252
www.amazoniainvestiga.info ISSN 2322- 6307
DOI: https://doi.org/10.34069/AI/2021.45.09.25
How to Cite:
Voskobitova, L., Vilkova, T., Nasonov, S., Khokhryakov, M., & Reshetnikov, Y. (2021). Illegal circulation of digital currencies:
features of criminal investigation. Amazonia Investiga, 10(45), 252-264. https://doi.org/10.34069/AI/2021.45.09.25
Illegal circulation of digital currencies: features of criminal
investigation
Незаконный оборот цифровых валют: особенности расследования уголовных дел
Received: July 27, 2021 Accepted: September 12, 2021
Written by:
Lydiya Voskobitova
98
https://orcid.org/0000-0002-6676-0120
SPIN-code of the registry of elibrary.ru: 1160-1718
AuthorID: 291675
Tatyana Vilkova
99
https://orcid.org/0000-0003-3436-1288
SPIN-code of the registry of elibrary.ru: 1063-9047
AuthorID: 396777
Sergey Nasonov
100
https://orcid.org/0000-0002-2433-9426
SPIN-code of the registry of elibrary.ru: 8037-6330
AuthorID: 664873
Maxim Khokhryakov
101
https://orcid.org/0000-0003-3382-3399
SPIN-code of the registry of elibrary.ru: 9061-6768
AuthorID: 732762
Yuri Reshetnikov
102
https://orcid.org/0000-0002-7798-6504
SPIN-code of the registry of elibrary.ru: 4511-1782
AuthorID: 1120916
Abstract
Аннотация
Цель исследования состоит в анализе
международного и национального правового
регулирования обращения цифровых валют
на современном этапе, оценке состояния
преступности с незаконным использованием
этих активов, выявлении особенностей
расследования таких преступлений и
обосновании предложений, направленных на
совершенствование законодательства и
правоприменительной практики.
При проведении исследования применялись
методы: сравнительно-правовой – при
анализе законодательства и практики
наложения ареста и конфискации цифровых
валют в различных государствах, для
выявления достоинств и недостатков
98
PhD in Law, Head of the Department of Criminal Procedure Law at Kutafin Moscow State Law University, Moscow, Russia.
99
PhD in Law, Associate Professor of the Department of Criminal Procedure Law at Kutafin Moscow State Law University, Moscow, Russia.
100
PhD in Law, Associate Professor of the Department of Criminal Procedure Law at Kutafin Moscow State Law University, Moscow, Russia.
101
PhD in Law, Associate Professor at the Department of Criminal Procedure Law and Deputy Director of the Institute of Public Law and
Management at Kutafin Moscow State Law University, Moscow, Russia.
102
The 4-year Student of the International Law Institute at Kutafin Moscow State Law University, Moscow, Russia.
Voskobitova, L., Vilkova, T., Nasonov, S., Khokhryakov, M., Reshetnikov, Y. / Volume 10 - Issue 45: 252-264 / September, 2021
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trafficking in digital currency as a phenomenon
that requires special methods of detection and
investigation; general logical methods of
analysis and synthesis, induction and deduction,
methods of empirical research and analysis.
национальных подходов, оценки
возможностей их унификации и
гармонизации; феноменологический – при
рассмотрении преступного оборота цифровой
валюты как явления, которое требует особых
способов выявления и расследования;
общелогических методов анализа и синтеза,
индукции и дедукции, методов эмпирических
исследований.
Показано, что в условиях быстрого роста
преступности с использованием криптовалют
законодательство различных государств
находится на этапе становления правового
регулирования борьбы с ее незаконным
оборотом: лишь в некоторых странах
установлен статус цифровой валюты как
имущества, предусмотрены особенности
ареста, хранения и реализации цифровой
валюты по уголовным делам.
Обоснована необходимость признания
цифровых валют имуществом. Показано, что
арест и конфискация криптовалют должны
производиться только по судебному
решению. Отсутствие специальных знаний в
области цифровых технологий у следователя,
прокурора и суда требуют обязательного
привлечения специалиста к производству по
делам о преступлениях, совершаемых с
использованием цифровой валюты.
Ключевые слова: наложение ареста,
конфискация, криптовалюта, цифровая
валюта, биткоин, имущество, уголовное
судопроизводство, аукцион.
Introduction
The growing interest of society and government
agencies in digital currencies is due to the fact
that cryptocurrency is a new financial instrument
that has both positive and negative potential (in
this article, the terms "digital currency" and
"cryptocurrency" are used as synonyms).
The new promising opportunities opened up by
the introduction of digital currency include not
only everyday economic transactions, including
those for investment purposes, but also, for
example, the anonymous payment of
remuneration by the state to persons who report
information about crimes and criminals known to
them on the condition of anonymity (Wang, He,
Liu & Guo, 2020; Saiedi, Broström, & Ruiz,
2020).
