Our office is one of the few law firms that deals with the dark side of cryptocurrencies, such as Bitcoin, Ethereum, Cardano, Ripple and Litecoin.
What are cryptocurrencies?
You can use cryptocurrencies to invest – you hope for an increase in value – but they can also serve as a means of payment, just like transferable money that goes from one bank account to another. You buy cryptocurrencies by opening an account with a wallet, a kind of bank account where you can buy multiple types of cryptocurrencies. You can sell it at a profit or loss, after which you withdraw the equivalent and have it deposited back into your bank account, but you can also transfer the cryptocurrency to another wallet.
And this is where things can go wrong. Wallets are a favorite toy of criminals. Wallets are very international and often very easy to open online, even with a false identity. Cryptocurrencies can easily be siphoned off and cannot be retrieved. People who believe in cryptocurrencies praise the transparency of the “blockchain”, the underlying technology through which you should always be able to find out how a transaction goes. But criminals use this technology in a clever way to stay under the radar. They move cryptocurrencies to a wallet abroad at lightning speed, exchange them a few times to create confusion and mislead the law in other cryptocurrencies, and eventually just convert stolen cryptocurrencies into real money. When the time comes, all traces have been erased. The blockchain is therefore not that transparent.
Cryptocurrencies are therefore very suitable for laundering criminal loot, but there is more to it. The security of wallets sometimes leaves a lot to be desired. You can open a wallet online and the accounts are sometimes poorly secured (although you also have options with some wallets). Criminals can devise complex strategies to rob people online using the wallet to embezzle the loot.
Example of a case from our practice
A man buys cryptocurrency for €3,000 from a foreign wallet, which happens to be at the top of Google. This wallet is in reality part of a criminal organization. The man has to identify himself and he sends a PDF with his passport. This allows the criminals to misuse his identity. The criminals open 4 other wallets in different countries in the name of the man without any problems. The e-mails are captured to an e-mail address opened in his name, so he does not know at all that these wallets are in his name. After a while, the man wants to sell his cryptocurrency and withdraw its value. The criminals ask him to download Anydesk, ostensibly to help. They thus take control of the man’s bank and savings account, which contains € 200,000 in savings. They book that money away as a deposit on the wallets that is in his own name. The deposits are used to quickly purchase cryptocurrencies that are transferred to other accounts. Only one of the wallets has a properly working fraud detection system, they block the transactions. The rest of the money is moved to wallets in the Marshall Islands, where it is elusive. An example of a successful digital bank robbery, in which the wallets are used for funneling and laundering the loot.
As a lawyer, you can handle this case in different ways. It makes little sense to track down the criminals; they are untraceable, even for the police. It is smarter to look for errors in the wallets that have been used. For example, it is strange that you can just open an account with a stolen passport and therefore with a false identity. That would not be possible at a bank. You can hold the wallet liable on this ground. Another angle is the malfunctioning of fraud detection. It is quite strange that a wallet is not used at first; then suddenly a large amount is invested and that is immediately written off; a case where alarm bells should go off and transactions should be blocked and further investigated, in order to prevent fraud.
A specialist area of law
Fraud with cryptocurrencies and wallets is a real specialization of our office. This specialization does not fall under any particular area of law. In fact, all kinds of unrelated jurisdictions come together, plus understanding of the technical side. To be able to litigate against foreign wallets in the Netherlands, you must have knowledge of consumer law and international treaties, for example. When it comes to breach of duty of care, you have to have knowledge of financial law and be creative, because cryptocurrencies are a young phenomenon, where the rules are not yet fixed.
Should you invest in cryptocurrencies?
We are often asked what we actually think of cryptos. Well, as a law firm we mainly see the dark side. Be especially critical and very careful, especially if you use foreign wallets. Choose a Dutch wallet, such as Knaken. Always use 2FA (double protection of your account), good antivirus software to avoid being hacked and realize that you can’t talk to anyone if your “investment” in cryptocurrency evaporates. And oh yes, sometimes complete wallets have disappeared abroad at the push of a button. The customers of these wallets had lost everything and nothing has been heard from the founder of the company for a long time.