere. The concern is more likely to be in the areas that Jennie was talking about which is, if you have employees providing financial advice, for example, to someone and they're spreading their wings and doing some cryptocurrency for themselves or themselves and their friends, then the barrier between what they're doing privately and what they're doing as an employee can start to weaken and then that gets further muddied as well if the money that's being used for the private activity is flowing through, for example, a bank account of the employer or a bank account held with the employer. So, if it was a bank employee in one of the wealth businesses, there's millions of dollars flowing through the account and even if that's only limited to a few people that are flipping transactions very regularly, it would be a sign to the employer that something's going on and needs to be investigated.
Okay, so it's not so much the use of the network, it's more the accounts. And then I guess also probably, Jennie, back to just the common indicators of performance or lack of performance in terms of what to look for when trying to monitor if there are issues in the cryptocurrency usage space at work?
Jennie: Yes, I think that's right. The sort of issues that have come up with employers that Phil and I have talked to about this are: How do you know that an employee is not dedicating a significant amount of their time during the working day to checking accounts and to conducting transactions? And that's not always detectable on the work system. If the person is using the work system, obviously that's a breach in itself, but harder to detect if they're doing that on a separate personal device. And really we enter into that grey area that employment lawyers love to hate about where does the work and private sphere morph into a grey area. It's very hard to detect, I think, that that's what somebody's up to if they're not using the work system.
Or I guess if they're not on work time. Is that the other one?
Jennie: Well, yes. Look, a lot of this activity you would expect is taking place outside working time but the sort of implications that Phil mentioned do have an impact on the working relationship, potentially on customer relationships, and that comes back to that reputational risk point. What happens if that cryptocurrency bubble bursts and you have a number of extremely annoyed customers who don't really distinguish between the personal activities of the employee and the ones they were conducting on behalf of the financial institution. There may not be any legal liability for the employer but it's very, very awkward from a customer relationship point of view.
So, Jennie, do you think these issues are primarily limited to employers in the financial services sector given, obviously, the issues we're dealing with?
Jennie: Look, I think they come up there most often because employees in that industry are very interested, they've got the skills and the knowledge and the banks are the ones who are detecting the sort of activity that Phil mentioned with trades washing through trading accounts. I think the issues can come up for any employer who finds themselves with an employee who is spending a lot of time and effort pursuing their career in cryptocurrency trading instead of doing their day job.
Phil: There's another sort of wider issue as well which is for businesses that are tempted to think that they might accept cryptocurrency as a payment, then one of the challenges for them will be to ensure, as best they can, that they're not dealing with proceeds of crime and because the cryptocurrencies are used to facilitate crime or pay for crime, and it's not money that's washing through the system that is fully regulated, then that presents a bigger challenge for someone who's deciding to take cryptocurrency especially from someone they don't know well.
Yes, the whole proceeds of crime thing really sends a shiver down your spine, doesn't it?
Phil: Well it does. And the thing that I always remind my clients about when discussing this is that it's one of the few crimes that has a maximum penalty of life imprisonment. So, something to not lose sight of.
From an employer perspective, if you're not in that world and you don't understand it all, there's obviously a lot of issues to consider and prepare for. Jennie, Phil, any final comments?
Phil: I think that the thing is to accept it, understand it and keep on top of it. It's not actually as complicated as it first appears. It's just another form of asset, it's electronic, but it's similar in a way to if you were worrying 10 years ago about your employees being day traders, well it's probably in a similar category to that.
Jennie: Yes, I think that's a very comforting observation in a lot of ways. Although it seems very new economy and a little bit strange to many of us and we feel that we don't fully understand it, the usual employer responses to these sorts of issues are going to apply just as they did 10 years ago, 20 years ago, 50 years ago. So, we just need to make sure that we're keeping up with what's happening out there in the world of technology and that those common principles are being applied in a suitable way.
Alright, thank you. So it's a case of everything old is new again. Check your existing approaches work, your policies and your training is up to date.
Jennie: I think that's right Julie.
Thanks Jennie and thanks Phil for joining us today and for your thoughts on what is really an incredibly interesting issue.
This podcast is actually part of our four part series for our Ashurst Employment World@Work March 2018 edition. So, we hope you've got time to listen to the other three episodes from our Spanish, Singaporean and UK colleagues. We'd also love to hear any feedback you have about the podcast format and, of course, if you've got any questions, please feel free to get in touch with Jennie and Phil. So, thanks for listening for now and we hope you can join an Ashurst Talks podcast again soon. |
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