Crypto on native land: special economic zones are the new casinos?

special economic zone usa crypto blockchain

Catawba Indian Nation in Rock Hill, South Carolina has established a new Special Economic Zone where the tribe will provide space and regulatory certainty for crypto and fintech companies.

It’s called the Catawba Digital Economic Zone, and the Catawba Corporation says it “can be prosperous thanks to the ability of Native-American Tribes under US law to have their own commercial code, regulation-making and administrative capacities.” Catawba is a sovereign jurisdiction under U.S. law, allowing it to built a regulatory framework that is friendly to fintech, blockchain, and crypto companies, says Ronnie Beck, CEO of Catawba Corporations.

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The closest similarity?

Estonia’s eResidency program.

In this episode of TechFirst we chat with the CEO of the Catawba Digital Economic Zone, Joseph McKinney, and Thomas Trimnal, a VP at Catawba Corporations. Our focus: what will the enable, who will come, and how will this generate value for both companies and the Catawba themselves.

Check out the story on Forbes here, or keep scrolling for full video, audio, and a transcript …

Watch our chat

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TechFirst Podcast: special economic zones for crypto, blockchain inside U.S. territory

Transcript: Catawba Nation in South Carolina’s Green Earth Zone for crypto, blockchain, and fintech companies

(This transcript has been lightly edited for length and clarity.)

John Koetsier: Could the future of crypto digital assets and fintech be happening in Rock Hill, South Carolina? We’ve seen special economic zones in North America before. Native American tribes and nations who have built casinos, hotels, and other business ventures on their lands outside the purview of normal state or national law.

But what about crypto?

Typically we’ve seen blockchain and crypto regulatory innovation overseas in places like Malta or Bermuda or Puerto Rico … something about islands and crypto. Now the Catawba Indian Nation in South Carolina is creating a special economic zone for crypto, and that could change a lot for crypto startups in the U.S. Here to chat is the CEO, Joseph McKinney, and Thomas Trimnal, the VP of Catawba Corporations. Welcome to both of you.

Joseph McKinney: Thanks for having us on, John.

Thomas Trimnal: Thank you.

John: Excellent. Let me start with you, Joseph. I’ll bring you in here. What are you building?

Joseph: So, what the Catawba are building is a special economic zone. And for your viewers who do not know, a special economic zone is an area within the host government that has different laws or legal codes and regulations that make it attractive for businesses to relocate there. And traditionally that has been done physically, you usually set up an office or some sort of a physical building within that zone. But with the zone that the Catawba are building here, what they need to do is register virtually to set up a company. And by doing that, they get to enjoy the legal codes and regulations of that special economic zone.

John: That makes a ton of sense. What does it enable that typical U.S. regulation doesn’t?

Joseph: Well, for one, clarity. The big thing in the crypto market right now isn’t necessarily deregulation. In fact, deregulation is very harmful to business and for consumers alike. What is the most necessary thing right now is just to clarify, what are digital assets? What is Web 3.0 under existing law? You don’t have to create a whole new, crazy framework like Malta that becomes even more bureaucratic and just doesn’t make sense. Just simply subsuming it under existing law. So that’s core number one, having legal stability, which is what businesses want.

John: Really interesting. Let me bring in Thomas here a moment, and, Thomas, you’re with the nation. Why are you doing this? What’s attractive to you about this?

Thomas: Well, there’s a lot of things that’s really nice. First of all, it kind of puts the tribe on the cutting edge. It gives a smaller reservation, a smaller set of people that chance to excel in a financial way, meaning that we can attract a lot of jobs. We can attract a lot of money. We see this as a venture that’s going to attract people from all around the world. I mean, everywhere in the world, specifically in places that I frequent, like the east. There’s so many places in Asia that people don’t have such favorable climates for this type of situation, shall we say. And this could be a safe harbor for them.

John: That is really interesting because, as Joseph mentioned, the regulations have changed significantly over time, and it’s not always clear from time to time even where the U.S. government sits on this stuff. So, maybe, Joseph, we’ll bring you in for a moment here. You know, how do you see companies, individuals coming to you and starting?

Joseph: Well, the beautiful thing is that we’re trying to make it as easy as possible. And like I mentioned before, the core way of doing so is to set up a legal entity within a special economic zone. And to do that, we have a easy-to-use digital platform. It’s similar to Estonia’s e-Residency. You use this platform, you set up a legal company, put people on your cap table, set up bylaws, etc. Then you have a legal entity just like you would in Delaware or anywhere else, except for this way, you don’t have to fax things or mail things and go through a laborious process. It’s something you do online.

John: So, Thomas, it’s understandable when we see that a nation puts a casino on their property or a hotel or other development, and you actually have other economic things that the Catawba Nation is doing as well — construction, other things like that — where you can see that’s how the nation, that’s how the tribe will make money from this. How will the Catawba Nation benefit from this?

Thomas: Well, there’s a number of revenue streams that we can benefit from. It took a little bit of doing to get the people as a whole to wrap their head around this, but it came across very quickly in the minds of most of the Catawbas. They embraced it. I mean, it was a landslide for the general council to vote this and approve this in. But some of the older people that don’t quite understand things, you know, you always have a couple of people. But as a whole, we have a lot of people in our tribe that are very young. So they’re very excited about this opportunity, not just from jobs, but the opportunity to just participate in something that is high tech. We have a lot of individuals that want to have careers in this space and already have careers, so that gives them an opportunity to do this remotely as well.

