The rise of cryptocurrencies has created new challenges for UK courts. The ambiguity of jurisdiction and the determination in what sense virtual assets fit the traditional definition of property can raise thorny legal issues. Fortunately, judges are meeting the challenges as it is increasingly clear that cryptocurrencies and the blockchain are here to stay.
Sir Geoffrey Vos, one of Britain’s most senior judges, is working with committees to make it easier for the courts to deal with cryptocurrency cases, particularly those involving fraud. The proposed regulations would allow the courts to request information from third parties, such as cryptocurrency exchanges.
The purpose of this legislation is to make it easier for courts to assist in fund recovery efforts by being able to quickly discover the identities behind suspicious anonymous bitcoin wallets. Many of these cases have been solved because of court orders to either obtain information or to freeze accounts on crypto asset exchanges.
For example, HMRC was the first UK government agency to seize NFTs. In this case, they obtained a court order to prevent the further sale of fake NFTs amounting to £1.4 million. Although the blockchain itself has yet to be regulated, exchanges that manage bitcoin wallets and accounts have useful information about activities that can help investigators and courts pursue cases on behalf of victims of fraud.
The legal experts’ tasks involved first, determining whether crypto assets fit the traditional legal definition of property, and if so, how, and secondly, given the virtual nature of the assets, determining which jurisdiction is best appropriate to pursue these cases.
Added to the complication is establishing where the owners of suspicious bitcoin wallets are located, since they can hide their identities and locations on the blockchain and also use fake IP addresses with VPNs.
In recent years, it has been established in the courts that cryptocurrencies meet the definition of property, because they are, ‘definable, identifiable, capable in nature of assumption with some degree of permanence.’
The other difficulty is establishing the exact location of the bitcoin wallet. Since the blockchain, unlike a bank account, obscures the location of the recipient, and since those accused of fraud understandably are trying to hide their location, it can be difficult to establish whether the claimant and the alleged fraud are both based in the UK.
The courts tend to consider the jurisdiction of the crypto asset owner to be the main determinate. This may not be true of the person or organisation that currently holds the funds in an anonymous bitcoin wallet. The claimant who demands restitution, if based in the UK, can file a claim against the other party, even if it is not immediately clear where they are located.
Finding out the identity and the location of the suspected crypto scheme is tricky. That is one reason the courts are given the authority to set in motion orders that would require crypto exchanges to reveal information pertinent to the case. In addition, the courts and law enforcement may increasingly rely on investigation reports that can be useful in identifying the culprit.
MyChargeBack is staffed with seasoned crypto investigators who use advanced crypto trace methods to uncover identities and locations on the blockchain. Our investigative reports are used by law enforcement and in courts to assist victims in locating their funds and to bring crypto fraudsters to justice.