At the same time, practice shows a steady
increase in crimes committed with the use of
digital technologies, including the use of various
digital currencies – Bitcoin, Ethereum, Monero –
which are becoming a means of payment in the
criminal activities of terrorist organizations, drug
dealers, as well as a subject of theft, extortion, tax
evasion, money laundering, Ponzi schemes and
other crimes (Albrecht, Duffin, Hawkins, &
Rocha, 2019; Custers, Pool, & Cornelisse, 2019;
Lee & Choi, 2021; Kethineni & Cao, 2020).
Anonymity and the complete absence of an
administrative center in the cryptocurrency
circulation are an obstacle to the regulation and
control of this area. Cryptocurrency is used for
fast anonymous remote payments without being
linked to any bank account. And this is what
attracts representatives of the shadow economy
to the cryptocurrency.
So, 1,1 million bitcoins were stolen for the period
of 2013-2017, which corresponded to a monetary
loss of the equivalent of $8,9 billion at the prices
of 2018 (Grobys, 2021).
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The conviction of Ross Ulbricht, the founder of
the Silk Road black market site, which sold
drugs, fake identity cards, and other illegal goods
using bitcoin for payment, became widely known
(Thompson, 2015).
In this regard, states have a need to combat a
qualitatively new way of carrying out criminal
activities and a need for legal regulation and
technical support of criminal proceedings on
crimes related to the illegal circulation of
cryptocurrencies (Markaryan, 2018). At the same
time, there is a certain lag in the legal regulation
and practice of combating the criminal use of
cryptocurrency from the criminal activity
development pace (Covolo, 2020).
The need to adopt regulations in this area and
train specialists to carry out legal actions in
relation to digital currencies is also increasing
due to the fact that about 70 states are currently
developing projects for national digital
currencies. National digital currencies, like other
technologies, are vulnerable from the point of
view of information security. Cyber-attacks and
security breaches can lead to the theft of funds
and personal data, and even lead to the shutdown
of economic activity.
The above circumstances determine the need to
study the state of legal regulation of the digital
currencies circulation at the present stage, assess
the state of crime with the illegal use of these
assets, identify the features of such crimes
investigation, substantiate proposals aimed at
developing legislation and law enforcement
practice in the field of seizing cryptocurrency in
criminal cases, its storage, confiscation and
further implementation.
Theoretical Framework
Legal regulation of digital currency
circulation at the present stage
The lack of legal regulation of the digital
currencies circulation is observed both at the
international and national levels. Even the status
of a cryptocurrency itself often remains
uncertain: whether it can be recognized as
money, property, whether transactions with it
should be taxed, whether it can be confiscated,
etc.
In the context of insufficient legal regulation, the
legal positions of international and national
judicial authorities on certain aspects of
cryptocurrency transactions are important, for
example, the decision of the Court of Justice of
the European Union dated 22 October 2015 No.
C-264/14 in the case of Skatteverket v David
Hedqvist (Court of Justice of the European
Union, 2015), which recognized that transactions
for the exchange of fiat money for bitcoins and
vice versa qualify as services and are exempt
from value added tax, resolution of the Ninth
Arbitration Court of Appeal of Russia dated May
15, 2018 in case No. A40-124668/2017
(Database of arbitration cases of the Russian
electronic justice system, 2018) on the attribution
of cryptocurrency to property and its inclusion in
the bankruptcy estate for the subsequent full
satisfaction of creditors' claims (the debtor was
obliged to transfer the password from the crypto
wallet to the financial manager to replenish the
bankruptcy estate).
The first international act regulating virtual
currencies was the 5th Anti-Money Laundering
Directive 2018/843, adopted by the European
Union (hereinafter referred to as the EU), which
distributed international standards against money
laundering over virtual assets' markets.
The European Union (EU) regulation exists not
only at the Pan-European level, but is also
included in the national legislation of the
participating countries. As of July 2020, 35 of the
54 reporting jurisdictions reported that they have
now implemented the revised FATF standards,
with 32 of them regulating the virtual currencies
circulation and the activities of virtual asset
service providers ("VASPs", which include
exchanges, custodians and hedge funds), and 3
prohibiting their operation.
As for the national laws, we would like to note
the Liechtenstein law on blockchain, which is
proposed for use as a basis for the development
of an international standard for regulating
blockchain and cryptocurrency (Teichmann &
Falker, 2020).
In Russia, Federal Law No. 259-FZ dated July
31, 2020 "On Digital Financial Assets, Digital
Currency and on Amendments to Certain
Legislative Acts of the Russian Federation"
(hereinafter referred to as Law No. 259-FZ)
(Federal Law No. 259-FZ, 2020) entered into
force on January, 1 2021, which regulates
relations arising from the issuance, accounting
and circulation of digital assets.
