The FTX bankruptcy estate management has expressed concerns about making payments to creditors in countries with ambiguous or restrictive cryptocurrency regulations.
On Wednesday, the FTX estate management filed a motion with the U.S. Bankruptcy Court for the District of Delaware, seeking authorization for the FTX Recovery Trust to freeze distributions to creditors in "potentially restricted foreign jurisdictions."
These jurisdictions—totaling 49 countries—have unclear or restrictive cryptocurrency laws, which may pose risks due to complex cross-border legal implications.
"The distributions made by the FTX Recovery Trust to jurisdictions that violate these legal restrictions may trigger fines and penalties, including personal liability for directors and senior executives, and/or criminal penalties including imprisonment," the document states.
As FTX creditors are spread across the globe, the bankruptcy estate management is taking steps to ensure compliance with local laws in each jurisdiction before issuing cryptocurrency distributions.
The estate management noted that while the regulatory requirements in the 49 identified countries vary, they generally prohibit individuals or entities from engaging in any activities related to digital assets, including cryptocurrency trading or distributing crypto-related proceeds to residents within these jurisdictions.
"For example, in the Macau region, 'financial institutions and non-bank payment institutions are explicitly prohibited by mainland authorities from providing services for these tokens and virtual currencies,'" the document points out.
The document adds that all listed countries are subject to similar restrictions, involving jurisdictions such as China, Egypt, Iran, Russia, Saudi Arabia, and Ukraine.
While emphasizing the potential restricted jurisdictions for distributions, the FTX estate management has not completely halted payments to the aforementioned countries.
Instead, it stated that the recovery trust is suspending distributions pending resolution and is prepared to clear some of these as the process progresses.
According to the FTX estate management, China accounts for 82% of the total value of affected claims in potentially restricted foreign jurisdictions.
Mainland China remains one of the most controversial jurisdictions regarding cryptocurrency, as regulators have repeatedly banned crypto trading but have not explicitly prohibited individuals from holding digital assets.
Neighboring jurisdictions like Hong Kong have taken a supportive stance on crypto, approving investment products such as derivatives and exchange-traded funds related to cryptocurrency.
"In order to provide clarity to the FTX Recovery Trust and its stakeholders, the FTX Recovery Trust has developed a restricted jurisdiction procedure to provide notice and resolve whether distributions will be made under the plan," the estate management stated, adding:
"While some in the community are outraged by the FTX estate management's approach to distributions in potentially restricted countries, others believe its position is reasonable."
"There remains significant legal uncertainty regarding token distributions in bankruptcy, and it does not surprise me that the FTX estate management may not make distributions in countries where such distributions could be illegal," Aaron Brogan, founder and executive attorney of Brogan Law, told Cointelegraph.
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Original article: “FTX Bankruptcy Estate Management Requests Court to Freeze Distribution Payments to 'Restricted' Countries”
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