MEMORANDUM

TO: Professor Emerson Bañez

FROM: John Daryl B. Yu
RE: Legality of Funding a Game through Initial Coin Offering in the Philippines
DATE: 21 December 2017

FACTS
A gaming software company in the Philippines wants to fund the development of its next
game through an Initial Coin Offering. It will sell Etherium-based tokens today, which can be
used to buy items and powerups in the game once it is shipped.
With the massive growth of cryptocurrency or virtual currency, such as Bitcoin and
Etherium, investors and consumers alike have started to use the new “global” currency for their
daily businesses. Given the unregulated environment and lesser transaction costs of using them,
people have found creative ways of using cryptocurrency for investments as well. An example
would be Initial Coin Offering (ICO).
Since the start of the rise of cryptocurrencies, ICOs also started to boom as a quick way
of acquiring capital for projects. With this boom come the rise of frauds disguised as a promising
project for people to fund and invest. Being in an unregulated global environment, it is very easy
for scammers to get away with it. This is the reason why Bangko Sentral ng Pilipinas has already
issued a circular in order to lessen these frauds while the Security and Exchange Commission is
also planning to step in and create regulations regarding ICOs and cryptocurrencies.

ISSUES
1. Whether or not a game development project funded by virtual currency is subject to
regulations by the Bangko Sentral ng Pilipinas (BSP).
2. Whether or not Initial Coin Offerings (ICO), is covered by the existing laws of the SEC

SHORT ANSWERS
 1. Yes. All virtual currency exchange services are subjerct to the rules and regulations of
the BSP.
2. No. Tokens issued during ICO are not yet considered as security.

DISCUSSION
The legal issues that can arise in an Initial Coin Offering is dependent on the type of
token that it sells. In order to know the applicable rules and regulations set out by SEC and BSP,
Whthe general nature of ICO and virtual currency shall be discussed.

Virtual Currency

As per the Bangko Sentral ng Pilipinas Circular No. 944, “VC refers to any type of digital
unit that is used as a medium of exchange or a form of digitally stored value created by
agreement within the community of VC users.”12 Furthermore, “VCs are not issued nor
guaranteed by any jurisdiction and do not have legal tender status”3 The Circular also clarified
that “digital units used solely within online gaming platforms and are not convertible to fiat
currency or real-world goods or services, digital units with stored value redeemable exclusively
in goods or services and limited to transactions in involving a defined merchant such as rewards
programs”4 is not classified as a virtual currency. This differentiates Etherium as a virtual
currency and Etherium-based tokens as not since the tokens are going to be used to buy in-game
items and powerups which are not easily convertible to fiat currency or “paper money”.

VC exchange service

The circular also refers VC exchange service as “the conversion or exchange of fiat
currency or other value into VC, or the conversion or exchange of VC into fiat currency or other
value.”5 The game development project, thus, should be treated as such through the Initial Coin

1
Bangko Sentral ng Pilipinas Circular No. 944 Series of 2017
2
Some examples of virtual currencies are: Bitcoin, Litecoin and Ether, the virtual currency of Etherium.
3
Ibid.,
4
Ibid.,
5
Ibid.,
Offering since it will exchange Ether, the virtual currency of Etherium, for tokens to be used in-
game.
Earlier this year, the BSP issued Circular No. 994 which governs guidelines for virtual
currency exchanges in the Philippines. It lists down all the mandatory fees, requirements, and
the corresponding sanctions for every violation thereof. Given the nature of the game
development project and its ICO, the company is therefore required to follow the BSP Circular in
order to avoid any legal issues.

Initial Coin Offering

As of the writing of this memorandum, no legal definition of Initial Coin Offering has
been issued yet in the Philippines. However, for the purpose of understanding the concept of
ICO, the statement written by US SEC Chairman, Jay Clayton, shall be used.6 He wrote that
these ICOs are being used to raise capital for businesses and projects with the concurrence of the
growth in cryptocurrencies. “Typically [Initial Coin Offering] involve the opportunity for
individual investors to exchange currency such as U.S. dollars or cryptocurrencies in return for a
digital asset labeled as a coin or token,”7 he further explained. Clayton, then, raised the question
“Is the coin or token a security?”8 Classifying whether a token is considered a security or utility
to be used for, in the case of this memorandum, purchasing in-game items and other perks is
important as it will be the basis if SEC has jurisdiction over such ICO.
However, in the case of Philippines, no distinction has been made between the different
kinds of token. SEC has yet to create regulations regarding ICOs and virtual currencies.9 Without
any regulation, the rise of ICOs and use of virtual currencies has been taken advantage by many.
The BSP and SEC both recognize the high potential of the use of virtual currencies for money
laundering, scams and other frauds.10 But until SEC issue rules and regulations regarding ICOs