This federal law defines that a digital currency is
a set of electronic data (digital code or
designation) contained in an information system
that is offered and (or) can be accepted as a
means of payment that is not a monetary unit of
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the Russian Federation, a monetary unit of a
foreign state and (or) an international monetary
or settlement unit, and (or) as an investment, and
in respect of which there is no person obligated
to each owner of such electronic data, except for
the operator and (or) nodes of the information
system, that are only obliged to ensure that the
procedure for the release of these electronic data
and the implementation of actions in relation to
them to make (change) records in such an
information system complies with its rules.
Besides, the rules for the legitimate circulation of
digital currency are established. In particular, it
is prohibited to accept payment for goods, works
and services in digital currency. Russian legal
entities and individuals who have actually been
in Russia for at least 183 days during the year,
will be able to defend the claims related to the
possession of digital currency in court only if
they have reported that they have such a currency
and they have made transactions with it. A
number of other Russian laws ("On Insolvency
(Bankruptcy)" (Federal Law No. 127-FZ, 2002),
"On Enforcement proceedings" (Federal Law
No. 229-FZ, 2007)) recognize digital currency as
property.
Along with this, a number of states – Algeria,
Bolivia, Morocco, Nepal, Pakistan and Vietnam
– have established a complete ban on any actions
related to the cryptocurrencies turnover.
Practice of seizing digital currencies and
confiscating them in criminal cases
An important place among the measures taken to
prevent and deter crimes related to
cryptocurrency payments is occupied by the
seizure of it in criminal proceedings and its
further confiscation.
The legal regulation of the application of these
measures in criminal proceedings, as well as the
legal regulation of the digital currencies
circulation in general, is at the stage of its
formation, which creates obstacles to combating
crimes related to the illegal circulation of
cryptocurrencies.
Besides, the seizure and confiscation process is
largely complicated by the "decentralization"
nature of cryptocurrencies, i.e., the absence of a
central authority that performs the functions of an
administrator in relation to such assets.
Currently, there are 3 main types of
cryptocurrency exchange platforms: 1) trading
platforms, i.e. the websites where you can buy
and sell cryptocurrencies; at the same time,
buyers and sellers only access the platform and
do not interact with each other; the service
charges a commission fee for each concluded
transaction; 2) peer-to-peer platforms, which
connect buyers and sellers directly; the exchange
rate is set by agreement of the parties; 3) crypto
brokers, operating as forex brokers and setting
the value of cryptocurrencies.
Despite the incompleteness of legal regulation,
cryptocurrencies seizure, confiscation and sale
are widely used in practice, and the high
effectiveness of these measures in the fight
against corruption and money laundering is noted
in doctrinal studies (Vandezande, 2017).
The Federal Bureau of Investigation investigates
cybercrimes, including crimes committed using
cryptocurrency, in the USA. Under U.S. federal
law, the government has the power to seize and
hold – and then ultimately sell, with the proceeds
going to the state treasury – "any property, real
or personal, involved in a transaction or
attempted transaction" that violates certain
federal laws. At the moment, virtual currency is
recognized as property in the United States.
The confiscation of cryptocurrency was made in
2013 for the first time: the US Federal Bureau of
Investigation confiscated 144,000 bitcoins from
the well-known DarkNet marketplace – the "Silk
Road" company, which carried out bitcoin
transactions in exchange for drugs, stolen
property, fake documents and hacking services.
"Silk Road" was the most popular and extensive
criminal market on the Internet before it was
discovered by the FBI. The US government
estimates that the site earned about 600,000
bitcoins during this period. About 175,000 of
them were seized when the head of the
marketplace was arrested and the site was shut
down. The Federal Prosecutor for the Southern
District of New York noted during the trial in the
Silk Road case that the seized cryptocurrency
should be treated in the same way as any other
currency obtained as part of illegal transactions
(Manhattan, 2014). The Justice Department
seized the contents of an electronic wallet
belonging to the company, as part of a civil case,
in the amount of 69,000 bitcoins worth more than
a billion dollars in November 2020.
Europol (2018), with the support of the Spanish
Civil Guard, confiscated more than $4,5 million
in bitcoins and other cryptocurrencies, as well as
800 thousand doses of LSD from drug traffickers
from the DarkNet in 2018. This seizure was made
possible due to obtaining access to computer
information contained on electronic media found
during searches.
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In Australia, there is also a practice that confirms
the right of authorized bodies to confiscate
virtual currency as property. The Australian
High-Tech Crime Centre (AHTCC) is located at
the Australian Federal Police (AFP) headquarters
in Canberra. Under the auspices of the AFP, the
AHTCC is a party to a formal joint operation
agreement concluded between the AFP, the
Australian Security and Intelligence
Organization, and the Australian Signals
Directorate's Computer Network Vulnerability
Group. Australia has developed a special law on
combating money laundering and the financing
of terrorism, which regulates illegal activities
carried out with the help of cryptocurrency.
