QC Corner: James Ramsden QC
Cryptocurrency and Offshore
A decision in the High Court in London is anticipated at a trial in November 2019 to decide the legal status of Bitcoin and Ether. The decision is particularly important to a growing number of offshore jurisdictions which have seen a surge in activity related to the transmission, storage and trading in cryptocurrency.
The UK court will decide a claim brought by a Russian investor allegedly defrauded when large quantities of bitcoin were sent to an FX trader with the intention that it be converted to $US. Having obtained proprietary freezing orders and extensive disclosure orders against third party trading platforms and ISPs, the court will decide at trial whether to back the claimant’ case that cryptocurrency is subject to the tort of conversion or whether, consistent with the dicta in OBG Ltd v Allan  UKHL 21 - it is to be treated in law as having the status of a conventional currency.
The decision will impact on two growing trends; Firstly the use of cryptocurrency to shelter assets in anything from divorce to partnership, shareholder and joint venture disputes. Secondly, the use of cryptocurrency to circumvent exchange control in large economies such as India and China, giving rise to the secondary problem of unregulated FX traders preying on wealthy but secretive investors who wish to convert cryptocurrency to $US or Sterling for investment outside their domicile.
Correctly identifying the legal status of cryptocurrency will identify the ambit of equitable relief, including proprietary and tracing claims. It will also shape available interim relief. So far the courts of the UK and Singapore have been prepared to grant interim relief extending to proprietary freezers, delivery up orders in relation to electronic wallets and extensive search and disclosure orders, frequently involving third party trading platforms, crypto wallet “custodians” and FX traders.
Cryptocurrency is likely to lose some of its image for unreliability if Facebook succeeds in overcoming the current scepticism of Mastercard and Visa in launching “Libra” next year. Either way, Cryptocurrency will continue its advance into the offshore jurisdictions. And beware, its presence is not always obvious. Once harshly likened to carbon monoxide, it can be all around you, but virtually undetected. For some, that is its attraction.