The battle against fraud is changing, but the threat isn't reducing. Carmel King explains how corporate intelligence can support the Bar to help victims of crypto fraud.
Cryptoassets are far more than just digital currencies. They, and more specifically, their underlying technology blockchain, are a revolutionary technology. It's a decentralised distributed ledger systems that has applications in many areas that will reduce or eliminate the risk of fraud.
A smart contract enables the automatic execution of events reduces the risk of fraud losses and malicious or accidental exceptions.
A blockchain-supported supply-chain assurance platform guarantees the provenance of the source materials, statements about ESG, the methods of manufacture, distribution and payment.
These features all support the fight against crimes, including counterfeiting, modern slavery and fraud.
Crypto fraud is rising
So, do cryptoassets mean that fraud investigation and asset recovery services are no longer required? Far from it.
Fraudsters continue to embrace crypto as a mechanism to facilitate fraud, or a route for the obfuscation and dissipation of stolen assets. Having traditionally been disinclined to respect borders or the rule of law, fraudsters are using the internet, secure global messaging apps and cryptoassets to defraud victims on a global scale.
This can often mean that access to justice through criminal processes is not a viable option for victims. It's therefore vital that practitioners in this space continue to pioneer approaches to global crypto fraud investigations and civil recovery.
Three key facts you need to know about crypto fraud
There are three well-established points worth making for the benefit of those less familiar with this practice area.
1 Crypto frauds are essentially variations on frauds with which practitioners will be more than familiar: Ponzi schemes, investment schemes, boiler room scams, advance fee fraud, phishing, APP scams – we've seen it all before
2 A fraud involving blockchain can be preferable to one where traditional banking has been used from a tracing perspective. A simplistic analogy is having access to all the bank statements immediately. Although it depends on the sophistication of the fraudster, the transaction data is generally public, preserved, and searchable with the right tools
3 Freezing and seizing cryptoassets is increasingly well-established. The Courts of England and Wales are the vanguard this battle. We've seen case law emerging from disputes such as AA v Persons Unknown, Ion Science and Fetch.Ai categorising cryptocurrencies as assets — subject to our usual remedies, considering the lex situs, and granting permission to serve Bankers Trust orders out of jurisdiction.
Corporate intelligence services can show you the way
There are many potential barriers to entry to the civil recovery process for victims of a fraud, particularly where there is a crypto aspect, but the tools to help them are available.
Victims can struggle to get an initial blockchain analysis completed to establish whether a claim might be viable: due to cost, a lack of appetite to ‘throw good money after bad’, a lack of technical knowledge, or the further interference of bad actors – fraudsters masquerading as asset recovery professionals hoping for a second opportunity to ensnare their victim.
In this regard there are probably hundreds, if not thousands of good claims that are never referred to members of the Bar. Collaborations, such as our work with Chainalysis and Asset Reality, aim to underpin the established legal approach to cases involving cryptoassets.
We can analyse the movement of the cryptoassets on the blockchains, identify targets for disclosure or freezing orders, and provide expert witness statements in support of such applications. Often overlooked are the ‘real world’ lines of investigation.
It is frequently possible to broaden the scope for further claims against the perpetrators of the fraud, or assisting third parties. Corporate intelligence is vital here, with the use of open-source intelligence or on-the-ground enquiries proving invaluable. This approach usually incorporates direct claims against individuals or companies with a view to further investigations and asset recovery actions using the considerable powers available to a trustee in bankruptcy or liquidator.
CFAAR - Crypto Fraud and Asset Recovery network
In such a rapidly evolving and dynamic area of practice, we're delighted to be one of the founding members of the Crypto Fraud and Asset Recovery network (CFAAR), bringing together some of the world’s leading names in crypto dispute resolution and advisory. This network develops and shares best practice, placing the UK and common law jurisdictions at centre-stage for global crypto dispute resolution.
CFAAR, which launched last month, aspires to be an inclusive community, acknowledging that a collegiate approach by lawyers, barristers, forensic accountants, corporate intelligence, and asset recovery professionals is vital in tackling the complex issues presented in crypto investigations and dispute resolution.
An earlier version of this blog was published on the Bar Council.