The authority issuing crypto licenses in Australia
is AUSTRAC. A joint official release was issued
in 2019 by the Australian Federal Police (AFP)
and AUSTRAC in connection with the case
against Bullin during the second phase of the
Australian Federal Police (AFP) investigation
into the activities of an organized crime
syndicate. He played a key role in leading the
operations of a criminal syndicate that used
various dark web sites, bitcoin accounts, and
legitimate businesses to find, pay for, and
distribute illicit drugs. The AFP officers executed
search warrants in Melbourne's suburbs, seizing
Australian currency and cryptocurrency-related
items. Bullin was subsequently arrested and
charged with importing, trafficking and
possessing a total of about 30 kilograms of drugs.
The Criminal Assets Confiscation Task Force
(CACT) successfully sought the confiscation of
assets related to the investigation in a separate
special operation. Orders were obtained from the
District Court of Victoria to seize property worth
more than $2 million, including cryptocurrency.
The orders were issued in accordance with the
Anti-Money Laundering and Counter Terrorism
Financing Act 2006 No. 169, 2006. (Federal
Register of Legislation of Australian
Government, 2018)
On May 30, 2018, the Supreme Court of the
Republic of Korea ruled that cryptocurrencies
can be confiscated if their use was detected in
illegal activities. This decision overturned the
decision of the district court, which indicated that
it was impossible to withdraw bitcoins from a
person accused of distributing child pornography
due to the lack of a physical embodiment and an
objective standard value. However, the Supreme
Court of the Republic of Korea did not agree with
this opinion, noting that "Korean law provides
that hidden assets subject to confiscation include
cash, deposits, shares and other forms of tangible
and intangible objects that have a standard value.
Bitcoin is intangible and comes in the form of
digitized files, but it is sold on an exchange and
can be used to buy goods. Thus, getting bitcoins
is profit-taking" (Kim, 2018).
Legal regulation of the seizure of digital
currencies and their confiscation in criminal
cases
The regulation of the cryptocurrencies seizure is
necessary in order to ensure the execution of a
sentence in terms of a civil claim, the collection
of a fine, other property penalties or their
possible confiscation. However, at present, only
some states have developed rules for the seizure,
storage, exchange and further circulation of
cryptocurrencies in the state's income.
For example, the Finnish government adopted
instructions on the storage of confiscated
cryptocurrencies in 2018: cryptocurrencies
themselves are considered as an asset, not a
currency; law enforcement agencies should not
store them on exchanges, but keep them offline
without access to the Internet (in cold storage);
after a court ruling that the seized funds will not
be returned to the owner, it becomes possible to
exchange them for euros at public auctions, and
not on cryptocurrency exchanges (Palmer, 2018).
In the Republic of Belarus, a Decree on the
development of the digital economy was issued
in 2017, legalizing cryptocurrency exchanges,
cryptocurrency exchange operators, mining,
smart contracts, blockchain, tokens, etc. (Decree
No. 8, 2017), and the first cryptocurrency
exchange in Belarus was opened on the Internet
in 2019, and Article 132 of the Criminal
Procedure Code of the Republic of Belarus
(Criminal Procedure Code of the Republic of
Belarus No. 295-Z, 1999) provides for the
possibility of seizing cryptocurrencies as a type
of property in criminal proceedings since January
2021.
However, in general, the grounds, procedure and
conditions for the cryptocurrencies seizure in
criminal cases and their further confiscation in
many states remain unresolved.
Thus, in the Russian Federation, the mechanisms
for the recovery of "digital rights", "digital
financial assets" and "digital currency", the
seizure of such property or its confiscation in
accordance with Articles 115, 230 of the
Criminal Procedure Code of the Russian
Federation (hereinafter – the Criminal Procedure
Code of the Russian Federation) and Chapter 15
1
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of the Criminal Code of the Russian Federation
(hereinafter – the Criminal Code of the Russian
Federation) (Criminal Procedure code of the
Russian Federation No. 174-FZ, 2001, Art. 15
1
,
115, 230) remain unsettled, and in practice, the
cryptocurrencies seizure, the forensic
examination that determines their sale from
computer equipment, and confiscation are not
applied, although there are criminal cases of
crimes, the subject of which was the
cryptocurrency.
Law No. 259-FZ (Federal Law No. 259-FZ,
2020) recognizes digital currency as property for
the purposes of Federal Law No. 115-FZ dated
July 7, 2001 "On Countering the Legalization
(Laundering) of Proceeds from Crime and the
Financing of Terrorism" (Federal Law No. 115-
FZ, 2001), No. 127-FZ dated October 26, 2002
"On Insolvency (Bankruptcy)" FZ (Federal Law
No. 127-FZ, 2002), No. 229-FZ dated October 2,
2007 "On Enforcement Proceedings" (Federal
Law No. 229-FZ, 2007), and No. 273-FZ dated
December 25, 2008 "On Combating Corruption"
(Federal Law No. 273-FZ, 2008), but this is not
mentioned in the Criminal Procedure Code of the
Russian Federation.
