There are now a number of cases in England, the US and Singapore where bitcoin and other cryptocurrencies have been frozen to aid recovery, including the enforcement of third-party debt orders, which force an exchange to transfer funds from an address to the victim.
Challenges to consider
Despite an increasing number of recoveries, it is worth turning to certain obstacles.
Firstly, there are commercial considerations, such as how much was lost and whether it is worth instructing investigators and lawyers. Experts are not always cheap, and if the sum lost is nominal, it may not be worth pursuing. Second, what jurisdiction is relevant? To take England as an example, if either the victim is domiciled there, the fraudster has been connected or if the fraud occurred in England, then usually English courts will have jurisdiction to consider these cases. Without one of these, the victim may have to pursue their case in another, more relevant territory.
Next is to review the trace report, which shows the flow of funds, from the time they left the victim or relevant account, to where they are now. Consider where the funds have gone, if they reached an exchange at this time (live tracking is usually available) and if so which exchange. From experience, and using England again as an example, exchanges want to be seen as doing the right thing by complying with English court orders, and the risk of breaching them and subsequent negative press is a strong factor. In that connection, in order to obtain the key information from the stock exchanges, it is necessary to make applications to these stock exchanges, and it is important to consider what should be pursued.
Once the assets have been frozen, the next steps depend on who controls the address of the funds. They might want a quick deal, can’t answer at all or might want to sue, although usually people associated with criminal activities don’t want their business perpetuated in court papers.
In the event that the court agrees that the assets belong to the victims and orders them to be transferred, the victims must consider enforcement, i.e. how to get the money back. Third-party debt orders force exchanges to transfer assets, but where this is not available, other tactics come into play and vary depending on the circumstances. There may be individuals who have been identified as additional address holders, alleged officers of the fraud company or otherwise, and insolvency proceedings may be brought against them, particularly where conspiracy and joint and several liability are available. However, settlement, on the basis that they have responded, is always preferable for all parties involved.
Restorations in various fields
While stories of decentralized exchange hacks worth hundreds of millions of dollars make headlines, it must be remembered that individuals falling victim to romance scams, insurance companies paying ransoms, fraud victims in general, and insolvency proceedings involving digital funds, there are ways to investigate and recover bitcoin. and other blockchain-based assets.
Importantly, where victims can band together to create a group suitable for a class action, litigation may be available and the costs of the process shared. It can also result in mass recovery, helping those who have only lost a little.
Separately, insurance companies, which continue to pay ransoms in bitcoin on behalf of their customers, may be able to recover those ransoms and break the payment cycle, fueling the continuation of the ransomware industry. Insurance companies can be the solution by fulfilling the contract with the client and depriving the criminals of the ransom.
There are endless applications for recovery, including bitcoin where appropriate, and as common law precedents continue to mount, best practice measures will continue to evolve. The UK continues to recognize the value of fast and effective remedies for asset recovery and on 22 April 2021 the UKJT published the “Digital Dispute Resolution Rules”, which seek to facilitate speedy and cost-effective resolution of digital asset and blockchain commercial disputes. In summary, the UK takes disputes involving blockchain seriously and the inherent flexibility of common law jurisdictions continues to focus on helping victims and recovering ill-gotten gains.
This is a guest post by Matthew Green and Brian Mondoh. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
