Syed Rahman of Rahman Ravelli details a case that dispels the myth of anonymity in cryptocurrency crime.
As cryptocurrency is a relatively new concept, the issue of its regulation is in its infancy. This has made it attractive to those looking to make illegal gains from it while remaining one step ahead of the authorities.
For a variety of reasons, it is more difficult to trace and recover assets that have been lost to crypto-related fraud than it is to locate and regain more tangible items. The form cryptocurrency takes, the limited amount of information that can be obtained about both its users and the cryptocurrency exchanges – where so much of the illegal activity is conducted – and the ability of individuals to use these factors to make illegal gains all present difficulties. The signs are that those involved in cryptocurrency-related crime are becoming increasingly sophisticated in their planning.
In a case where I represent the applicant, Fetch AI Limited, Fetch AI Foundation PTE v Persons Unknown, Binance Holdings and Binance Markets, fraudsters hacked their way into my client’s cryptocurrency accounts that were held on the Binance exchange. They could not remove the assets from the accounts because of safeguards that were in place. But they traded them at a fraction of their true value to a third party that was linked to themselves and then resold them at their proper value before removing the proceeds from the exchange.
This activity left my client facing losses estimated at over $2.6 million. Restrictions on the exchange accounts had prevented the hackers simply taking what was in the accounts but they circumvented this by abusing the trading system to create illegal gains which they could then take. This was a practice that represented a step forward in terms of crypto-related crime and indicated the depth of thought being exercised by those looking to make illegal gains through crypto.
The Myth of Anonymity
This case, however, does provide some encouragement for those looking to recover what they have lost to crypto fraud.
The judge agreed with the ruling in the previous case of Ion Science v Persons Unknown that the location of the cryptocurrency was important in considering whether a court has jurisdiction over persons unknown, whose location is unknown. The judge in this case also followed the earlier case in stating that a Bankers Trust order can, in principle, be served out of the jurisdiction against the cryptocurrency exchange Binance, compelling it to release details about accounts used in this fraud.
With the High Court ordering Binance to both identify those who carried out the hack and freeze their accounts, the case establishes the principle that cryptocurrency exchanges should be doing what they can to identify those who are using their facilities to make illegal gains. It also goes a long way to disproving the myth that those involved in crypto-related crime can rely on anonymity as a means of avoiding detection.
While the information available regarding cryptocurrency has often been limited, the idea that those committing cryptocurrency fraud can operate without being identified has never been correct. Using the right tools and applying appropriate procedures can make it possible to track, locate and recover cryptoassets that have been taken illegally. Our case has seen the court order one of the largest cryptocurrency exchanges in the world to help identify those behind the crime – clear proof that there can be no guarantee of anonymity regarding cryptocurrency.
Huge increases in the value of some cryptocurrencies have generated greater demand – while also attracting more individuals looking to make illegal gains. It is only realistic, therefore, to expect that there will be many parties in the future who look to the law to help them locate and recover crypto assets that have been taken from them illegally. They will face the task of trying to recover assets that are rightfully theirs without knowing who took them or where they are now located.
The High Court ruling in our case emphasises that those involved in cryptocurrency wrongdoing cannot assume they will benefit from secrecy. It provides hope and a clear legal route to those seeking to regain their cryptoassets.