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BITCOIN, BLOCKCHAIN AND DIGITAL ASSET TRACING AND LITIGATION

Frequently asked questions for businesses and individuals.

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BITCOIN, BLOCKCHAIN AND DIGITAL ASSETS -
TRACING AND LITIGATION FAQs

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I have been scammed out of my digital assets, what can I do?


Digital asset fraud has increased at an alarming rate over the years. Amongst the others, scammers advertise high-performing investments with their victims and promise substantial returns before eventually disappearing with the money. Anytime you find yourself in such a situation, immediately contact a lawyer (they will not charge you to initially understand what happened). Assets on a blockchain fall within the scope of many legal frameworks and this means, whenever a tort occurs, a legal remedy is available. We at ONTIER LLP are the only law firm with proven expertise in blockchain and cryptocurrency related disputes and can advise on any threat you face in digital assets management.




How can I recover stolen digital assets?


We are specialists in asset tracing and international freezing injunctions. This is the prime tool to ensure your assets cannot be dissipated by wrongdoers and allow you to regain possession.




How do I recover digital assets if I have lost my key?


If you lost your car keys, you wouldn’t think the car ownership is lost. A contractual relationship exists in law. The same principle applies to digital assets. If you lose the key to your digital wallet, nobody can lawfully claim ownership over your assets, as long as you can prove that you have title– in other words, that they belong to you. The blockchain developers and maintainers are then responsible for the lawful and proper functioning of the system they manage. They have the power to repair torts by making changes to the code where needed and can be ordered by courts to restore access to a wallet you legally own, in case you have lost the key(s).




Can transactions made using cryptocurrencies be traced?


All such transactions are public, traceable, and recorded and stored on the blockchain. This is because a blockchain works as a permanent ledger whereby all transactions are communicated to other users on the chain as soon as a transfer completes. This transparency ensures transactions are traceable and protected against hackers.




Can law enforcement seize crypto assets?


Same as with any other asset, digital currency can be seized in civil disputes or if criminal activity is discovered. Provided that a warrant or a court order is obtained, law enforcement can order access to a wallet encrypted or not. Where wrongdoers fail to cooperate, digital assets exchanges can be subject to court orders. Doing so, law enforcement can access the tokens and restore possession.




My crypto assets have been frozen, how can I get them back?


Frozen assets are not lost and a number of solutions is available, For instance, iIf someone stole your digital assets, and you know the identity of the thieves, law enforcement will oblige to restitution and prosecute for theft. If you don’t know who has taken your money, digital asset exchanges and blockchain developers may be subject to court orders and have the power to restore your control over your assets.




What laws apply when selling crypto assets?


People have a mistaken opinion that digital assets fall outside the scope of the law. This is wrong. Digital assets have been recognised as property by authoritative courts around the world. This means that assets on a blockchain fall under the umbrella of the Common Law and are subject to all Regulations in force in the UK and worldwide.




Do I legally need to declare my crypto assets to HMRC?


HMRC made clear in its Manual on cryptoassets that businesses carrying out activities which involve the exchange of digital assets are liable to tax. Nonetheless, consider that crypto assets cannot be compared to conventional investments or payments, and their “taxability” depends also on relevant activities.

Taxable activities include:

  • buying and selling cryptoassets;
  • mining;
  • exchanging tokens for other assets; and
  • providing goods or services in return for exchange tokens.
HMRC considers each scenario on its facts and you might then be liable to pay Capital Gain Tax, Corporation Tax, Corporation Tax on Chargeable Gains, Income Tax, VAT, National Insurance Contributions and Stamp Duties.

The amount of tax depends on income, expenditure, profits and gains. These must be declared to HMRC by a self-assessment tax returns (for individuals) or company tax returns.




How are crypto assets regulated?


Investments in cryptoassets are speculative and risky. For instance, if something goes wrong, you are unlikely to have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme. At present there is no specific UK legislation to regulate trading of cryptoassets. However, as explained above, this does not mean that there are no remedies available.

Nonetheless, in the UK, trading of crypto assets is regulated for money laundering purposes under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLR 2017”). This means that UK based businesses must register with the Financial Conduct Authority and submit an annual financial crime report.

In the future, it is likely that the UK government will come up with new legislation to regulate this market. HM Treasury guidance, issued via the UK Crypto Asset Task Force in January 2021, emphasized the UK’s intention to consult on bringing certain cryptocurrencies under the scope of ‘financial promotions regulation’ in much the same way as shares, and to continue to consider a ‘broader regulatory approach’ to crypto assets.





 

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