The Crown Court has granted a novel application by the police in restraint proceedings to convert seized Bitcoins into sterling.
R v Teresko (Sergejs)
Kingston Crown Court: HHJ Lodder QC, 11 October 2017, unreported.
Surrey police searched the home address of the defendant who was subsequently convicted of drugs and money-laundering offences. A piece of paper was found containing a bitcoin recovery phrase, which enabled police to seize 295 bitcoin worth £975,000. Confiscation was outstanding. An application was made by the CPS for a restraint order over the defendant’s assets under s41 Proceeds of Crime Act 2002, including an application under s41(7) for an order permitting the police to ‘convert’ the 295 bitcoin into sterling, owing to the volatility of bitcoins, and their vulnerability to attack, even when held in a dedicated police bitcoin wallet. It was accepted that this was an entirely novel application. Evidence was adduced of two alternative methods for conversion of bitcoin: public auction, a method successfully used in the United States, and an bitcoin exchange, used by the Dutch police for over 5 years and subject to due diligence by UK law enforcement.
Held, the application was granted. The Court was satisfied that the power to make such an order was available under s41(7) POCA, and that it was appropriate to make the order. The appropriate means of conversion was the approved bitcoin exchange. The fees for undertaking the conversion were lower than those at public auction, and the effectiveness of using a bitcoin exchange had been established.
Bitcoin and other cryptocurrency are widely used by lone criminals and organized crime groups to launder their proceeds, but law enforcement and the courts are only just beginning to consider the adequacy of existing powers. In the present case, the prosecutor was able to point to the wide power under s41(7) POCA which enables a court to make “…such order as it believes is appropriate for the purpose of ensuring that the restraint order is effective”. Long before the POCA legislation, the courts had recognized that they had a power to make ancillary orders in connection with restraint orders, in the same way that they did in connection with civil freezing orders (Re O  2 QB 520, applying AJ Behkor v Bilton  2 All.E.R. 565). Novelty has not been bar to the courts developing new types of ancillary orders in the civil context (Bayer v Winter  1 WLR 497, order requiring the surrender of a passport) and the need for flexibility to deal with “new situations” has been again reiterated by the Court of Appeal (JSC BTA Bank v Ablyazov  1 WLR 1414, overturned on other grounds). Nor is it an objection in principle that unlike most ancillary orders, the order in this case was not against the defendant (such as disclosure, repatriation) but was in favour of a third party, the police; there is precedent for ancillary orders being directed at third parties (as in (Re D (Restraint Order: Non Party), The Times, 26 January 1995, requiring disclosure by a non-defendant). Aside from objecting to the overall novelty of the situation, it could have been said that the police were not properly qualified to carry out a transaction of this nature and that a receiver was better placed to perform it. In the present case the CPS adduced evidence that considerable thought had been given to the best means of effecting conversion to sterling. The fact that a (costly) receiver might have been appointed did not mean that such an order was not permissible. Alternatively it might have been said that the value of bitcoin was bound to go up further (as it had since the original seizure) and therefore that the defendant would lose out. This argument had less force in a post-conviction case where the defendant, facing confiscation proceedings in which the assumptions would apply, was unlikely to retain any part of these assets, whatever happened to the value of bitcoin in the interim.
A further interesting aspect of this case, which was not an issue for the Crown Court, is the original seizure of the BitCoin by Surrey Police: this will be the subject of a further blogpost.