Article 115 and other provisions of the Criminal
Procedure Code of the Russian Federation
regulate the property seizure (Criminal
Procedure code of the Russian Federation
No. 174-FZ, 2001, Art. 115). At the same time,
the property seizure in criminal proceedings also
includes the seizure of funds and other valuables
held in an account, in a deposit or in storage in
banks and other credit organizations: operations
on this account are terminated in full or in part
within the limits of funds and other valuables that
are seized; the heads of banks and other credit
institutions are obliged to provide information
about these funds and other valuables at the
request of the court, as well as the investigator or
inquirer based on a court decision.
The significance of the property seizure increases
due to the increase in the amount of damage
caused by crimes. So, it amounted to 512.8
billion rubles in Russia in 2020. During 2015-
2019, the Russian preliminary investigation
authorities applied to the court with the requests
for the property seizure in 35-45 thousand
criminal cases. The majority of such requests
were granted by the courts: in 2015 – 87,1%, in
2016 – 88,1%, in 2017 – 87,4%, in 2018 – 86,7%,
in 2019 – 86,3%.
Figure 1. Dynamics of choosing a measure of procedural coercion in the form of property seizure in pre-trial
proceedings in criminal cases. We have independently compiled this graph based on statistical information from
the site indicated above Summary statistical data on the activities of federal courts of general jurisdiction and
justices of the peace for 2015-2019, form 1, section 4. Official website of the Judicial Department at the Supreme
Court of the Russian Federation (2015, 2016, 2017, 2018, 2019).
Meanwhile, the potential of this enforcement
measure is not exhausted, since at present the
Criminal Procedure Code of the Russian
Federation does not disclose whether the seizure
of cryptocurrency is allowed, and it is not applied
in practice.
In order to introduce legal certainty, it seems
necessary to make additions to Article 5 of the
Criminal Procedure Code of the Russian
Federation (Criminal Procedure code of the
Russian Federation No. 174-FZ, 2001,Art. 5),
explicitly providing that for the purposes of the
Criminal Procedure Code of the Russian
36120
44154
45510
41322
40505
31454
38921
39753
35830
34945
2015 2016 2017 2018 2019
Dynamics of choosing a measure of procedural coercion in the form of
property seizure in pre-trial proceedings in criminal cases
Requests for the property seizure considered by the court
Requests for the property seizure satisfied by the court
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Federation, digital currency is recognized as
property, by analogy with the amendments made
by Law No. 259-FZ to a number of other federal
laws (Federal Law
No. 259-FZ, 2020).
It is also necessary to establish the rule in the
Criminal Procedure Code of the Russian
Federation (in part 2 of Article 29) that the
seizure of such a type of property as
cryptocurrency and its subsequent confiscation
are possible only by a court decision (Criminal
Procedure code of the Russian Federation
No. 174-FZ, 2001, Art. 29). This is due to the fact
that the court order is an additional and important
guarantee of the legality of any actions and
decisions in criminal proceedings that restrict the
property inviolability. When making a court
decision on the cryptocurrency seizure, a balance
must be observed between privacy, on the one
hand, and the state's duty to detect, suppress and
solve crimes, on the other (Lloyd, 2020).
If there is a court decision, the seizure must be
carried out with the mandatory participation of a
specialist, which should also be reflected in the
law.
The procedure for seizing digital currency should
be described in a separate article due to the
peculiarities of this type of property, by analogy
with the norm of Article 116 of the Criminal
Procedure Code (Criminal Procedure code of the
Russian Federation No. 174-FZ, 2001, Art. 116).
Moreover, Articles 81-82 of the Criminal
Procedure Code of the Russian Federation
(Criminal Procedure code of the Russian
Federation No. 174-FZ, 2001, Art. 81-82) on
material evidence and Article 230 of the Criminal
Procedure Code of the Russian Federation
(Criminal Procedure code of the Russian
Federation No. 174-FZ, 2001, Art. 230) on
interim measures are subject to addition.
The Criminal Procedure Code of the Russian
Federation does not contain special rules
governing the seizure and confiscation of digital
currencies at the request of the competent
authorities of a foreign state for mutual legal
assistance in criminal matters. This gap should
also be eliminated.
It should be noted that the Criminal Code of the
Russian Federation does not provide for the
elements of crimes the subject of which is digital
currency.
In 2019, amendments were made to the
Resolution of the Plenum of the Supreme Court
of the Russian Federation No. 32, 2015 "On
judicial practice in cases of legalization
(laundering) of money or other property acquired
by criminal means, and on the acquisition or sale
of property knowingly obtained by criminal
means" (Resolution of the Plenum of the
Supreme Court of the Russian Federation No.1,
2019). In accordance with these additions made
due to the FATF recommendations, Articles 174
and 174
1
of the Criminal Code on the legalization
of criminal proceeds should also apply to
cryptocurrency (Criminal Code of the Russian
Federation No. 63-FZ, 1996, Art. 174-174
1
).
However, such explanations are not enough:
firstly, they are advisory in nature, and secondly,
the question of whether transactions with
cryptocurrency are covered by other crimes
remains unresolved.
