Criminal

The Criminal Law as been developing as international law enforcement concentrates on large transfers of assets around the world, enabled by emerging financial services technologies.

The starting point for such an application for a Freezing Order is S303Z1 of the POCA 2002 as amended on 26.6.2022. Application for account freezing order.

Crypto-assets are defined as “a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology” as per Section 84A(1) Proceeds of Crime Act 2002. The provisions of seizure and confiscation will extend to Crypto-asset related items which are defined in Section 47C(5B) Proceeds of Crime Act 2002. These related items are a new class of recoverable property and will include electronic hardware which provide access to crypto-wallets or currencies.

Schedule 8 of Economic Crime and Corporate Transparency Act 2023 amends Part 2 of the Proceeds of Crime Act 2002 to allow search and seizure powers for Crypto-assets and Crypto-asset related items. These provisions are contained in Section 47A onwards. There are also further powers introduced in respect of enforcement proceedings contained in Section 67ZA onwards.

There have been further developments which have led to the creation of new Magistrates Court Rules in respect of civil proceedings relating to Crypto-assets.

The Crypto-asset provisions in the Act came into force on 26 April 2024. The Magistrates’ Courts Rules take effect on 7th November and the Crown Court Rules (which regulate processes on appeal) take effect from 4th December 2024. (See § 24 – 25 Magistrates Court Rules summary below).

Also necessary to consider:

Account freezing orders – introduced under the Criminal Finances Act 2017 [CFA]

The 2017 CFA introduced Unexplained Wealth Orders and Freezing Orders. The test for obtaining such an order of a ‘reasonable ground to suspect’ is lower than the High Court test for a Property Freezing Order, where a ‘good arguable case’ is required.

S 179 of the Economic Crime and Corporate Transparency Act 2023 [ECCT]

Schedule 8 amends the Proceeds of Crime Act 2002 to make provision in connection with Crypto-assets and confiscation orders under Parts 2, 3 and 4 of that Act.

POCA 2002 as amended: Section 303Z37

By s(4) an application for an account freezing order may be made without notice if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Chapter to forfeit money that is recoverable property or intended by any person for use in unlawful conduct.
Recoverable Property is defined by S304. There are also rules about following and tracing recoverable property.
Section 303Z37 sets out the power to make a crypto wallet freezing order.

The Magistrates Courts Conversion of Crypto Assets rules 2024

The rules can be found by following this link.

Civil

There have been two important recent decision in the High Court to consider.

In AA v Persons who demanded bitcoin and Bitfinex (13^th December) 2019. Mr Justice Bryan considered the issue of whether or not crypto currencies are property.

The legal issue was this: Since 1885 it has been established that “All personal things are either in possession or action. The law knows no tertium quid between the two.“ Colonial Bank v Whinney [1885] 30 ChD 261 Fry LJ. Crypto currencies were thought to be neither, therefore an application for a proprietary injunction or freezing order could not be granted. (A chose in action is a legal right that allows someone to sue, or a cause of action that gives a person the ability to recover money in damages in a court of law).

Bryan J decided

‘I am satisfied for the purpose of granting an interim injunction in the form of an interim proprietary injunction that crypto currencies are a form of property capable of being the subject of a proprietary injunction.’

This view was adopted in the cases relating to D’Aloia v persons unknown, in 2022 and 2024. On 12 Sep 2024, Deputy Judge Farnhill sitting at the High Court handed down a substantial judgment concerning the remaining issues between the Claimant and Bitkub Online Co Ltd (“Bitkub”), a crypto exchange.

The Claimant needed to show that the Exchange received his crypto currency, USDT. English law has fairly complex rules of tracing and following that claimants must follow.

Tracing is used where property is exchanged or sold. Tracing rules apply to the substituted assets (or cash). However, different rules apply at common law or in equity:

Common law tracing applies where a claimant has full legal title to the property, but no separate equitable interest, typically cases of misappropriation of funds.

Equitable tracing applies where a claimant has an equitable interest in the property, which in cases of fraud often arises from a constructive trust of the proceeds of the fraud. Equitable rules are more flexible than common law rules.

Following is where the property in question does not change but moves from “hand to hand” and can not be used in respect of choses in action and cannot be used when the property becomes mixed with other similar property and ceases to be identifiable. The terms are often (confusingly) used interchangeably.

The Judge made a number of findings in respect of USDT as a chose in action or chose in possession, tracing crypto currency through mixed funds, and the First in First Out (FIFO) principle in tracing cryptocurrency.

Jeremy Barnett is an expert on Crypto Asset Law and Regulation. He is a joint author of Artificial Intelligence Law and Regulation (edited by Charles Kerrigan, EE publishing 2022, in particular bias, ethics and benchmarking: chapter 26 ‘Automation and Fairness’.

He has advised on the operation of a Singapore based CryptoAsset exchange in the UK and is a lecturer for The Legal Training Consultancy, see BitFinex & DeFi Regulatory Challenges. 2024.

Other published papers include:

JudicialTech Supporting Justice. 2023 (University of Montreal Faculty of Law Research Paper).

The Future of Cybercrime: AI and Emerging Technologies are Creating a Cybercrime Tsuanami. 2023 (UCL)

Algorithmic Dispute Resolution—The Automation of Professional Dispute Resolution Using AI and Blockchain Technologies (Computer Journal March 2018)