Cryptoassets are far more than just digital currencies. They, and more specifically their underlying technology blockchain, are a revolutionary technology. An immutable decentralised distributed ledger technology has applications in many areas which will reduce or eliminate the risk of fraud. For example, a smart contract that allows for the automatic execution of events reduces the risk of fraud losses and malicious or accidental exceptions; or a blockchain-supported supply-chain assurance platform that guarantees the provenance of the source materials, statements about ESG and corporate governance, the methods of manufacture, distribution and payment, thereby supporting the fight against crimes including counterfeiting, modern slavery and fraud.
So, are fraud investigation and asset recovery professionals out of a job? 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 is accordingly vital that practitioners in this space continue to pioneer approaches to global crypto fraud investigations and civil recovery.
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 have 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, and (3) Freezing and seizing crypto assets is increasingly well-established. The Courts of England and Wales are at the vanguard of this battle, with case law including 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.
There are many potential barriers to entry to the civil recovery process for victims of a fraud, particularly where there is a crypto aspect. Victims can struggle to get an initial blockchain analysis completed to establish whether a claim might be viable, whether 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 ours 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 also 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.
In such a rapidly evolving and dynamic area of practice, Grant Thornton is delighted to be one of the founding members of CFAAR – the Crypto Fraud and Asset Recovery network, alongside, Asset Reality, Essex Court Chambers, Osborne Clarke, Rahman Ravelli, RPC, Stewarts and Twenty Essex, that brings together some of the world’s leading names in crypto dispute resolution and advisory with the purpose of developing and sharing best practice and 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.
More information on CFAAR can be found at https://www.linkedin.com/groups/13995171/