Thus, in our opinion, in order to solve this
problem, it is necessary to expand the objective
side of the elements of crimes provided for in the
articles 159
3
, 159
6
, 171, 172
1
-172
3
, 174, 175,
183, 185-185
6
, 187, 195, 199
2
of the Criminal
Code of the Russian Federation (Criminal Code
of the Russian Federation No. 63-FZ, 1996, Art.
159
3
, 159
6
, 171, 172
1
-172
3
, 174, 175, 183, 185-
185
6
, 187, 195, 199
2
), extending them to
cryptocurrency.
The development of legal regulation of the fight
against crimes related to the illegal circulation of
digital currency should be comprehensive and
cover not only criminal procedure and criminal
legislation, but also regulatory acts regulating
operational search and banking activities,
establishing guarantees for the protection of the
rights of bona fide buyers and cryptocurrency
sellers, etc.
Organizational and technical aspects of the
digital currencies seizure and confiscation in
criminal cases
The organizational and technical aspects of the
digital currencies seizure, their subsequent
storage and sale remain unresolved.
In Russia, the algorithm of investigative actions
in relation to the cryptocurrency (its inspection,
seizure, etc.), the cryptocurrencies seizure and
confiscation is under development. The relevant
proposals should be prepared by the Ministry of
Internal Affairs of the Russian Federation
together with the Federal Financial Monitoring
Service, the Prosecutor General's Office of the
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Russian Federation, the Investigative Committee
of the Russian Federation, the Ministry of Justice
of the Russian Federation, the Federal Security
Service of the Russian Federation, the Federal
Customs Service and the Federal Bailiff Service
with the participation of the Supreme Court of
the Russian Federation by December 31, 2021.
The greatest difficulties arise when it is necessary
to gain access to digital currencies for seizure and
subsequent confiscation, if law enforcement
agencies have to deal with cryptocurrencies that
have built-in anonymity and privacy features,
which make it very difficult to track funds to a
specific user or successfully seize funds available
in a cryptocurrency wallet (Koerhuis, Kechadi, &
Le-Khac, 2020). But the most well-researched
and transparent cryptocurrencies, including
Bitcoin, also require the development of special
methods to seize them.
However, current global trends in the fight
against cybercrime refute the idea that digital
currencies and the blockchain network are
invulnerable to unauthorized access through code
modification, use of malware, and invulnerability
to theft or other property crimes against users or
third parties (Mkrtchian, 2020; Turner,
McCombie, & Uhlmann, 2019).
There are already special software tools created
for tracking and controlling transactions that link
public encryption keys to certain individuals
identified on the network in the United States and
Europe (Dolgieva, 2018), although until recently
it was believed that the technical possibility of
hacking a crypto wallet when a suspect or
accused refuses to cooperate with the
investigation is not feasible.
However, not all states have the necessary
software yet, so the methods of the digital
currencies seizure and confiscation, the
implementation of which is possible if the
suspect, the accused or a third party voluntarily
discloses the password required for authorization
and use of the crypto wallet, are more widely
used in practice in foreign countries.
So, in February 2021, German prosecutors
confiscated more than 50 million euros ($60
million) worth of bitcoin from a fraudster, but
they can't unlock the money because he won't
give them the password (O’Donnell, 2021).
In the "Basic Manual on the Detection and
Investigation of the Laundering of Crime
Proceeds Using Virtual Currencies", published
by the UN Office on Drugs and Crime in June
2014, it is stated that crypto wallets contain
information about private keys that provide
individual control over digital assets, taking
possession of these keys is tantamount to
confiscating these crypto assets.
In general, there are 2 methods to seize
cryptocurrencies and confiscate them.
The first is to leave the cryptomonets in the
wallet of the suspect, accused or convicted, but
with the mandatory replacement of the access
code (password) required for authorization and
use of such a wallet.
The second method involves the transfer of
digital currencies from the crypto wallet of the
suspect, accused or convicted person to a crypto
wallet specially opened for this purpose under the
control of a law enforcement officer to store the
seized property in the form of digital rights.
The cryptocurrency wallets for storing
confiscated digital assets are just being created in
some states, while in others they have already
been created. As an example, we can cite the
Police Instructions of the State of Indiana of the
United States on the standard procedure for the
confiscation of cryptocurrencies and virtual
currencies.
The cryptocurrency is stored in a wallet, i.e. a
program that contains one or more private keys.
There are "cold" and "hot" wallets. In the first
case, the data is stored offline on a hard disk,
electronic media, in the second – on the network
and is in some way connected to the Internet. You
can access the wallet using a key that can be
private (a complex form of encryption that allows
the user to access their cryptocurrency) or public
(a cryptographic code that allows the user to
receive cryptocurrency to their account).
The seizure and confiscation of digital currencies
("transparent" bitcoins) can also be carried out
without the consent of the suspect, accused or
convicted in cases where users store encryption
keys on personal computers or accessible USB
devices.
