Judicial Disposal of Virtual Currencies: How to Ensure Compliance (Part 5)?
By Mankun Law Firm
AI summary
Seizure and Custody of Virtual Currencies Involved in Cases
Contents
Seizure and Custody of Virtual Currencies Involved in Cases
This article focuses on the custody of virtual currencies involved in cases. How to properly safeguard seized virtual currencies may seem like a straightforward issue, but mishandling it can lead to serious consequences, as illustrated by the case below.
Legal Risks for Law Enforcement Agencies Handling Virtual Currencies
In May this year, a WeChat public account disclosed a Bitcoin theft case handled by the Nanjing Municipal People’s Procuratorate. Briefly, between 2016 and 2018, an investigator from a certain authority, taking advantage of their position, shared case-related electronic data (including Bitcoin information) with a friend for identification purposes. This friend, emboldened by their technical expertise, discovered that the data contained Bitcoin information, cracked the data, and stole part of the Bitcoins. Subsequently, the investigator repeatedly demanded cash amounting to RMB 4.5 million and 200 Bitcoins from the friend who had stolen the Bitcoins, until the matter was eventually exposed.After this article was published, it was promptly deleted across the entire internet. Even related articles on overseas websites accessible only through scientific internet tools were removed, which was quite surprising. The original intention of the Procuratorate was to discuss how to characterize Bitcoin in the context of a judicial officer accepting Bitcoin from others by taking advantage of their position, and their friend stealing Bitcoin—whether it should be defined as currency, virtual property, commodity, or computer information system data?Of course, this question is not the focus of this article. This example is cited merely to demonstrate the importance of properly safeguarding virtual currencies involved in cases.
How Should Law Enforcement Agencies Standardize the Custody of Virtual Currencies Involved in Cases?
(I) Procedural Requirements
According to relevant regulations, at least two investigators must be present during the seizure execution of virtual currencies. Generally, a “Decision on Seizure” is required (in special circumstances, the on-site commander may decide on the seizure). A record must also be prepared for the seizure of virtual currencies involved in the case, and it must be signed by the investigators, the holder of the virtual currencies, and witnesses (except where the holder cannot be located or refuses to sign).
(II) Departmental Setup
In accordance with the requirements of the Ministry of Public Security, county-level public security organs must designate an internal department as the management authority for property involved in cases. Meanwhile, a dedicated storage facility must be established for the centralized custody of such property.
(III) Daily Management
In the daily management of virtual currencies involved in cases, the principle of “separation of case handling and management” must be implemented. This means that management personnel and case-handling personnel cannot be the same individuals, and there must be mutual checks and balances between them. No one may embezzle, misappropriate, privately divide, exchange, withhold, offset against expenditures, damage, or unauthorizedly dispose of property involved in the case. In particular, it is strictly prohibited for case-handling personnel to personally custody virtual currencies involved in the case.
(IV) Special Management for Seized Virtual Currencies
In addition to the general provisions mentioned above, there are specific considerations for the seizure of virtual currencies.First, virtual currencies are not physical objects and require other physical media for storage. Should seized virtual currencies be stored in hardware cold wallets, mobile app wallets, or even online hot wallets? For hardware wallets, the custody method is closest to traditional custody of property involved in cases. Mobile app wallets are barely acceptable. However, online hot wallets definitely cannot be used as a medium for holding seized virtual currencies.Second, access to the wallet, especially to mnemonic phrases and private keys, should be limited to at least two property custody personnel. Others, particularly case handlers, must absolutely have no opportunity to operate the wallet. If case-handling needs require investigators to understand the wallet status, the custody personnel should open the wallet and display the relevant information to them.Finally, due to the anonymity feature of blockchain technology, unless someone voluntarily discloses information, on-chain addresses cannot be linked to real individuals. Based on this, Attorney Liu suggests that wallets involved in cases should be set up as multi-signature wallets, with corresponding permissions held separately by at least two custody personnel, to prevent situations where a single individual can control the wallet.
Concluding Remarks
In practice, because some judicial personnel do not understand the technical attributes of virtual currencies, incidents such as loss or theft of virtual currencies involved in cases occur during the seizure period. Since suspects are often under compulsory measures such as residential surveillance at a designated location or detention during this time and cannot transfer virtual currencies, it becomes highly controversial whether third parties transferred the virtual currencies or whether case-handling personnel embezzled them by taking advantage of their positions. This easily leads to conflicting accounts among the parties involved, casting doubt on whether the case can ultimately be handled fairly and lawfully.Therefore, the lawful and correct seizure of virtual currencies involved in cases is crucial. At best, it affects the calculation of the amount involved in the case in the future; at worst, it may directly impact the determination of guilt versus innocence, or the distinction between different crimes. Judicial authorities must attach great importance to this issue.
Special Disclaimer:
This article is an original work of Mankun Law Firm. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters.
