A Legal First in the Battle Against Crypto Crime

The securing of a first-ever third party debt order for cryptocurrency shows that such assets are not the perfect tool for bad actors

A landmark case could prove a major blow against those looking to use cryptocurrency as a vehicle for crime. 

In Ion Science Ltd and Duncan Johns v Persons Unknown, Binance Holdings Limited, Payward Limited and Mirriam Corp LP, the first-ever third party debt order was granted in relation to cryptocurrency. 

Third party debt orders are generally a method of enforcement for judgements involving money, as opposed to cryptocurrencies.  The granting of the third party debt order in this case – to the value of £2.9 million - enabled victims of crypto-related fraud to recover what is rightfully theirs.

The successful application for the order was brought by Syed Rahman, senior cryptocurrency lawyer at financial crime specialists Rahman Ravelli.

He said: “The fact that judgement can be obtained for a third party debt order to include cryptocurrency is proof that fraud using virtual assets such as Bitcoin is not necessarily a safe haven for bad actors. 

“The case involved thorough preparation and diligent work. It has demonstrated that you can trace and follow the assets no matter what form they take. Whilst the bad actors in this case tried to maintain digital anonymity, the cryptocurrency was traced through the blockchain. This new asset class cannot now be viewed as a refuge for fraud and money laundering within the UK financial system.

“Those who choose to use such assets to facilitate fraud need to recognise that this case serves as both a legal precedent and a strong warning that asset recovery lawyers - with the assistance of the English court system - have the appropriate tools to follow digital trails wherever they may lead. 

“This case’s outcome could prove important for anyone looking to recover assets lost through cryptocurrency-related fraud. These types of fraud would generally undermine confidence in trading with virtual currencies. However, this case shows that threats of this type can be confronted with technology and the latest investigative techniques. This case serves as a reminder that you can hold perpetrators accountable.’’

Case Background

The case was brought after the first claimant was the victim of a cyber-fraud in 2020. This involved the persons unknown transferring a large amount of the cryptocurrency Bitcoin out of the first claimant’s account.

The claimants successfully applied for a proprietary injunction, a freezing injunction and disclosure orders against various cryptocurrency exchanges, including Binance Holdings and Payward Ltd (a subsidiary of Kraken Exchange). The disclosure order led to Payward Ltd disclosing that Mirriam Corp LP was the holder of the now-frozen account that had been used to carry out the fraud. The disclosure also showed there were amounts of both cash and cryptocurrency in that account. The claimants obtained a judgement for £2,935,204.30 against Mirriam Corp after it failed to respond to the claim.  

The High Court then made an interim third party debt order relating to a debt owed by Payward to Mirriam Corp. A third-party debt order allows whoever is owed money to take what is owed from whoever currently has the money. In this case, Payward owed money to Mirriam Corp – which was its customer – that could be used to repay the £2,935,204.30 that Miriam Corp owed the claimants under the judgement. 

Payward had no objection to the third party debt order, but Mirriam Corp did not respond to the application (just as it had not responded to the original claim for £2,935,204.30). Despite Mirriam Corp’s lack of response, the High Court made the third party debt order final. The judge was satisfied that there was a debt payable from Payward to Mirriam Corp and that Ion Science and Duncan Johns were entitled to have the interim order made final.  The court’s ruling enabled the claimants to recover what is theirs.

Other Aspects of the Case. 

While this case was notable for the use of the third party debt order, it was also significant for a number of other reasons.

The case was believed to have been the first initial coin offering (ICO) fraud case to have gone before the Commercial Court and the first time that a court had considered the location of cryptocurrency when determining where a case could be heard.

The case was also the first example of a court granting permission to serve a free-standing Bankers Trust order out of the jurisdiction against cryptocurrency exchanges. Such an order compels a third party (in this case a cryptocurrency exchange) to disclose certain information to the applicant. In AA v Persons Unknown, it was doubted whether this could be done but the Ion Science case confirmed it could be. This is set to be of great use to anyone who is trying to trace and recover assets that they have lost to crypto-related fraud.