Virtually investigating virtual currencies in East Africa: ICAR’s cryptocurrency workshop goes online

Virtually investigating virtual currencies in East Africa: ICAR’s cryptocurrency workshop goes online

Law enforcement officers from Kenya, Uganda, Rwanda, Djibouti, Tanzania and South Sudan last week worked together to solve a simulated investigation aimed at confiscating “laundered” cryptocurrency – entirely online.

The investigation was the centrepiece of a Cryptocurrencies and Money Laundering online workshop led by the training team of our International Centre for Asset Recovery in collaboration with German development agency GIZ. The workshop is an adapted version of the onsite training programme on Money Laundering Using Bitcoin, which has seen a huge increase in demand as cryptocurrencies become a go-to tool for laundering the proceeds of corruption and other crime.

Over four days, the 12 hours of instructor-led learning took the participants from the basics of cryptocurrencies to more sophisticated investigative techniques like blockchain analysis. Participants agreed on the value of understanding virtual assets and declared they would implement it in their daily work right away. It was an “eye-opener”, said one participant.

Also eye-opening is how smoothly and effectively this first intensive online workshop by ICAR’s training team turned out to be.

Designed to be delivered in person, ICAR’s tailored training programmes are hands-on and heavily based on interactive group tasks. These onsite workshops include a complex simulated investigation undertaken simultaneously by small teams.

The approach is aimed at helping participants from different disciplines and agencies learn not only new skills but also how to work together better in real life. This is extremely difficult to replicate in the online space, especially in contexts with less-than-perfect IT equipment and connectivity.

This is why we believe that virtual training workshops will never match the buzz of a room of investigators, prosecutors and financial analysts working and learning together around real tables. Nevertheless, the online delivery was a success thanks largely to the engagement of the participants, who adapted well to the online space.

Thanks also go to the Basel Institute’s IT team for their fast work in setting up an online learning platform designed to meet the needs of both trainers and trainees in the contexts in which we work. The design draws heavily on the initial experiences of our ICAR field experts, who have been providing short courses and mentoring to members of their partner institutions since the start of the pandemic lockdowns.

We have open minds to the great potential value of virtual training both during and after the pandemic situation and are working on adapting some of our other onsite training workshop for online delivery.

If you have experiences or suggestions to share in this regard, do contact us via the ICAR Twitter account @StolenAssets, on LinkedIn or to our training team.

  • ICAR training programmes are developed and delivered to government authorities at the request of partner countries. If you are an individual looking to develop your skills in asset recovery and financial investigation, feel free to take one of our eLearning courses.
  • In collaboration with Swiss law firm MME, we offer a FinTech AML Compliance Training workshop aimed at helping FinTech, RegTech and compliance professionals detect and prevent the use of cryptocurrencies for illicit activities.
  • Learn how our Peru team developed a successful virtual course on public financial management for 770+ officials across Peru and their creative solutions to issues with internet and computer access.
  • Source: www.baselgovernance.org


    Growing body of common law decisions that cryptocurrencies can amount to property: ruscoe v cryptopia limited (in liquidation) civ-2019-409-000544 [2020] NZHC 728 | Lexology

    Growing body of common law decisions that cryptocurrencies can amount to property: ruscoe v cryptopia limited (in liquidation) civ-2019-409-000544 [2020] NZHC 728 | Lexology

    On 8 April 2020, the High Court of New Zealand issued a judgment concluding that cryptocurrencies are a species of intangible personal property capable of being the subject matter of a trust. The judgment summarises recent case law from a number of jurisdictions on the proprietary status of cryptoassets and refers to the UK Jurisdiction Taskforce Legal Statement on Cryptoassets and Smart Contracts, the conclusions of which it follows.

    The judgment is further evidence of an approach by the courts in various common law jurisdictions to seek to treat cryptocurrencies as property. This case provides a further helpful analysis of the key requirements of property and their application to digital assets. It further provides a pertinent analysis on why cryptocurrencies should be treated differently from mere information. In its findings, the Court of New Zealand heavily relied on a body of case law from common law jurisdictions as well as the UKJT Legal Statement. This decision highlighted the importance of the UKJT statement beyond England and Wales. As did the English Court in AA v Persons Unknown (at an interim stage), the New Zealand High Court relied on the UKJT Legal Statement as the primary source when addressing a number of key questions, such as the definition of cryptocurrency, the importance of its proprietary status, and whether cryptocurrencies satisfy the four requirements to be create a property interest.

    While the litigation risk remains high until these principles are confirmed either by the highest courts in the land, or addressed through legislation, this case once again confirms that there is developing a consistent body of case law in common law jurisdictions which seeks to treat cryptoassets as property.

