Cryptocurrency and criminal proceedings: unusual cases from judicial practice

Ukraine’s Cybersecurity Strategy, which was approved by a Decree of the President of Ukraine dated 26 August 2021, designates the task of regulating the legal status of cryptocurrencies at the legislative level as a strategic priority. And with good reason: according to a CoinGecko study, Ukraine ranks among the top 10 European countries in terms of interest in cryptocurrencies. Meanwhile, findings from a Chainalysis study show that Ukraine is ahead of the UK and Japan in terms of crypto adoption.

Incidentally, Chainalysis regularly publishes detailed ‘Crypto Crime Reports’; I would advise readers to take note of them.

However, the Ukrainian Law “On Virtual Assets”, which was adopted back in February 2022, has still not come into force. The Ukrainian Law ‘On the Prevention of Corruption’ modestly classifies cryptocurrency as one of the intangible assets that must be declared by those required to do so, alongside trademark rights and copyright.

The Law of Ukraine ‘On the Prevention and Combating of the Legalisation (laundering) of proceeds of crime, the financing of terrorism and the financing of the proliferation of weapons of mass destruction’ delicately obscures the definition of cryptocurrency under the term ‘virtual assets’.

Despite well-known inconsistencies in national legislation and the insufficient level of regulatory framework governing legal relationships arising from the possession of cryptocurrency, its purchase, sale or exchange for goods or services, it is precisely cryptocurrency that frequently becomes the target of criminal activity or a means of committing a crime.

The most common cases in judicial practice involve the conviction of individuals who have used cryptocurrency to purchase narcotic substances, finance terrorist organisations or pay for forged medical certificates issued by military medical commissions. It is not uncommon for criminals to use cryptocurrency to conceal the transfer of funds obtained through fraudulent activities.

Let us consider a few recent court cases.

The buying and selling of cryptocurrency as a means of laundering money obtained by criminal means

The juvenile defendant stole the victim’s mobile phone, bypassed the security system of the stolen device and gained unauthorised access to a mobile app belonging to a Ukrainian bank, which was installed on the smartphone.

In order to gain access to the victim’s funds held in her bank account, the defendant transferred the money to a card belonging to a third party who, although not an accomplice of the defendant, was a seller of USDT on the Binance P2P platform — the most popular cryptocurrency exchange in Ukraine. The recipient of the funds then provided the defendant with their card account details for the funds to be credited in exchange for the amount of USDT, which the recipient of the money transfer had transferred to the defendant.

As the defendant was unable to pass verification on the crypto exchange due to his age, he had previously arranged with a friend for the latter to grant him access to his account on the ‘Binance’ crypto exchange, to which the USDT was credited after the buy order was executed.

Subsequently, in order to conceal the traces of the offence, the defendant placed a sell order for USDT and instructed the buyer to have the funds credited to a third party’s card.

The funds were subsequently transferred in three instalments to various bank cards and successfully withdrawn as cash. Consequently, the juvenile defendant committed a criminal offence under Part 1 of Article 209 of the Criminal Code of Ukraine (legalisation (laundering) of property obtained by criminal means).

The court approved the plea agreement, and the accused was found guilty of committing the criminal offences provided for in Part 4 of Article 185, Part 1 of Article 361, Part 1 of Article 200, Part 1 of Article 209 of the Criminal Code of Ukraine.

Link to the court judgment: https://reyestr.court.gov.ua/Review/118438441

There are known cases where the court has frozen the bank accounts of individuals who have fallen victim to the ‘P2P triangle’ scheme.

For instance, after the perpetrators had gained control of the victim’s funds (a seller on a marketplace) by sending her a phishing message, decided to ‘launder’ the stolen funds by purchasing USDT on the ‘Binance’ P2P platform.

As a result, the seller of USDT, who was unaware of the origin of the funds, received a transfer to his PrivatBank card from the fraudsters; however, along with the transfer came a search of his home and the freezing of his card account.

Link to the court ruling: https://reyestr.court.gov.ua/Review/115427588

It is worth noting that any user of a cryptocurrency exchange who buys or sells cryptocurrency via peer-to-peer (P2P) trading may potentially find themselves in a situation where the funds received, or the amount of cryptocurrency transferred to them, form part of a chain of money laundering involving criminally obtained assets or are funds obtained as a result of fraudulent activities.

If you buy or sell cryptocurrency via a peer-to-peer service, you must follow the safe trading rules set out on the exchange.

Read the full article on the ‘Yurydychna Gazeta’ website via the link.