Cryptocurrency fraud has emerged as a significant challenge for victims seeking justice. The anonymity of digital assets and the decentralized nature of blockchain transactions often make it difficult to identify perpetrators and recover lost funds. However, recent proposals by The Law Commission aim to simplify the legal process for victims of crypto fraud, offering new hope for those affected.
The Challenge of Crypto Fraud
Unlike traditional financial fraud, cryptocurrency scams often involve unknown individuals operating across multiple jurisdictions. Victims frequently struggle to obtain information about the fraudsters, as exchanges and intermediaries may be the only identifiable entities involved. This creates significant legal hurdles in the early stages of fraud claims. As The Law Commission correctly point out, it is hard to resolve conflict when the asset exists 'nowhere and everywhere, at the same time’ and without an identifiable final destination once it has left the exchange.
It is for this reason that crypto assets challenge established legal principals against financial fraud in a way that has not previously been seen. As such, the recovery of these funds through legal proceedings would be difficult as they may not know who the final defendant is or whether they are even within the jurisdiction of England and Wales.
Currently there is little that can be done about this, but will this always be the case?
A New Pathway for Victims
WRS has always prided itself on being on the frontline of fraud recovery within the crypto space. The rapid growth of scams involving cryptocurrencies in recent years has led to significant developments in both the protections provided to customers by the banks, and the regulation surrounding the purchasing of crypto assets. There has, however, been less focus on the intermediary exchanges through which funds are sent to the scams.
The Law Commission has proposed several important new concepts and reforms to address this shortfall:
- Free-Standing Information Orders: A free-standing information order designed to help victims obtain crucial details about the perpetrators or the whereabouts of their stolen assets without needing to navigate existing civil procedure gateways. This new order would allow claimants to request information from intermediaries such as crypto exchanges, streamlining the initial investigation process and providing much needed clarity on where the funds are sent.
- Section 72 of the Bills of Exchange Act 1882: Proposed changes would also look to update and modernise the legislation surrounding private international law in contractual disputes. These updates aim to ensure that legal frameworks remain relevant in the digital age, providing better protection for victims of crypto fraud.
What Does this Mean for Recovery?
As cryptocurrency becomes more mainstream, the growing attention given to the concerns of potential investors becomes clearer. The proposals by The Law Commission represents exciting prospects for the future of cryptocurrency legislation. These include:
- Enhanced Recovery Prospects – Clearer legal pathways and wider avenues of recovery may be made available by the introduction and modernising of crucial legal frameworks to include cryptocurrency assets.
- Faster Access to Information - The proposed information order would allow victims to bypass procedural hurdles that are both time-consuming and costly, enabling them to gather evidence more efficiently.
- "Omniterritoriality" – It is often unclear which jurisdiction applies to cryptocurrencies, making it difficult to pursue legal action. This update could help establish jurisdiction more easily, ensuring that their claims are processed within a relevant legal framework.
- Accountability - The proposed reforms would make it easier for victims to request data from these crypto exchange platforms, increasing transparency and accountability within the industry.
The proposals should therefore come as a relief to both victims of scams seeking clarity, and to potential investors who will benefit from the potential assurance that these disclosures may provide.
While this is currently only a proposal under consultation, it indicates a positive step in the protections afforded to those investing in the crypto space and for those who have been victims of cryptocurrency-based scams.
How WRS can help
For WRS these legal developments would present new opportunities to assist our clients in reclaiming their lost funds. By leveraging the proposed information order there will be stronger ability to evidence the existence of the scams and identifying the perpetrators. This goes directly to the root of our well-established expertise and is an exciting prospect for WRS and our clients.
At WRS we are committed to helping victims of scams navigate the complexities of fraud recovery. Whether you have fallen prey to a cryptocurrency scam or another form of financial fraud, our team is here to provide expert legal guidance and support.
Ready to start your recovery? Get in touch with the WRS team today.