    Background

    Cryptopia was a cryptocurrency exchange platform established in 2014 in New Zealand. It expanded exponentially from November 2017 reaching over 900,000 users, the majority being from abroad. In January 2019 Cryptopia’s servers were hacked. Somewhere between nine and 14 per cent of its cryptocurrency was stolen, this being valued at around NZD 30 million. Soon after, in May 2019, Cryptopia was placed into liquidation. The liquidators have estimated that the value of the remaining cryptocurrency was about NZD 170 million. A dispute arose over the ownership of the remaining cryptocurrency. The liquidators applied to the Court to determine two main issues:

  • Are cryptocurrencies a type of “property” in terms of the Companies Act of New Zealand and, linked to this, can cryptocurrencies form the subject matter of a trust?
  • Was Cryptopia, in providing a cryptocurrency storage and exchange service for its customers, acting as a trustee in relation to the currency held by it for accountholders?
  • Are cryptocurrencies a type of “property” and can cryptocurrencies form the subject matter of a trust?

    The Court began its discussion by establishing a definition of cryptocurrency, and referred to the 2019 UK Jurisdiction Taskforce Legal Statement on Cryptoassets and Smart Contracts (“UKJT statement”) for guidance. Further, the Court considered that the definition of “property” in the Companies Act of New Zealand was inclusive and wide, with “property” to include “rights, interests, and claims of every kind in relation to property however they arise”. In addressing why this mattered, the Court again referred to the UKJT statement and quoted that: “It matters because in principle proprietary rights are recognised against the whole world, whereas other – personal – rights are recognised only against someone who has assumed a relevant legal duty. Proprietary rights are of particular importance in an insolvency, where they generally have priority over claims by creditors, and when someone seeks to recover something that has been lost, stolen, or unlawfully taken. They are also relevant to the questions of whether there can be a security interest in a crypto asset and whether a crypto asset can be held on trust…Of particular significance are the rules concerning succession on death, the vesting of property on personal bankruptcy, the rights of liquidators in corporate insolvency, and tracing in cases of fraud, theft or breach of trust. It would, to say the least, be highly unsatisfactory if rules of that kind had no application to crypto assets.” In the present case, the creditors contended that cryptocurrencies were not property, nor were they capable of forming the subject matter of a trust at common law. The accountholders strongly disputed this position as this finding would have significantly affected their priority in liquidation.

    The Court then turned to a comprehensive analysis of case law from multiple jurisdictions. It first considered the Singaporean case of B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 3, [2019] 4 SLR 17 [B2C2 (SGHC)], which concerned a Singaporean cryptocurrency exchange, Quoine. Due to some errors in the programming, B2C2 sold ethers (the Ethereum cryptocurrency) at about 250 times its market price. Quoine became aware of the mistake and reversed the trades which led to the litigation. B2C2 sued Quoine for breach of the contract and for breach of trust. The High Court upheld both of B2C2’s claims. On appeal, the majority upheld the High Court’s decision on the breach of contract aspect but overturned the decision on the breach of trust.

    The Court then considered the English case of Vorotyntseva v Money-4 Ltd [2018] EWHC 2596 (Ch). In that case, the claimant successfully obtained a worldwide freezing order against Nebeus, a cryptocurrency platform. The Court also considered a Canadian decision, Shair.Com Global Digital Services Ltd v Arnold 2018 BCSC 1512, in which the court granted an ex parte preservation order to the plaintiff company against its former chief operating officer with respect to digital currencies that were potentially still in the defendant’s possession. Further, the Court considered the English decision of AA v Persons Unknown [2019] EWHC 3556, [2020] 4 WLR 35 (reported on here), which also treated cryptocurrencies as “property” by granting an interim proprietary injunction against a cryptocurrency exchange over bitcoin.

    The four requirements for a “property” interest

    Finally, the Court considered the four requirements for a “property” interest outlined by Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (HL) at 1247–1248: 1) Identifiable subject matter; 2) Identifiable by third parties; 3) Capable of assumption by third parties; and 4) Some degree of permanence or stability. The Court concluded that cryptocurrencies meet all the criteria and are therefore capable of forming the subject matter of a trust.

    The Court also considered and dismissed two arguments that are commonly raised to suggest that cryptocurrencies do not have the status of “property”: (a) the common law recognises only two classes of personal property: tangibles and choses in action. Cryptocurrencies are said to be neither; and b) information is not generally recognised as a form of “property” and cryptocurrencies can be said to be a form of information.

    In respect to the first argument, the Court noted that this accords with the well-known dictum of Fry LJ sitting in the English Court of Appeal in Colonial Bank v Whinney (1885) 30 Ch D 261 (CA) at 285, namely that all personal property must either be a chose in possession or a chose in action. However, the Court in the present case emphasised that Fry LJ did not seem to be taking a narrow view of what can be classified as property, but rather he was simply wanting to put all examples of property into one of two categories. The most that could be said is that cryptocoins might have to be classified as choses in action. The Court noted that it would be ironic that something that might be said to have more proprietary features than a simple debt is deemed not to be property when a simple debt qualifies. For these reasons, this argument was dismissed.

