It will provide law enforcement with the lawful authority to secure the cryptoassets and the relevant search and seizure powers to cater for their digital nature. Enable law enforcement agencies to take control of and recover cryptoassets discovered when executing a search warrant. These powers will be used in circumstances where cryptoassets are “unhosted” and not in the custody of a third-party, akin to a bank. Assets may be recovered where the magistrates court is satisfied—on the balance of probabilities—that they are recoverable property or are intended for unlawful conduct. In the case of a terrorist investigation, property that has been earmarked as terrorist property.
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In determining the relevant test to apply, the Court considered Ion Science, which, as mentioned above, suggested that “the lex situs of a cryptoasset is the place where the person or company who owns it is domiciled”. Accordingly, whether the test for the lex situs of cryptoassets is domicile or residence remains a live issue to be determined in future cases. The Court also noted that the location of control of a digital asset, including by the storage of a private key, may be relevant to determining the lex situs, which could indicate that arguments based on the location of storage of private keys may also find favour in a future case.
Marc Jones contributes to ‘Blockchain: legal and regulatory guidance’ report
Supporting AED stablecoins can attract MENA users, while USD english law and cryptoassets stablecoin compliance ensures broader market access,” Chen explained. In December last year, AE Coin secured the final Central Bank of the UAE (CBUAE) licence it needed to launch. It was developed under the CBUAE’s digital payment token services framework for instant, secure, stable, innovative, low-cost, and efficient payment experience. The media, social media influencers, opinionated individuals in the industry and well known cryptoasset advocates can create investor concerns or hype which can lead to price fluctuations causing volatility in the market. Under the new rules, crypto exchanges, dealers and agents will be brought into the regulatory perimeter — cracking down on bad actors while supporting legitimate innovation. Crypto firms with UK customers will also have to meet clear standards on transparency, consumer protection, and operational resilience — just like firms in traditional finance.
A Bitcoin first? Stewarts obtains asset preservation order over cryptocurrency
Given the increasing number of crypto-disputes, this issue is likely to be expressly determined in England sooner rather than later. In New Zealand, in Ruscoe v Cryptopia Ltd (in Liquidation)14, it was decided that digital assets of its customers, held by the Cryptopia crypto exchange, constituted “property” and were also held on express trust on behalf of such customers. While it remains to be seen how, for example, a substantive trust claim involving cryptocurrency will fare, English law has so far proven to be fit for purpose when it comes to dealing with this novel asset class. Nevertheless, there will be plenty of future developments in how cryptocurrency is treated in English law, and this is likely to remain an area of fast-paced development for the foreseeable future.
- Cryptoassets are now increasingly being used by criminals to move and launder the profits of various crimes including drugs, fraud, and money laundering.
- The fraudsters, who were persons unknown to the claimant, then proceeded to transfer the cryptocurrency through various wallets on numerous exchanges, including Bitkub, before dissipating the stolen cryptocurrency.
- Further, he highlighted that cryptoassets exist and are enjoyed conceptually outside of the legal system and their users.
- Beyond the context of fraud litigation, whether cryptocurrencies are property will be a matter a importance in a variety of commercial contexts (for example taxation, sale of goods legislation, transfer of title, the taking of security, etc.) and perhaps especially in insolvency scenarios.
- The arrangement would allow D to “bake” the Tezos (i.e. to generate profit by pooling those assets) and to then share the proceeds of that “baking” with W.
So far, basic legal principles under English law have proven remarkably flexible in dealing with cryptocurrency claims, although this is subject to a health warning that many of the judgments are in respect of interim relief and were uncontested. Recent case law shows that the Courts will grant traditional asset preservation remedies to parties who are victims of crypto fraud. In Robertson v Persons Unknown 2019, the claimant had been victim to a ‘spear-fishing’ attack in which he was deceived into sending 100 Bitcoin from his Coinbase account to a fraudster. The Court accepted that he had a proprietary claim and granted an asset preservation order over the stolen Bitcoin, finding that there was a serious issue to be tried. In an approach consistent with the Law Commission’s draft Property (Digital Assets Etc.) Bill, the Court commented that the potentially wide range of assets which were neither a chose in action nor a chose in possession (of which USDT was one), should not all be bracketed into a single umbrella category. When faced with the two categories of either a chose in possession or a chose in action, USDT could not be a chose in possession, being virtual and unable to be physically possessed.
Our world-leading legal services form a vital part of our economy, helping to drive forward growth and keep Britain at the heart of the international legal industry. POCA’s Part 2 powers are already available to officers involved in terrorist financing investigations and so there is no need to replicate these in ATCSA. The changes being made to Part 2 of POCA by the Bill will therefore be available in counter terrorism investigations going forward without any further amendment required. We have worked closely with Counter-Terrorism Policing to ensure that the changes to terrorism legislation meet their operational requirements.
Given the claimant failed to show that any of his funds were received in the 82e6 wallet, the tracing claim against Bitkub failed. The court highlighted the need for precise and reliable evidence in tracing claims, which was not provided in this case. In assessing these points, the court considered several issues as to the status and treatment of cryptocurrency under English law. In the recent decision in Tulip Trading Limited v Bitcoin Association for BSV3, in rejecting some ambitious legal arguments, English law appears to have adopted a different tack on the lex situs of a cryptoasset, preferring residency rather than domicile as the influencing factor. The new law will therefore also give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases.
