In this second of two posts on the seizure and conversion of cryptocurrency as addressed in the case of R v Teresko (Sergejs) (Kingston Crown Court: HHJ Lodder QC, 11 October 2017, unreported), some reflections are offered on the definitions of ‘realisable property’ and ‘seize’ in relation to bitcoins, and on the application of territorial jurisdiction to cyberspace. The first post, which sets out the facts, can be found here.

Seizing bitcoins

A further interesting aspect of this case, which was not an issue for the Crown Court, is the original seizure of the bitcoin by Surrey Police. The seizure had been effected by the police using the powers of seizure in ss. 47A-S POCA, introduced by s. 55(2) Policing and Crime Act 2009. In most cases this requires permission to have been granted by the Magistrates’ Court, who must have been satisfied that seizure, undefined in the Act, could apply to virtual currency as much as to cars or other valuable items (cash is subject to its own seizure regime).

This turns firstly on the definition of ‘realisable property’ which includes intangible or incorporeal property (s. 84(1)). It is submitted that there is no difficulty in the conclusion that cryptocurrency is realisable property and may be seized.

Courts have no difficulty in finding that a wide range of things that are freely traded are capable of being “property” – see for example, Armstrong DLW GmbH v Winnington Networks Ltd [2013] Ch. 156, a case on carbon credits, which drew upon the decisions of the Privy Council in Attorney General of Hong Kong v Nai-Keung [1987] 1 WLR 1339 (in which it was held that textile quotas were intangible property and capable of being stolen, with Lord Bridge stating at p.1342 that “…It would be strange indeed if something which is freely bought and sold … were not capable of being stolen”), and of the House of Lords in Provincial Bank Ltd v Hastings Car Mart Ltd [1965] AC 1175 (in which Lord Wilberforce at pp.1247-8 set out the characteristics of property in the following terms , “…Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties and have some degree of permanence or stability”). It is a reasonable starting point that the language of ss.47A-R should not be construed over-restrictively and should be considered as providing, so far as is consistent with the statutory language, an effective means of seizing and detaining things of value of whatever sort to make them available for future confiscation proceedings.

Secondly, the ordinary meaning of ‘seize’ (defined in the New Shorter Oxford English Dictionary as “…Take possession of (contraband, assets, documents, etc.) by warrant or legal right; confiscate, impound”) is wide enough to encompass the administrative act of transferring a bitcoin from one part of the blockchain to another.

The international dimension

The international aspects of the blockchain (the growing de-centralised list of encrypted records that supports the bitcoin technology) should also be considered. Bitcoin transfers are affected by harnessing the power of a distributed network of computers on the internet. Accordingly if UK law enforcement were to cause a bitcoin to be transferred from one public key to another public key, that would in due course cause foreign servers to process information as they validated the transfer across the blockchain. Applying a traditional territorial model, UK law enforcement could therefore be said to have changed data held on servers located on foreign soil (although it is unlikely that one could identify which foreign soil).

The precise application of territorial jurisdiction to cyberspace, if such a concept can even be admitted to exist, is highly contentious and beyond the scope of this commentary. However on the basis that the territorial model does apply, it could be said that this would be contrary to general principles of international law, and therefore unlikely to have been intended by Parliament. The starting point is that under international law, “…The exercise of enforcement jurisdiction is an exercise of State sovereignty, and the rule that governs it is simple. No State may exercise its enforcement jurisdiction in the territory of another State without that State’s permission”: International Law, Vaughan Lowe, Oxford U Press, 2007, p. 184.

This principle has been identified by the domestic courts as giving rise at the very least to a strong presumption as to Parliamentary intent in a number of cases such as R v Cuthbertson [1981] AC 470 , 485; Société Eram Shipping Co Ltd v Cie Internationale de Navigation [2004] 1 AC 260, para 54; Serious Organised Crime Agency v Perry [2013] 1 A.C. 182, para 136(5); although the fundamental question in this context is always one of interpreting the particular statute: Bilta v Nazir [2016] AC 1, para 212. Similar arguments as to the intention of the legislature arose in the recent decision of the US Court of Appeals for the Second Circuit, in Microsoft Corporation v United States of America, 14 July 2016, Docket No 14-2985.

It could therefore be argued that whist Parliament did intend to allow seizure of property in England and Wales, it did not intend to allow seizure of property, which – even if not strictly speaking located abroad – would necessarily involve altering data on servers in foreign states. It is thought that this is not a valid objection, not least because as a matter of practical reality a transfer can be significantly progressed (even if not completed) using technology within the jurisdiction. The fact that in due course servers on foreign territory are likely to operate as a result of any transaction does not look like a basis for concluding that Parliament cannot have intended the seizure power to extend to circumstances such as these.

That foreign computers were involved cannot be the beginning and end of the enforcement question otherwise, every time police access a website, they would be involved in an extraterritorial enforcement.

Finally, it should be noted that mutual legal assistance is not a practicable alternative. Given the nature of the internet, it would be impossible to identify which states might give appropriate assistance or consent.