This study describes criminal liability risks in crowdfunding activities, with regard to the EU legal framework and the national legal orders of Central and Eastern EU Member States. Crowdfunding, in fact, possesses specific profiles that all actors involved in crowdfunding projects should be aware of, in order to avoid phenomena of dangerous underestimation, and complete the picture of the legal risks inherent to crowdfunding activities for all actors involved in crowdfunding projects (platforms, promoters and supporters). The DT consists of four stages.

  • Identification of main areas of criminal liability risk in the EU legal context related to crowdfunding activities. The DT in particular focuses on: Fraud, money laundering, terrorist financing, and violation of reporting obligations.
  • Overview of national legislations and authorization systems tackling such risks in Central and Eastern EU Member States, with focus on already developed Italian regulation;
  • Identification of strong/weak points for international transfer possibilities;
  • Proposal for unifying rules.

Why is awareness of criminal risks important in crowdfunding?

– Identifying specific profiles in which offences may be perpetrated is useful and necessary to raise awareness among all actors involved in crowdfunding projects, to avoid phenomena of dangerous underestimation. Crowdfunding actors shall accurately weight the legal risks, including those of criminal liability, when they set up a crowdfunding business, or otherwise decide to participate in it.

– Understanding specific criminal risks linked to specific business activities represents also a necessary step for policy makers, at the EU as well as at national level, to implement effective regulation on a specific industry.

Which are the main risks of criminal liability in crowdfunding
activities?

In principle, several are the business-related situations in which criminal liability may emerge. Especially relevant are the risks of:

– Fraud, Money laundering, and Terrorist financing: in these cases crowdfunding does not constitute a characteristic element of the offence, but merely the mean, or the factual circumstance providing the context in which the crime may be perpetrated (as it could be for other economic businesses, such as credit, insurance activities). Nonetheless, such areas are particularly relevant as they represent the most common, or serious crimes which may be committed
through crowdfunding activities. The representativeness of this choice finds support in light of the Commission and the Financial Action Task Force (FATF)’s reports, and also in a comparative perspective, in light of the United States experience. Against this background, risks are assessed in the DT with regard to the crowdfunding actors (platforms, supporters, promoter)

– Violation of reporting obligations. This area represents a rather specific case of liability. Sanctions (also of criminal nature) for violating reporting obligations are only typical of systems in which certain entities (e.g. brokers, or credit institutions) are subject to forms of regulatory oversight. Even though cases in which similar reporting systems have been established for crowdfunding operators are currently rather limited in Central and Eastern EU Member States, this field represents both a significant burden for the actors already subject to such obligations, and a first regulatory basis for any policy maker wishing to set up forms of regulation for both criminal and civil law purposes. Against this background, risks are assessed in the DT with regard to the crowdfunding actors (platforms, supporters, promoter)

Which is the regulation applicable to crowdfunding activities in case of fraud, violation of reporting obligations, money laundering, and terrorist financing in the Central and Eastern EU Member States?

For each country in the project, the applicable regulation is indicated, with specific regard to the profiles of criminal liability applicable to legal persons.

Conclusion:

In light of the legal analysis it is possible to highlight the following with regard to the EU and the international legal sources, and the national legal frameworks analysed:

  • Weak points:
    • Lack of harmonised criminal law provisions, and legal uncertainty.
    • Uneven legal playing field in Anti Money Laundering and the Counter the Financing of Terrorism policy.
    • Generalized lack of reporting obligations.
    • Complete lack of EU/transnational supervision over non-profit organizations, including donation and reward-based crowdfunding.
  • Strong points:
  • Penetration of crowdfunding issues in the debate on the development of criminal law.
  • Availability of applicable legal models.
  • Increasing awareness in the public opinion and crowdfunding operators of the criminal risks.

Against this background, general proposals for unifying rules are included in the DT, to be further developed in DT 4.2.2, concerning practice, national and EU legal frameworks.

For the full research go to Preventing money laundry issues

References: 

Commission Staff Working Document Accompanying the document Report from the Commission to the European Parliament and to the Council on the assessment of the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border situations, Brussels, 26.6.2017 SWD(2017) 241 final, PART 2/2:  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017SC0241

FATF Report, Financing of Recruitment for Terrorist Purposes, January 2018

ESMA, Questions and Answers. Investment-based crowdfunding: money laundering/terrorist financing, 1 July 2015


FAQs:

What are the main criminal risks that might affect crowdfunding activities?

Which is the regulation applicable to crowdfunding activities in case of fraud, violation of reporting obligations, money laundering, and terrorist financing in the Central and Eastern European EU Member States?

What is the current state of the regulation in this field (strong and weak points)?

 

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