Syed Rahman and Ulrich Schmidt outline the grounds for a Bitcoin-related dispute between the UK and China
Zhimin Qian, also known as Yadi Zhang, has admitted her role in a huge fraud that is believed to be the largest of its type. As such, it would be easy to assume the matter will be concluded when she is sentenced next month.
But that will certainly not be the case, as her activities look set to spark an incident between the UK and China over her crypto assets.
The 47-year-old has now pleaded guilty at London’s Southwark Crown Court to illegally obtaining and holding cryptocurrency, years after detectives seized 61,000 Bitcoin from her. She built up her crypto hoard, currently valued at £5.5 billion, after running fraudulent wealth schemes in China that saw her take money from more than 128.000 investors. She then moved to the UK, living a lavish lifestyle financed by the money stolen from her victims.
Her home in an affluent part of London was raided in 2018. But it then took specialists more than two years to uncover the stolen Bitcoin which Zhang had hidden across multiple wallets on several computers. Back then, the Bitcoin in her possession was worth an estimated £1.5 billion. But it has since more than tripled in value.
Funds
The defrauded Chinese investors have been pleading with the Chinese government to ensure that their stolen funds are returned. But the UK reportedly aims to keep the bulk of the fortune for itself, which could cause a diplomatic incident between the two states.
The UK can point to the fact that civil recovery proceedings at the High Court are currently ongoing. The Director of Public Prosecutions (DPP) has stated that the UK will wait for those who claim to have an interest in the stolen property to obtain legal advice and make applications to the High Court before it will look to claim the property. However, such applications will be a large uphill battle for the Chinese investors, who will have to establish a clear, traceable link between their original investments and the Bitcoin seized by the UK. This is a huge task in any cross-border money laundering case.
The UK courts have the power to order the forfeiture of the proceeds of crime when a person has been convicted. The investors, however, will argue that they are entitled to those assets, as they were bought with the money that Zhang fraudulently obtained from them. The UK government may argue that the investors will be entitled to the return of their initial funds – but not the current value of the Bitcoin in question. This would be a very attractive argument for the UK government as it is looking to plug the fiscal gap (the difference between what it brings in as revenue and what it spends) which is currently believed to be around £30 billion.
Yet the UK has a mutual legal assistance treaty with China, which relates to cooperation between the two countries to enforce the law. It now remains to be seen what stance the two countries adopt to this high-value dilemma.
It is a dilemma that has arisen because crypto poses a unique problem, as its value fluctuates at such extreme rates and it is easy to liquidate into cash. Stolen artwork, diamonds or other assets will also fluctuate in value, but they are harder to liquidate and it is often far easier to prove their original owner.
Whilst Zhang’s motivation for putting the stolen money into cryptoassets is unknown, it is likely to be related to her escape from China and the ability to transport over $600 million on a single computer and wallet. Anyone facing the challenge of regaining their assets in such situations has to seek the advice of those with the relevant expertise and the experience of such multijurisdictional cases. As this case proves, such situations can be far from straightforward.
