The 1% Treaty initiative faces three critical legal challenges: foreign national election funding restrictions, securities law compliance for VICTORY bonds, and international coordination of legal structures. This document provides a detailed compliance strategy.
- US Federal Election Campaign Act (FECA): Prohibits foreign nationals from making expenditures in connection with US elections
- FEC Definition: "Foreign national" includes foreign governments, foreign political parties, foreign corporations, and foreign individuals
- Penalties: Criminal prosecution and civil penalties up to $100,000+ per violation
US Operations (Completely Segregated):
- Entity: 501(c)(4) social welfare organization + affiliated Super PAC
- Funding: 100% US persons only (citizens and permanent residents)
- Decision-Making: 100% US persons in all leadership roles
- Banking: Separate US-only bank accounts
- Compliance Officer: Former FEC official overseeing all US operations
International Coordination (No Direct Connection):
- Strategy Alignment: Public commitment to support districts that favor 1% Treaty
- No Coordination: Zero communication between US and international entities about specific campaigns
- Independent Research: Both organizations independently identify priority districts
- Parallel Development: Similar but separately developed messaging and strategy
Information Firewall:
- Separate Legal Counsel: Different law firms for US and international operations
- No Shared Staff: Zero overlapping personnel between entities
- Independent Governance: Separate boards with no overlapping members
- Technical Isolation: Different technology platforms and data systems
Technical Safeguards:
- Separate Communication Systems: No shared Slack, email, or messaging platforms
- Geographic Separation: US operations based in Washington DC, international in neutral jurisdiction
- Legal Monitoring: Monthly compliance audits by independent election law firm
- Public Transparency: All US funding sources and expenditures disclosed per FEC requirements
Legal Documentation:
- Operating Agreements: Explicit non-coordination clauses in all entity documents
- Employment Contracts: Staff prohibited from communicating across entities
- Vendor Agreements: Shared vendors prohibited from coordination
- Insurance Coverage: Errors & omissions coverage for election law violations
- Howey Test: Investment of money + common enterprise + expectation of profits + from efforts of others = security
- **VICTORY Tokens: Risk of being classified as unregistered securities if they promise returns
- **SEC Enforcement: Heavy penalties for unregistered securities offerings
Our compliance strategy is designed to achieve our goal of mass participation while navigating global securities laws, leveraging the SEC's more innovation-friendly guidance as of August 2025. It separates the initial, non-financial airdrop from the subsequent distribution of valuable governance tokens.
Phase 1: VOTE Points Airdrop (Pre-Treaty)
This phase focuses on mass distribution of a non-security utility token.
- Token Design (Not a Security):
- No Financial Value: VOTE points are explicitly defined as having no financial value and are non-transferable.
- Pure Utility: Their sole purpose is to serve as a cryptographically verifiable receipt of participation and a badge of honor.
- No "Investment of Money": Points are earned through an action (voting), not purchased.
- Legal Rationale: This structure is designed to fail the Howey Test. As a non-tradable token with no promised expectation of profit, it has a very strong argument for not being a security, aligning with the SEC's more favorable stance on non-financial, utility-focused airdrops.
Phase 2: VICTORY Token Conversion (Post-Treaty)
This phase occurs only after the 1% Treaty is successfully ratified and the DIH Treasury is funded. This is the point at which a security is distributed, and it will be handled in a fully compliant manner.
- Mechanism: Voluntary, Opt-In Conversion: Holders of VOTE points will have the option to convert their points into real VICTORY governance tokens through a dedicated, compliant portal.
- Legal Rationale & Safe Harbor: This conversion event will be structured to fall within the SEC's "safe harbor" provisions for networks that have become sufficiently decentralized. By the time of conversion, the primary "work of the promoters" (getting the treaty passed) is complete. The VICTORY bond's function is now primarily for utility—governing the active, funded DIH treasury—which strengthens the case for a more favorable regulatory treatment.
Fundraising from Accredited Investors (Reg D / Reg S)
The initial "activation energy" from sophisticated investors (VCs, funds, etc.) will still be raised via a traditional private placement for VICTORY bonds and tokens, conducted in full compliance with Regulation D (for U.S. accredited investors) and Regulation S (for non-U.S. investors). This ensures our core financing is secure while the mass distribution is handled via the safer "Points-then-Conversion" model.