    The Court noted that the second argument was supported by the 2014 decision of the English Court of Appeal in Your Response Ltd v Data Team Business Media Ltd [2014] EWCA Civ 281, [2015] QB 41, where it was held that there could be no property in a database based on the particular facts of the case. The Court concluded that this decision does not go much further than to make a determination upon the particular facts of that case and therefore considered it to be an inconclusive precedent.

    The Court further stated that it is wrong to regard cryptocurrencies as mere information because:

  • The whole purpose behind cryptocurrencies is to create an item of tradeable value, not simply to record or to impart in confidence knowledge or information.
  • What allows a contract to be capable of being an item of property is the fact that equity recognises there is a unique relationship between the parties created by the words and then supplies a system for transferring the contractual rights. Similarly, a unique relationship and system of transfer exists with respect to the relevant data on the blockchain that makes up a cryptocoin.
  • The statement in Boardman v Phipps [1967] 2 AC 46 (HL) that “..information is not property at all. It is normally open to all who have eyes to read and ears to hear.” appears to confirm as a principle that information should not be regarded as property because it can be infinitely duplicated. This is not true of cryptocoins such as Bitcoin where every transaction transferring value has a unique hash on the system where it is recorded. Crytpocoins stored in wallets are protected by the wallet’s private key from being transferred without consent.
  • Cryptocurrency systems provide a more secure method of transfer than a mere assignment of a chose in action. It is possible in equity for the holder of a chose in action to assign it multiple times. Only one assignment will be effective to bind the debtor but the winner may not be the first assignee in time but rather the first assignee to notify the debtor. By contrast, a cryptocoin can not only be assigned in that way but it can also be assigned only once.
  • The Court was satisfied that cryptocurrencies are far more than merely digitally recorded information and concluded that the second argument was too simplistic. The argument was dismissed.

    Was the cryptocurrency held on trust for the accountholders?

    The Court had to address the second question on whether any or all of the digital assets were held on trust for accountholders. The Court went on to determine the question whether the cryptocurrencies in issue were held on an express trust by considering the three certainties: certainty of subject matter, certainty of objects and certainty of intention, which reflects a well-established rule within English trusts law on the creation of express trusts.

    Subject matter: The Court concluded that all cryptocurrency holdings were held on trust by Cryptopia, although Cryptopia was itself one of the beneficiaries. Cryptopia itself kept and stored the private keys associated with the wallets of each cryptocurrency in this case so that accountholders did not know the private key associated with any particular wallet. The subject matter of the various trusts being the cryptocurrencies was clearly recorded in Cryptopia’s SQL database and this was deemed to provide sufficient certainty of subject matter.

    Object: The Court considered that the requirement for certainty of objects was clearly established. The beneficiaries of the relevant trusts were those with positive coin balances for the respective currencies in Cryptopia’s SQL database.

    Intention: Finally, the court assessed the requirement of an intention in the settlor to create a trust. The Court held that Cryptopia manifested its intent through its conduct in creating the exchange without allocating to accountholders public and private keys for the digital assets it held for them. The SQL database that Cryptopia created showed that the company was a custodian and trustee of the digital assets. In addition, Cryptopia did not intend to, and did not in fact, trade in the digital assets in its own right. The Court held that a trust came into existence for each of the cryptocurrencies as soon as Cryptopia came to hold a new coin (or part of coin) for accountholders.

    The Court distinguished the Singaporean Court of Appeal case, B2C2 Ltd v Quoine Pte Ltd, in which the Court of Appeal overturned the High Court’s finding that there had been a breach of trust, stating that there was insufficient intention to create a trust. In distinguishing the facts of this case, the Court relied on: (i) the express trust provisions in the applicable terms and conditions; (ii) other indicators of a trust from the evidence; (iii) Cryptopia’s internal financial accounts and tax returns demonstrated that it did not assert any ownership in the cryptocurrency beyond its beneficial interest in its own personal cryptocurrency as an accountholder; and (iv) the agency clause in the applicable terms together with material in the customer service manuals and a legal opinion on these issues.

    The court concluded that Cryptopia essentially fulfilled the role of a bare trustee in relation to the accountholders and the digital assets were held in multiple trusts. Its principal role was to hold each group of digital assets as trustee for the accountholders, to follow their instructions, and to let individual accountholders increase or reduce their beneficial interest in the relevant trusts.