In the United States, obtaining passwords from
crypto wallets from suspects, accused persons, or
third parties on a voluntary basis is additionally
stimulated in several ways. The U.S. Secretary of
the Treasury, in consultation with the U.S.
Attorney General, establishes a fund to pay a
reward of no more than $450,000 to any person
who provides information that leads to the
conviction of an individual who has used digital
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currency for terrorist activities (Financial
Technology Protection Act Art. 4, 2019).
Thus, there is information in the public domain
that the US Department of Justice was assisted in
gaining access to the electronic wallet of the
"Silk Road" online service in the amount of more
than 1 billion US dollars in exchange for the
removal of all charges in the criminal case by a
person whose identity was not disclosed.
The question of the fate of the confiscated
cryptocurrency often remains unresolved.
As a rule, the confiscated cryptocurrency is sold
at auctions, and the received fiat money is
converted into state revenue.
For example, the cryptocurrency was confiscated
from the "Lesen und Lauschen" online platform,
which sold counterfeit copies of various content
– audiobooks, films, software – without the
knowledge and consent of the copyright holders
during the trial in Bavaria in 2017. In total, the
German police confiscated 1,312 bitcoins, 1,399
Bitcoin Cash (bitcoin fork) and 200 Ethers,
which was equivalent to 12 million euros ($13,9
million). The seized cryptocurrency was sold
through 1,600 separate transactions within two
months (Voß, 2018).
The sale of confiscated cryptocurrency at auction
has also spread in the United States of America,
as evidenced by the announcement of the auction
on the website of the US Marshals Service (a
division of the Ministry of Justice). On January
22, 2018, 3,813 bitcoins were offered for sale,
divided into 11 blocks (since the cryptocurrency
was seized in eleven separate proceedings), with
a total value of $53,38 million at the time of
publication.
In 2017, the Bulgarian authorities seized
cryptocurrency from an organized criminal group
accused of corruption. The subsequent sale of
213,519 confiscated bitcoins brought about $3,3
billion to the state treasury and helped pay off
20% of Bulgaria's public debt (Campbell, 2017).
Auctions for the sale of confiscated
cryptocurrencies are very popular among
investors due to the fact that the initial value of
digital assets is much lower than if they were
purchased at the existing exchange rate at the
time of sale.
Thus, there is already a successful experience in
solving crimes related to the illegal circulation of
cryptocurrency, which can be used in legislative
and law enforcement activities.
Methodology
The analysis of the procedural activity features in
cases of crimes related to the illegal circulation
of cryptocurrencies is interdisciplinary. This
determines the need to study the same object –
the seizure of digital currencies and their
confiscation – from the positions of various
scientific disciplines: legal, information and
economic ones. The science of criminal
procedure law acts as the main discipline and
allows us to study the legislative regulation of the
specifics of the proceedings in such cases and
law enforcement practice. Information science,
which studies the analysis, collection, storage,
search, classification and protection of
information, allows us to develop a method for
seizing, storing and selling such a specific object
as digital currencies. Economic science provides
an opportunity to determine what part of the
contents of the crypto wallet should be seized,
how the exchange rate of the cryptocurrency unit
should be calculated in relation to the official
national monetary unit.
The present study uses general scientific,
interdisciplinary and specific methods.
The regulatory approach was shown in the
analysis of international and national legislation
in the field of legal regulation of digital currency
turnover and the specifics of criminal
proceedings in the seizure and subsequent
confiscation of this type of asset.
The comparative legal method made it possible
to compare the regulations and law enforcement
practice of various states on the procedure for
applying interim measures in criminal
proceedings in relation to digital currencies.
The study widely applies a systematic approach,
which is necessary in cognition of such
categories as procedural actions and decision-
making in relation to cryptocurrencies within
criminal proceedings in the new digital reality.
The use of normative-value, functional,
structural-functional approaches, as well as
general logical methods (analysis and synthesis,
induction and deduction, abstraction and ascent
from the abstract to the concrete, etc.) and
methods of empirical research allowed us to form
a methodology for research on the seizure of
digital currencies, their storage in criminal
Volume 10 - Issue 45
/ September 2021
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proceedings, further confiscation and sale in this
paper.
Results
The number of crimes involving
cryptocurrencies, including those of a cross-
border nature, is currently increasing rapidly.
The amount of damage caused by these crimes is
impressive. The increase in crime is
accompanied with the large amount of
confiscation of cryptocurrencies in criminal
cases.
Meanwhile, the legal regulation of digital
currencies, both internationally and nationally, is
in its infancy. The status of cryptocurrencies
remains unclear and there are no unified rules for
their seizure, confiscation and disposal in
criminal cases. At the same time, traditional
criminal procedure legislation does not consider
the specifics of digital currencies. The
insufficiency and incompleteness of legal
regulation creates difficulties for fighting crimes
related to the illegal use of cryptocurrencies.