Legal Structure:
- Offshore Foundation: Singapore or Swiss foundation issuing tokens
- US Operations: Separate US entity purchasing tokens on secondary market for operations
- Legal Opinions: Securities law analysis from top-tier law firm (Cooley, Wilson Sonsini)
- Ongoing Compliance: Regular SEC no-action letter consultation
Avoid Investment Contract Characteristics:
- No Promises: Disclaimers that tokens may lose value
- Utility Focus: Primary purpose is governance and network participation
- Decentralized Control: No single entity controls treasury or token value
- Market Independence: Token value determined by market forces, not entity efforts
Marketing Compliance:
- No Investment Language: Avoid terms like "investment," "returns," "profits"
- Utility Emphasis: Marketing focuses on governance and platform access
- Risk Disclosures: Prominent warnings about potential total loss
- Legal Review: All marketing materials reviewed by securities counsel
Jurisdiction Selection:
- Treaty Operations: Switzerland (neutral, crypto-friendly, international law expertise)
- Technology Development: Estonia (e-governance expertise, EU compliance)
- Token Issuance: Singapore (clear crypto regulations, international recognition)
- US Operations: Delaware (established corporate law, FEC expertise available)
Legal Entity Structure:
Swiss Foundation (Treaty Coordination)
├── Singapore Foundation (Token Issuance)
├── Estonian OÜ (Technology Platform)
├── US 501(c)(4) + Super PAC (US Elections)
├── UK CIC (EU/UK Operations)
└── Canadian Federal Non-Profit (Canadian Operations)
United Kingdom:
- Electoral Commission Registration: Register as non-party campaigner
- Spending Limits: Comply with controlled expenditure limits ($500K+ requires registration)
- Foreign Funding: Permissible donations from overseas electors and UK entities
- Transparency: Quarterly donation and spending reports
European Union:
- Country-Specific: Comply with individual member state election laws
- GDPR Compliance: Data protection for voter information and targeting
- Anti-Money Laundering: KYC requirements for large donations
- Cross-Border: Coordinate with European election monitoring bodies
Canada:
- Elections Canada: Registration as third-party advertiser
- Foreign Interference: Comply with Bill C-76 foreign influence restrictions
- Spending Limits: Pre-election and election period spending caps
- Disclosure Requirements: Real-time reporting of expenditures over $500
Permissible Activities:
- Public Information Sharing: Publishing research and position papers
- Strategy Conferences: Academic conferences on global health policy
- Independent Development: Each jurisdiction develops own strategy
- Public Commitments: Transparent statements of support for 1% Treaty
Prohibited Activities:
- Direct Coordination: No communication about specific campaigns or expenditures
- Shared Decision-Making: No joint control over political activities
- Financial Transfers: No money flow between election-active entities
- Strategic Coordination: No joint planning of political activities
- Establish legal entities in each jurisdiction
- Obtain securities law opinions and regulatory guidance
- Hire compliance officers and election law counsel
- Implement technical safeguards and monitoring systems
- File necessary registrations with election authorities
- Submit VICTORY bond structure for regulatory review
- Obtain no-action letters where possible
- Establish ongoing compliance monitoring
- Begin token issuance under appropriate exemptions
- Launch political activities in compliant jurisdictions
- Implement real-time compliance monitoring
- Regular legal audits and adjustments
- Insurance Coverage: Directors & officers, professional liability, regulatory defense
- Legal Reserves: $10M+ dedicated legal defense fund
- Rapid Response: 24-hour legal counsel availability for compliance issues
- Regular Updates: Quarterly legal compliance reviews and strategy updates
- Monitor Developments: Track proposed election law and securities regulation changes
- Regulatory Relationships: Ongoing dialogue with regulators where appropriate
- Flexibility: Structure allows for rapid adjustment to new requirements
- Exit Plans: Procedures for wind-down if regulations become prohibitive
- Zero election law violations or regulatory enforcement actions
- Successful securities law exemption for VICTORY bonds
- Full regulatory approval in all target jurisdictions
- Independent legal audit confirms ongoing compliance
- Political activities proceed without legal interruption
- International coordination achieves strategic alignment without legal coordination
- Token issuance and treasury operations function within regulatory framework
- Public transparency builds trust while maintaining compliance
Legal compliance is achievable through strict entity separation, jurisdiction-specific expertise, and conservative interpretation of regulations. The key is building robust firewalls between international strategy and domestic political activities while maintaining strategic coherence through public commitments rather than private coordination.
Investment Required: $15-25M annually for legal compliance across all jurisdictions, but this prevents $100M+ in potential penalties and shutdown risk.
-
FEC Foreign National Restrictions
"A foreign national shall not, directly or indirectly, make a contribution or a donation of money or other thing of value, or expressly or impliedly promise to make a contribution or a donation, in connection with any Federal, State, or local election."
— 52 U.S.C. § 30121(a)(1)(A), FEC Guidelines
-
Howey Test Securities Definition
"The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others."
— SEC v. W. J. Howey Co., 328 U.S. 293 (1946)
-
UK Electoral Commission Spending Limits
"If you plan to spend more than $10,000 on controlled expenditure in England or more than $2,000 in Wales, Scotland or Northern Ireland, you must register with us as a non-party campaigner."
— UK Electoral Commission, Non-party campaigners guidance