Does English law recognise cryptoassets as property?
The judge proceeded on the basis that because the claimant is based in England and had paid the $950,000 from an English bank account, damage was suffered in the jurisdiction. It’s not clear whether it was the location of the claimant or the bank account or both that mattered. The claimant paid the money to its agent, JJ, who then purchased the bitcoin which were then transferred to the “persons unknown”. 8 This case involved claims of breach of contract between B2C2 and Quoine in relation to participating in Quoine’s automated cryptocurrency trading platform, and for breach of trust. The Singapore International Commercial Court confirmed that cryptocurrencies constituted property capable of being held on trust, and the Court was satisfied that they met all the requirements of the classic definition of a property right described in National Provincial Bank v Ainsworth.
- The judge finished off his consideration of cryptoassets as property by discussing the interaction between the court and Parliament in view of the Property (Digital Assets etc) Bill.
- In this case, an insurer was the victim of a malware ransom demand in which its systems were encrypted by hackers who demanded the equivalent of US$ 1.2m in Bitcoin in exchange for the decryption tool.
- The case involved an insurance company seeking a proprietary injunction over Bitcoin paid as a ransom following a cyberattack on their insured client.
- This immediately creates a perceived difficulty for cryptoassets as they are not tangible and ownership of them may not create legally enforceable rights.
- Cases combining “persons unknown” and cryptocurrencies present novel legal problems for unwary claimants, and it’s clear that difficulties arose in AA.
- He reasoned that despite older judgment requiring that intangible property by either a right in possession or a right in action which crytpo-assets are not, they otherwise have all the features of property rights.
As a bitcoin is simply a record on a distributed ledger that has no locus, it does not exist anywhere. But should that be the claimant’s location (England) or its agent’s (which may have been elsewhere?) These are difficult questions with which the English courts are going to have to grapple. A number of other legal policy initiatives, outside the regulatory sphere, aim to continue the development of the legal infrastructure to assist the UK’s development as a leading cryptoasset and smart contracts hub. In the recent decision in Tulip Trading Limited v Bitcoin Association for BSV17, in rejecting some ambitious legal arguments, the Court appears to have adopted a different tack on the lex situs of a cryptoasset, preferring residency rather than domicile as the influencing factor. First, from a macro perspective, the uncertainty around the legal status of cryptocurrencies has been regarded by some as an impediment to their wider adoption. Clarification of this issue is a significant building block towards establishing legal certainty, predictability and confidence in the English legal system for the resolution of complex crypto-disputes.
Related Practices & Jurisdictions
The cryptoassets will be sold and the proceeds used to compensate any victims or retained by the state and reinvested into tackling economic crime. As far as possible, to futureproof both the criminal and civil regimes, the Bill will introduce a series of delegated powers to ensure that any defined terms such as “cryptoasset”; “crypto wallet”; or “cryptoasset service providers” can be amended by affirmative order as required. In order to effectively address these threats, future reform must take account of the unique technological qualities of cryptoassets and, where possible, likely advances of that technology which may be susceptible to criminal exploitation or for use in terrorist activities. These amendments will enable law enforcement to more effectively investigate, seize, and recover the proceeds of crime within the cryptoasset ecosystem. Firms offering services for cryptoassets like Bitcoin and Ethereum will be subject to new, clear rules, boosting investor confidence and driving growth through the Plan for Change. The Law Commission acknowledges that sweeping statutory reform may not resolve all complexities surrounding digital asset law and suggests that incremental common law development is preferable.
The company’s English insurers then tracked the Bitcoin ransom payment to a specific address linked to the cryptocurrency exchange Bitfinex, and applied for a proprietary injunction to recover the Bitcoins which remained in the account. It is generally somewhat artificial to refer to the location of a cryptocurrency given its decentralised nature that is, being recorded in separate ledger entries potentially spanning many jurisdictions with no “prime” or “master” ledger. However, for the purposes of English law the lex situs of cryptocurrency was held in Ion Science v Persons Unknown to be the place where the person or company who owns it is domiciled; that approach was also followed in Fetch.AI.
The UK’s first post-conviction confiscation of cryptoassets took place in July 2018, to a value of £1.2 million. This includes amendments to the Proceeds of Crime Act 2002 (POCA) to support the recovery of cryptoassets. The scam involved Mr D’Aloia being induced to transfer cryptocurrency in the form of Circle (irrelevant in the trial) and Tether. A summary judgment application regarding similar subject matter had failed in the case of Boonyaem v Persons Unknown and others 2023 EWHC 3180 (Comm) in part because the persons unknown might never become persons known. Chen also pointed out the entry of major US banks (JPMorgan, Bank of America, Citigroup, Wells Fargo) and UAE banks (FAB, MBank, Zand Bank) into the stablecoin market will enhance crypto legitimacy, driving adoption and trading volumes on exchanges.