6
Jay Clayton ‘Statement on Cryptocurrencies and Initial Coin Offerings’ https://www.sec.gov/news/public-
statement/statement-clayton-2017-12-11#_ftn3
7
Ibid.,
8
Ibid.,
9
Siegfrid Alegado ‘Philippines Eyes Rules for Coin Offerings as Bitcoin Use Surges’
https://www.bloomberg.com/news/articles/2017-12-04/philippines-eyes-rules-for-coin-offerings-as-bitcoin-use-
surges
10
Bangko Sentral ng Pilipinas Circular No. 944 Series of 2017
and virtual currency, the only legal issue that a company in the Philippines might face when
using ICO to gather investment are the violations listed in BSP Circular No. 944.
 MEMORANDUM

TO: Professor Emerson Bañez

FROM: John Daryl B. Yu
RE: Legality of Funding a Game through Initial Coin Offering in the Philippines
DATE: 21 December 2017

FACTS
In June, 2012, D.M.Consunji, Incorporated (DMCI) started constructing Torre de Manila,
a high rise condominum, near Taft Avenue, Manila. Coincidentally, the said condominum was
criticized by various groups since it “photobombs” the Rizal Monument sightline.
One month after, DMCI was granted building permit by the city of Manila. However, in
March of 2013, the City Council of Manila approved the Ordinance 8310. This prohibits the
development of construction projects that would ruin cultural monuments and memorials in
Manila. But then Manila City Mayor Lim vetoed it for being ultra vires.11
In September 2014, the Knights Of Rizal, a “civic, patriotic, cultural, nonpartisan, non-
sectarian and non-profit organization created under Republic Act No. 646”, petitioned a
Temporary Restraining Order for the construction of Torre de Manila and a writ of mandamus to
stop DMCI from continuing the development of the project. They claim that the condominium
would ruin the sight of the Rizal Monument because it would lessen its cultural presence as
Torre de Manila would overshadow the said monument. Furthermore, they also added that the
Rizal Monument is a National Treasure which should be protected by law since by not doing
would diminish the cultural heritage of the said Monument.12
The Supreme Court dismissed the petition stating that the Court does not have
jurisdiction over the case and for lack of standing by the Knights of Rizal. Furthermore, the SC
also stated that there is no sufficient legislation to bar the Torre de Manila construction. The SC
then, lifted the temporary restraining order filed by the Knights of Rizal.

11
Nathaniel R. Melican, Torre de Manila case sparks Estrada-Lim blame game. Inquirer
12
KNIGHTS OF RIZAL vs. DMCI HOMES, INC. G.R. No. 213948
ISSUE
Whether or not there are statutes, case laws and legal principles, here or abroad that can guide
the legislation prohibiting another “Torre de Manila” case

SHORT ANSWER

Yes, Congress can enact a law that will make Section 15 and 16 of Article 14 of the 1987
Constitution enabling, in force and effect.

DISCUSSION

Since Section 15 and 16 of Article 14 of the 1987 Constitution cannot be considered as

self-executory, an enabling act should be legislated in order for it to take into effect. The
supposed legislation must be guided by experts in that field like the National Historical
Commission of Cultural Monuments.

The NHCP has already formulated guidelines for the promotion of preservation of
“significant historical, cultural, and social sites and the environment, consisting of historical
andcultural properties.”13 Even if the Jose Rizal Monument is part of those that needs to be
preserved according to the guidelines, the SC stated that those were merely guidelines and has no
legal effect. 14

So in order for the prevention of another “Torre de Manila” case, the guidelines set forth
by the NHCP can be used as reference in the future if the Congress decides to propose a bill
regarding the matter.

13
NHCP GUIDELINES, POLICIES AND STANDARDS FOR THE CONSERVATION AND DEVELOPMENT
OF HISTORIC CENTERS/HERITAGE SITES.
14
KNIGHTS OF RIZAL vs. DMCI HOMES, INC. G.R. No. 213948