July 13, 2020

CipherTrace

Bitcoin Theft Not a Crime in Russia | 4th Amendment Does Not Apply | FATF Reviews Travel Rule Effort

Russian Court Denies Restitution to Victim of Bitcoin Theft
US Fifth Circuit Court Rules that 4th Amendment Does Not Protect Bitcoin Data
On the Blog: Revised FATF Standards on Virtual Assets 12-Month Review

Russian Court Rules Theft of Bitcoin is Not a Crime

On June 30, a Russian court denied a motion to demand restitution for the victim of kidnapping and bitcoin larceny. The judge ruled that the larceny was not a felony because bitcoin, a virtual currency, does not enjoy the same property protection as real assets.

The case goes back to 2018 when two men impersonating Federal Security Service (FSB) agents kidnapped the victim and forced him into giving them 5 million rubles (approximately $90,000 in US currency) in cash and 99.7 BTC — worth about $900,000 at the time. The kidnappers were sentenced to eight- and ten-year prison sentences.

As part of the criminal proceedings, the victim requested the court rule to force the thieves to repay the funds that they stole from him. The court ruled partially in the victim’s favor, asserting the thieves must repay the cash sum. However, when it comes to the cryptocurrency, the court declared that it is unable to satisfy the claim since virtual currencies are not recognized by Russia’s laws as legal tender or its surrogate.

Why It Matters: Despite increasing adoption of cryptocurrencies by the general public, this case demonstrates that virtual currencies still have a long way to go before they achieve mainstream acceptance and understanding across every facet of society around the globe.

4th Amendment Does Not Protect Bitcoin Data, Says US Appeals Court

According to the ruling of a three-judge panel from the Fifth Circuit courts, the American government’s Fourth Amendment does not apply to bitcoin transaction data used in a crime if they stem from virtual currency exchanges. The US court ruled against the defendant, Richard Gratkowski, who attempted to leverage the Fourth Amendment in an appeal. The amendment prohibits unreasonable searches and seizures of private property.

Richard Gratkowski was charged with allegedly making payments to a child pornography website, and sent bitcoin to the web portal via his Coinbase account. In the process of the investigation, the Federal Bureau of Investigation (FBI) subpoenaed Coinbase for Gratowski’s transaction records. However, Gratkowski appealed the case and said that his bitcoin transaction history deserves to be protected by the Fourth Amendment.

Judge Haynes, who voted to strike down the appeal, explained: “Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring bitcoin. The main difference between Coinbase and traditional banks, which were at issue in Miller, is that Coinbase deals with virtual currency while traditional banks deal with physical currency.”

Why it Matters: Just as traditional financial institutions like banks must respond to subpoenas for financial records in criminal cases, this ruling enforces that cryptocurrency exchanges in the US are under the same obligations. These obligations will further protect and legitimize the crypto economy by ensuring fiat on- and off-ramps like exchanges are able to appropriately aid in preventing the criminal abuse of virtual assets.

On the Blog: Revised FATF Standards on Virtual Assets 12-Month Review

On June 24, 2020, the Financial Action Task Force met virtualy to review global progress towards implementing new anti-money laundering guidance for virtual assets and virtual asset service providers (VASPs). Details of the session released in FATF’s latest report offer a hopeful outlook for VASPs and the greater cryptocurrency community.

The scope of the review highlights three main assessment areas: emerging market trends and money laundering risks, public sector implementation and enforcement of the revised Standards, and private sector development and adoption of a Travel Rule compliance mechanism.

According to the report, out of the 54 responding FATF and FATF-Style Regional Body (FSRM) member jurisdictions, 32 jurisdictions reported having existing AML/CFT regulations for Virtual Asset Service Providers, 13 jurisdictions reported having regulations in development, and 5 jurisdictions indicated the prohibition or near future prohibition of VASPs.

CipherTrace’s complete written brief on the report can be found here: https://ciphertrace.com/revised-fatf-standards-on-virtual-assets-12-month-review/