Landmark s.303Z51 POCA Order secures full Crypto recovery of £520,000

In what is believed to be the first of its kind, a team of specialist lawyers, Sarah Wood & Ashley Fairbrother, and experts, Carmel King, worked alongside law enforcement to secure a full recovery under the recently enacted s.303Z51 of the Proceeds of Crime Act 2002 (POCA) for their client, Mr. A, an 80-year-old man who lost over £520,000 to a sophisticated crypto scam.

This landmark case shows the importance of collaboration between law enforcement – deploying powers given to them to trace and freeze assets as envisaged – and the private sector – leveraging rights to recover funds on behalf of victims. This represents a model of English justice at its best, with the legislature enacting new law to combat the epidemic of crypto fraud, and both the police and victims working in tandem to use those powers and rights to tackle fraudsters and recover assets.

While neither the state nor the private sector alone can address the crypto scam crisis, a unified approach offers real hope for recovery.

Background

After being diagnosed with cancer, Mr A made the difficult decision to place his wife into a care home due to her diagnosis of Alzheimer’s disease. Given the financial burden, he investigated investment options to help cover the care home fees. He clicked a link online. 

Mr A came across the website Investiva. He was induced into believing he was making legitimate investments in stocks and commodities and was convinced by what is now understood to be an entirely fictitious investment platform, and one which likely mirrored the coding of that of a legitimate platform.

Throughout a period of four months, Mr A was talked through the process of opening crypto wallets, depositing fiat currency, converting into bitcoin and then making onward transfers to wallets owned and operated by fraudulent actors. These transfers occurred on an almost daily basis, for close to £10,000 at a time, and by the time all came to bear, Mr A had been induced to part ways with over £520,000 of his and his wife’s life savings.

The process upended itself when Mr A was informed, out of the blue, that several of his recent trades had turned sour, and that his account was, in effect, insolvent. All communication ceased.

Mr A reported matters to his local police and also instructed specialist lawyers. Mr A’s funds were traced and two targets were identified (i) a crypto exchange, and (ii) private addresses holding Tether which could deploy blacklisting, burning and reminting processes. A collaborative team of tenacious police forces obtained a freezing order under s.303Z37(2) of POCA.

Recovery

Following further forensic blockchain tracing, Mr A was able to confirm that of the 9.1 BTC transferred to the addresses held by an exchange, which was now frozen, these assets had been converted into USDT and there were substantial transfers to and from the exchange account and to the private addresses holding Tether.

As a victim of the fraud, Mr A had the right as an interested party under s.303Z51 of POCA to apply for the return of his assets. Given the rapid movement of assets to and from accounts in crypto scams, the question remained, which of the assets in the accounts could be said to be his?

Solicitors, counsel and experts set to work to find a solution. In applying civil equitable tracing principles to a s.303Z51 of POCA application, it was possible to establish that where a victim’s funds have been pooled in an account (or in this instance a crypto wallet), and there had been onward transfers out of that account, the onus is on the fraudster to distinguish victim’s funds from his own. Applying this principle, with other equitable tracing principles, through the use of expert analysis, the court accepted this approach and ultimately, ordered that the full amount of Mr A’s losses be repatriated to him from the overseas exchange. The balance of the account was then forfeited to the state, leading to a win-win situation for both arms of this landmark case.

Comment

It has long been contended that the Civil Courts are the appropriate forum for advancing available redress for victims of cryptocurrency frauds. This legislation may change the course of that theory.

Affording more dynamic and robust powers to law enforcement can only serve the better interest of victims. Police officers must be willing to take a bold and decisive interpretation of the legislation that affords them the power to help victims turn what might be the most awful moment of their life into a life-changingly rewarding moment.

Through proper cooperation between the private and public sectors, this opens up an entirely new route for redress for victims – a possible silver bullet. It is far too soon to say whether the use of these powers will usher in a new phase of combative crypto fraud recovery. However, this legislation is now clearly having its desired effect and these powers should be at the forefront of those acting on behalf of victims in such circumstances.