What is a cryptocurrency?

From 2020 the Financial Conduct Authority (FCA), became the anti-money laundering and counter-terrorist financing supervisor of UK cryptoasset businesses.

Cryptoassets are defined by the FCA as “cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically.”

Public awareness of crypto currencies has risen dramatically. A recent study undertaken by the FCA in 2020 found that 78% of adults said they have heard of cryptocurrency. Probably the most well-known cryptocurrency is Bitcoin. We’ve all heard of the likes of Ben Delo, Blythe Masters and Tyler and Cameron Winklevoss becoming “Bitcoin Millionaires” to name a few.

Until recently, cryptocurrencies were completely unregulated. Unlike cash they are not underwritten by a government or secured against a reserve.

Why is it potentially problematic?

Cryptocurrencies are legal but their increased use poses problems. Whilst money in bank accounts can easily be traced and is subject to anti-money laundering regulation. In contrast, it could be argued that it is relatively easy to launder cryptocurrency, given the anonymity surrounding them. 

Implications for practitioners

With the growth and popularity of cryptocurrencies and cases involving cryptocurrencies increasingly coming before the court, is it inevitable that practitioners will need to become familiar with the law and legalities behind them, and the legal issues that this digital currency can pose.

What powers are currently available to regulators and prosecuting agencies to seize / restrain / confiscate / forfeit cryptocurrency?

Cryptocurrency has already been found to fall within the definition of property for the purposes of Section 74 of the Proceeds of Crime Act 2002 (POCA). It is widely accepted that cryptocurrency is ‘realisable property’ for the purpose of Section 84 POCA. As a result, the law allows the Court to seize, restrain, confiscate and forfeit cryptocurrency. 

Seizure and restraint of crypto currency under POCA 2002

Restraint orders

A Restraint Order has the effect of freezing assets (wherever within the UK or outside) when a criminal investigation has started. The order prevents assets being moved or liquidated. The order ring-fences the assets for potential confiscation. Section 41 of POCA enables a Court to make a restraint order prohibiting a person from dealing with any ‘realisable property’ held by them, provided one of the five conditions within section 40 of POCA are met. 

Confiscation Orders

A confiscation order is a court order under the Proceeds of Crime Act 2002 requiring a convicted defendant to pay back money they have gained as a result of criminal activity. Under Section 41A or 47C POCA, crypto assets may be seized. As a result, the Courts have the power to make a confiscation order in respect of cryptocurrencies as the ‘recoverable amount’ for the purposes of Section 9 POCA. One of the biggest challenges however in cryptocurrency cases is calculating the monetary value. Unlike money, cryptocurrencies have no exchange rate as such; its value is subject to what can be rapid fluctuations over short periods of time.

Case Law

In R v Teresko (2018) Crim LR 81 the defendant was convicted of offences relating to drugs and money-laundering. A confiscation order was subsequently made in respect of Bitcoin held by the Defendant worth £975,000. Applying section 41(7) of POCA the Prosecution were able to, not only seize and restrain the defendant’s bitcoin, but also convert the bitcoin into sterling. The case demonstrated that the Courts will use their powers under POCA widely in order to deal with the novel and challenging issues that cryptocurrency poses.

In R v West (unreported 2019, Southwark Crown Ct) , the defendant was convicted of hacking into company databases. The defendant carried out cyber-attacks on hundreds of companies and obtained clients’ financial details which he then sold on the dark web and converted the funds into cryptocurrency. The defendant was ordered to pay a confiscation order that included cryptocurrency valued in the sum of £922,978.

The above sections of the legislation allow the prosecution to restrain and confiscate cryptocurrencies, and these cases demonstrates the way in which POCA is being used to tackle the issues raised by cryptocurrency and its use in the proceeds of crime.

Conclusion

The rapid growth in use of crypto assets has no doubt created novel and complex issues for regulators. There is no doubt that case law on the issues surrounding cryptocurrency fraud is new and still evolving as more and more cryptocurrency cases come before the court. The response by regulators to the challenges posed by cryptocurrency illustrates the ever evolving and reactive nature of the law.