Cryptocurrency, law enforcement and account blocking: a review of court decisions

Cryptocurrency, law enforcement and account blocking: a review of court decisions

Although in Ukraine cryptocurrency is not officially recognized as a means of payment, statistics show - cryptocurrencies are owned by 12% Ukrainians and this is becoming commonplace. This is also evidenced by more than 60 court decisions in criminal cases, which include blocking the accounts of users of cryptocurrency exchanges at the request of law enforcement agencies, unauthorized access to third party accounts, fraud using cryptocurrency. 

Earlier we wrote about TOP tips for protecting your business and preparation for interrogation and Ito cancel the arrest on bank accounts in criminal proceedings? And now we advise cryptocurrency owners and users of cryptocurrency exchanges to familiarize themselves with court decisions to better protect their assets in the event of illegal actions by third parties. 

Blocking the cryptocurrency exchange account at the request of a law enforcement agency

The Ukrainian informed the police about the fraudulent actions with his electronic account, which contained cryptocurrencies in the amount of 24,000 USDT. These funds were later transferred to another account owned by a foreign national. 

The investigator initiated criminal proceedings and sent a request to the HUOBI GLOBAL cryptocurrency exchange to block the account. The exchange blocked the user's account and refused to unblock it until the investigator applied again. 

As it turned out, there was no court decision authorizing the investigator to send a request to block the account. At the same time, Ukrainian law does not provide for such a right of an investigator in the absence of a court decision. 

The foreigner later went to court to defend his rights because the investigator had unjustifiably violated his property rights. The court ordered the investigator to request that the account be unblocked. 

Why it's important: only the investigator's request is enough to block the account. The exchange will then decide whether to fulfill such a request or not. If the account is blocked, the owner will have to go to court to unlock it.

The court may seize the cryptocurrency in the case of law enforcement 

In a criminal case investigators found that the attackers seized the victim's cryptocurrency accounts, forcing him to send his own cryptocurrencies to several different e-wallets of third parties. 

During the analysis of the account, the investigator found that digital funds in the amount of 600,000 USDT (cryptocurrency Tether) were partially transferred to another cryptocurrency account, which is on the cryptocurrency exchange Binance. 

Cryptocurrency exchange Binance reported that the owner of the cryptocurrency account is citizen X and additionally provided information about wallets in other currencies and IP addresses from which the person's connection was made.

The investigator acknowledged the cryptocurrency kept in the accounts of the cryptocurrency exchange Binance and KUNA, which were illegally transferred from the victim's cryptocurrency accounts. The investigator also appealed to the court and asked to seize the accounts. The court agreed to arrest the cryptocurrency because it is material evidence. 

Why it's important: the court recognized that cryptocurrency could be seized as material evidence and that it was property. At the same time, it is unclear how such a court decision can be enforced, there are no mechanisms for this. It is possible that the referral of such a court decision by investigators to the cryptocurrency exchange will lead to the blocking of the account, if the exchange deems such blocking necessary. 

1 Bitcoin compensation for illegal search 

In the case the plaintiff stated that investigators conducted an illegal search of the rented apartment where he lived with his family. Nothing was seized during the search and no further claims were made against the person, but the search caused significant stress to the plaintiff's family. A pregnant wife and a young child were at home during the search.

The plaintiff assessed the moral suffering in 1 Bitcoin. Calculation formula: 1 Bitcoin for 1 illegal search. However, the Supreme Court did not satisfy the plaintiff's complaint, as it did not find the arguments against the violation substantiated.

Why it's important: although the claim was denied, the court did not deny that non-pecuniary damage could be reimbursed in cryptocurrency. In fact, bitcoin has been recognized as a means of redress.

The declaration of cryptocurrency by a civil servant must be supported by evidence  

Every year, civil servants submit a declaration of property status, in order to confirm the compliance of the level of income with the level of expenses.  

In this case In his annual property declaration, the civil servant stated that he was the owner of a cryptocurrency - 2.88 Bitcoins. Representatives of the National Agency for the Prevention of Corruption, which monitors the correctness of filling out declarations, proved in court that the civil servant has no evidence that he has 2.88 Bitcoins. To confirm this, they tracked the movement of assets on the cryptocurrency specified by the civil servant on the Blockchain.com service in the Bitcoin Explorer section.

The defendant stated that he had no intention of concealing property or its value, but the court found the person guilty of committing a corruption offense under Art. 172-6 of the Code of Administrative Offenses (violation of financial control requirements).

Why it's important: Although cryptocurrency does not yet have legal status in Ukraine, the court has identified bitcoin as an intangible asset that can also be declared. Thus, in this situation, the cryptocurrency acted as a monetary equivalent.

Theft of cryptocurrency through a fraudulent platform  

In the case the victim decided to invest in a company that operates on the World Wide Web at https://crypto-worlds.org. After registering on the site, the victim transferred a cryptocurrency of 30 Ethereum from his electronic account, at that time it was about $ 12,000, but the transfer of this amount did not pass. The victim later learned that he had fallen victim to fraud. The victim established that the site operates in Kryvyi Rih, Ukraine, and not in the United States, as stated on the site.

As a result, the police searched the offices of the call center and confiscated computer equipment. The call center staff was to advise potential investors on the benefits of investing in a supposedly promising project. As a result, the manager said that the project was closing, while the cryptocurrency was not returned to investors. 

Why it's important:  as the demand for cryptocurrency grows in Ukraine, so does the number of fraudsters who want to make money on it. You need to choose carefully which sites to trust your investments and check them for authenticity. 

The court recognized the contract of sale of cryptocurrency in force 

In the case the plaintiff emphasized that the defendant unreasonably acquired the funds and asked to return them. The plaintiff stated that the funds were transferred as payment for the purchased goods - cryptocurrencies (bitcoins) in the total amount of 3.8837 bitcoins against the will of the plaintiff. However, the court emphasized that the plaintiff had not proved the circumstances to which he referred. In particular, the plaintiff did not want to enter into a contract of sale. Therefore, the claims were not satisfied, and the contract of sale of cryptocurrency remained in force.

Why it's important: by this decision the court recognized that in Ukraine the subject of the contract of sale may be cryptocurrency. In this case, the cryptocurrency had the legal status of a commodity. is

Conclusions

In Ukraine, there is a tendency for further development of the cryptocurrency market. In fact, this market exists and is active, although there is virtually no legal regulation. However, in case of disputes, the parties apply to the court, which makes the final decision on the protection of violated rights of the owner of cryptocurrencies. This means that we should expect a legal settlement of cryptocurrency circulation in Ukraine in the near future.  

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