John: Joseph, how difficult is this to set up? You mentioned Malta off the top of your head. And I talked about Bermuda where they’ve done a lot of fintech over the decades, in fact, and have built a lot of regulatory environment as well around crypto. What does this entail? This sounds like a pretty challenging thing to set up for one particular Indian nation anywhere in the States, especially a smaller nation.

Joseph: So ultimately what is necessary to set up a special economic zone, at least initially, is a legal framework, usually implemented by a legislator. Simply saying that this area has its own regulations, it has different legal codes than the rest of the area. And anytime that you pass legislation that has its own difficulties, but like Tom mentioned, ultimately you just align with those stakeholders. You talk to those stakeholders. And ultimately the beautiful thing about this project is the more we talk about it, the more excited and interested they are, and they realize what a good idea it is. So that’s not particularly difficult, in the long run, all things considered. I mean, obviously, any type of venture that involves multiple people is always going to be a little bit difficult, but the Catawba are fantastic partners and understand this project.

And the next step is just setting up a regulatory body, which we’re in the process of doing right now. And that’s the same thing as hiring of any large organization and being able to have policy handbooks to govern that, according to best practices that are set across a special economic zone space.

John: Now, as I understand it, you’re in the launch phase right now. Perhaps as early as March, you’ll be able to kick off. What will people be able to build? What will they be able to do?

Joseph: Well, like I said, the main focus of these companies is to establish under existing law. We will be issuing some regulations in the future after the zone authority is created. That puts some clarity about where specific things in finance, how that fits with digital assets in regard to banking or securities laws, and what have you. So they’ll be able to build upon financial services related to that or insurance. Now, that’s our initial focus, but the beautiful thing about this platform is it can be and should be as general as any other company incorporation jurisdiction like Delaware. And that’s where our goal is. We have our initial market, we’re focusing on digital assets because we have the ability to make best-in-class regulations in that realm, but the goal is to be the best place for doing business online.

John: Now, we’ve seen the crypto community from the U.S. move… so many of them have moved to Puerto Rico because there’s favorable legislation there, there’s favorable taxation there, right? They can earn crypto and sell it and not pay tax on that. So I can’t tell you how many people I know that have mysteriously moved to Puerto Rico over the past three years or whatever. What is the taxation environment as you build a business — maybe a Web3 business, maybe an NFT business, maybe a crypto business, whatever it might be — in this special economic zone, does it just fall within South Carolina, U.S. law? How does it work?

Joseph: So, one thing to note about this, this isn’t a tax play. This is a play about regulations and legal codes. And, you know, Puerto Rico, that’s fantastic for that. In fact, this isn’t a competitive project for that, it’s collaborative. Puerto Rico is great for natural persons who are trying to reduce their tax load. So they go and move there for a reduced tax treatment on the federal level. So what we’re actually recommending to people is to move to Puerto Rico but have your business registered within the Catawba special economic zone so you could benefit from the jurisdictional arbitrage, while when you’re in Puerto Rico, you’re benefiting from your personal income and capital gains arbitrage.

John: Interesting. Very interesting. You mentioned rules and some boundaries earlier. What will not be allowed? Do you have any idea of that yet?

Joseph: Well, anything that is not allowed by federal law, explicitly that is not allowed, will not be allowed. And we will not allow any money laundering or anyone who’s associated with it. One core feature of our platform is that we provide way more compliance than other jurisdictions in terms of who can come into it. Delaware doesn’t have KYC and AML. In fact, it can be often very opaque, to say the least. Anyone who enters our platform has to do KYC and AML before they enter it. So those things would be moved right at the get-go.

John: For most in the crypto world, they know KYC is Know Your Customer and AML is Anti-Money Laundering. Both very, very big things going on right now. Let’s bring Thomas back in here. And you talked about it a little bit. You talked about the youth, you talked about the young people who are already experimenting with crypto building businesses there. What does this mean for your people and your nation?

Thomas: Well, I think it’s not just our nation. There’s actually a fair amount of tribal activity around the country that are actually speaking with us as well, they want to get in this space through Catawba. And there’s a lot more than just the crypto space. There’s the financial aspects of… I mean, I think as a business owner myself, it’s not always just about the taxes. This is not a tax haven. This is a safe haven. This is where if you’re a business you want to be around for a long time and do well for a long stretch of time. This is the place to be, because we can fundamentally move and be agile as a market, and as the laws need to change we can do that quicker than, say, a state. So if you have a state who’s been working on us or even a larger tribe that may be working in this space, it’s a small group of people that can, you know, we can turn on a dime and make things more attractive and better for our customer base.

John: It’s quite interesting what you just said there because, at the beginning of what you were just saying, you seem to imply that other Indian nations can come to you and do their own projects perhaps through your special economic zone. Is that correct?

Thomas: Absolutely. Yeah. We invite that. Absolutely.

John: Wonderful. Joseph, I’ll bring you back in here and maybe look in the crystal ball a little bit over the next three to five years or so. What’s your vision? What do you see this becoming? What do you want it to be over the next three to five years?

Joseph: So, like I mentioned before, I think what the Catawba want is for this to be a dominant in digital assets in Web 3.0. So, the number one jurisdiction for registering companies for that sector. But in 7 to 10 years, I want it to at least take a huge chunk out of Delaware’s market for company registration or even to replace it as the gold standard. And I think those are all doable goals.

John: Wow. You do not have small goals. Thank you, gentlemen. Do appreciate your time.

Joseph: Of course. Thank you.

Thomas: Thank you very much.

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