In these circumstances, the importance of acts of
international organizations and judicial decisions
to develop common approaches of different
states to the prevention, investigation and
detection of crimes committed with illicit
trafficking in cryptocurrencies increases, as does
the importance of studying the extensive
experience of different states, is increasing.
Organizational and technical aspects of seizure
of digital currencies, their subsequent storage and
realization remain unresolved. However, current
experience in the fight against cybercrime refutes
the thesis that digital currencies are invulnerable
and cannot be seized.
However, not all states have the necessary
software yet. There are not enough competent
professionals to assist investigative authorities
and courts. That is why the most widely used
method of seizing cryptocurrencies today is to
obtain cryptocurrency wallet passwords from
suspects or defendants.
The further fate of confiscated cryptocurrency
remains largely unresolved. In practice,
confiscated cryptocurrencies are usually
successfully sold at auctions, generating great
interest among investors, and the fiat money
received is converted into state revenue.
Conclusion
This research leads to the conclusion that further
improvement of international and national legal
regulation of the status of digital currencies and
the rules of their legal circulation, as well as the
establishment of conditions and procedures for
their seizure in criminal (and not only) legal
proceedings, their storage, confiscation and sale
is necessary.
Harmonisation and unification of national
legislation is particularly necessary since this
category of offences often has a cross-border
nature and only similar legal regulation will
allow to effectively combine the efforts of
different states in combating them.
Legislative classification of cryptocurrencies as
property would provide an opportunity for
various investigative actions in criminal cases of
crimes related to their illicit trafficking,
application of procedural coercive measures,
including seizure of this type of assets and their
conversion into the income of the state. The
legality and validity of such actions and decisions
should be guaranteed by a court decision, as
seizure of digital currencies restricts the
inviolability of property. Criminal proceedings in
relation to cryptocurrencies at the present stage
are not possible without the involvement of a
specialist.
The procedure for seizure of property should not
only provide for the powers of the criminal
justice authorities, but also enshrine the rights of
the accused due to the privilege against self-
incrimination. This is particularly important in
the current context where the seizure of digital
currencies in the absence of cooperation by the
defendant is extremely difficult and the
temptation for criminal justice authorities to seek
such cooperation by various methods is high.
In this regard, it is necessary to complete Article
5 of the Criminal Procedure Code of the Russian
Federation (Criminal Procedure Code of the
Russian Federation No. 174-FZ, 2001, Art. 5)
with a provision stating that in criminal
proceedings, digital currency is recognised as
property.
It is also necessary to establish in the Criminal
Procedural Code of the Russian Federation
(Criminal Procedure Code of the Russian
Federation No. 174-FZ, 2001, Art. 29) a
provision stating that seizure of such type of
property as cryptocurrency and its subsequent
confiscation is possible only under a court
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www.amazoniainvestiga.info ISSN 2322- 6307
decision. If there is a court decision, seizure
should be carried out with the obligatory
participation of a specialist, what should also be
reflected in article 58 and article 115 of the
Criminal Procedural Code of the Russian
Federation (Criminal Procedure Code of the
Russian Federation No. 174-FZ, 2001, Art. 58,
115).
In addition, articles 81-82 on material evidences,
article 230 on interim measures, chapter 53 on
seizure and confiscation of digital currencies at
the request of the competent authorities of a
foreign state on mutual legal assistance in
criminal cases should also be supplemented.
The Criminal Code of the Russian Federation
should provide for criminal liability for crimes
involving digital currency, including the
extension of articles 159
3
, 159
6
, 171, 172
1
-172
3
,
174, 175, 183, 185-185
6
, 187, 195, 199
2
of the
Criminal Code to cryptocurrency (Criminal Code
of the Russian Federation No. 63-FZ, 1996, Art.
159
3
, 159
6
, 171, 172
1
-172
3
, 174, 175, 183, 185-
185
6
, 187, 195, 199
2
).
The development of legal regulation of
combating offences related to illicit digital
currency circulation should be comprehensive
and cover not only criminal procedural and
criminal legislation, but also acts regulating
operational and investigative activities, banking
activities, establishing guarantees of protection
of rights of bona fide buyers and sellers of
cryptocurrency, etc.
A promising way to sell the confiscated
cryptocurrency should be recognized as its sale
at auctions, the procedure for conducting which
also requires the development of special rules,
including notifying the public about the auction.
The best way to overcome the negative factors in
the spread of criminal manifestations in the
economy is to continue progressive work on the
development of the legal framework (both
international and national) regarding the creation
of a wide range of conditions to prevent the
turnover of assets obtained by criminal means,
including their digital expression, with the
simultaneous comprehensive implementation of
generally recognized financial security standards
in national legislative systems.
Acknowledgements
Publication prepared within the state task 075-
00998-21-00 dated 22.12.2020 "Transformation
of Russian Law in the Conditions of Big
Challenges: Theoretical and Applied
Foundations". The topic number is FSMW-2020-
0030.
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