INTERPOL Red Notices and cryptocurrency related charges: why are these cases emerging in South Korea, China, the United States, and other financial hubs?

Estlund Law, P.A.
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Estlund Law, P.A.

Again this week, there is news that a cryptocurrency entreprenuer is wanted to face criminal charges. In the case of Do Kwon, the co-creator of failed cryptocurrency TerraUSD, South Korean authorities alleged that 280,000 investors lost USD40 billion when his cryptocurrency value crashed. “The crash is also believed to have caused more than $500 billion in losses across the wider crypto market globally,” according to the report.

With numbers like these, the immediate thought is that someone has to pay. And when there is true criminal fraud or deception involved in investment failures,  authorities should seek to prosecute wrongdoers.

But. Businesses and investements related to cryptocurrency have created financial activity the likes of which have not been seen in our publicly traded markets, ever. While cryptocurrency is no longer new, cases related to cryptocurrency in the world’s judicial systems-particularly criminal courts- are fairly new. They often involve allegations of fraud and other financial crimes that fall under the umbrella of money laundering.

With any new phenonmenon, new forms of criminal prosecutions will arise. At its core, deviant human behavior often fits neatly into one of several criminal categories, and financial crime is no exception. Regardless of the vehicle used to accomplish fraud-wire fraud, mail fraud, fraud in the inducement of a contract, etc.- fraud involves deceiving another in order to obtain a gain. That has not changed as cryptocurrency has become a normal part of our financial lives.

Cryptocurrency: a complex fact pattern + different regulatory schemes + high value losses = change the defendant’s treatment

What is different about the criminal charges we are seeing in cases involving cryptocurrency is that jurisdictions don’t always know how -or have not yet agreed on a common scheme- to regulate the financial transactions related to cryptocurrency. Accordingly, a person may be wanted for and detained for a Red Notice even if it eventually will not be honored by INTERPOL’s other member countries.

Another factor is that the government officials charged with prosecuting and adjudicating related allegations do not always understand cryptocurrency. I have seen in my practice that prosecutorial and judicial lack of understanding of cryptocurrency and the business models related it often result in an alarmist reaction when large sums of money are alleged to have gone missing. This reaction can result in orders to allow proceedings to advance in the absence of any clearly stated criminal charges; to hold defendants in pre-trial detention rather than issue bond; and to freeze assets without articulating the requisite grounds.

The challenge for prosecutors and courts

The fact patterns related to cryptocurrency, its mining, blockchain activity and records, and the business models often associated with these cases can be quite complex. The challenge for the prosecution and the courts is to do the thing that is increasingly rare in today’s society: to take the time needed to fully understand the allegations and underlying facts before acting on them, and to decide whether a massive loss is simply an investment gone unfavorably, or the result of a true criminal act.

Otherwise, we will risk innocent people being subject to asset freezing, detention, and prosecution.

As always, thoughts and comments are welcomed.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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