    Cryptohack and implications

    As noted above, Cryptopia was hacked in January 2019. That cryptocurrency was withdrawn from the exchange using the private keys for the currency wallets in question, and Cryptopia was not able to reverse the transactions. The Court in this case has not been asked to address the relevance of any questions which might arise in relation to Cryptopia’s legal culpability for lost digital assets. However, the Court noted that this issue potentially arises if the digital assets were held on trust. The Court noted that, in principle, where a trustee is one of the beneficiaries of the trust (as Cryptopia was in the present case) and there is a shortfall in the trust assets, the trustee cannot share in any distribution of assets among beneficiaries where the trustee is found to be legally culpable in respect of that shortfall, to the extent of the shortfall. The Court, however, concluded that these comments were made by way of an aside as the issue of trustee-fault was not strictly before the Court.

    Source: www.lexology.com

    Author: Herbert Smith Freehills LLP –
    Richard Norridge, Andrew Moir and Charlie Morgan


    Why Financial Institutions should be Educated about Cryptocurrencies

    Why Financial Institutions should be Educated about Cryptocurrencies

    Iconic Holding

    By Sara Sabin, Business Development, Iconic Holding

    In 2013, the one-time $5bn company, Blockbuster Videos, went into liquidation as it bowed to pressure from online streaming sites such as Netflix and Hulu. Blockbuster did not see the threat that Netflix posed in 1997 when it launched and made the mistake of passing up the opportunity to buy Netflix in 2000. Its inability to envision how people would view content in the future was ultimately its downfall. The lesson here is that even a successful and established brand can fall if they do not evolve in line with what people want.

    Could cryptocurrencies herald the end of financial institutions?

    It does not need to be as dramatic as that, nor will it more than likely be. It would certainly never happen overnight, or maybe, even in the next decade. This does not mean that it is outside the realms of possibility.

    Let’s circle back to Blockbuster. Imagine a world where they had decided to act, seeing the future potential of Netflix (and online streaming) services. Maybe, they would still be around today and competing with newer entrants to streaming like Disney+.

    I will admit that there is a world of difference between potential and its realization. Cryptocurrencies have not realized their full potential, yet. It seems, at this point, unlikely that they would ever be able to take over all the functions currently performed by financial institutions. I will even acknowledge there is a possibility that cryptocurrencies may never be adopted by the masses.

    However, can institutions afford to take the risk of ignoring cryptocurrencies entirely and sticking to the traditional investments that they know?

    For example, as people want to transact, and send money quicker and more cheaply than ever, new blockchain technologies will continue to proliferate. Traditional financial institutions, quite frankly, cannot afford to be left behind.

    “Blockchain is the tech. Bitcoin is merely the first mainstream manifestation of its potential.” — Marc Kenigsberg

    Bitcoin is just the beginning.

    As an institution, it pays to educate yourself now. Where and how you can do it is at your leisure, but it is wise to stay ahead of the curve, or at least even acknowledge the road is curving.

    As On Yavin, Founder & CEO of Cointelligence, mentioned in our Iconic Blockchat, any person in power should try and understand the aspects of technology in general, and then blockchain and cryptocurrencies, as part of that. Refusing to acknowledge the industry as a possibility simply trivializes the importance of rapid progressions of technology and the 4th Industrial Revolution.

    What can financial institutions do at this time?

    2. Do your own research and due diligence — there are a lot of cryptocurrencies to choose from. It pays to know what options are out there. There are also many different ways to become invested in the space — from direct investment into blockchain companies to investing in the crypto asset itself to crypto active trading funds to diversified passive funds.

    3. Find trusted sources that can help you guide you through the blockchain and crypto-asset ecosystem and tell you what you need to know. We, at Iconic, come from a traditional finance background. We understand where you are coming from, and we want you to understand blockchain’s potential.

    Interested? Learn more about Iconic complimentary online and in-house workshops for family offices and financial institutions who are ready to learn more about blockchain and the crypto-asset ecosystem.

    Related articles:

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    Disclaimer

    In no event will you hold ICONIC HOLDING GMBH, its subsidiaries or any affiliated party liable for any direct or indirect investment losses caused by any information on this website. This article is not investment advice or a recommendation or solicitation to buy any securities.

    ICONIC HOLDING GMBH is not registered as an investment advisor in any jurisdiction. You agree to do your own research and due diligence before making any investment decision with respect to securities or investment opportunities discussed herein.

    Our articles and reports include forward-looking statements, estimates, projections, and opinions which may prove to be substantially inaccurate and are inherently subject to significant risks and uncertainties beyond ICONIC HOLDING GMBH’s control. Our articles and reports express our opinions, which we have based upon generally available information, field research, inferences and deductions through our due diligence and analytical process.

    ICONIC HOLDING GMBH believes all information contained herein is accurate and reliable and has been obtained from public sources we believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind.

    Source: medium.com

    Author: Iconic Holding


    Virtually investigating virtual currencies in East Africa: ICAR’s cryptocurrency workshop goes online

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