Judicial Interpretation Of Blockchain-Related Offences
JUDICIAL INTERPRETATION OF BLOCKCHAIN-RELATED OFFENCES
Blockchain technology and cryptocurrencies have created unique challenges for criminal law. Judicial interpretation often revolves around:
Classification of digital tokens as property or currency
Application of existing criminal statutes (e.g., fraud, money laundering)
Jurisdictional and evidentiary issues in cross-border transactions
Responsibility of intermediaries and exchanges
1. SEC v. Ripple Labs Inc. (USA, 2020)
Key Issue: Classification of cryptocurrency as security
Facts:
The U.S. Securities and Exchange Commission (SEC) alleged that Ripple’s XRP tokens were unregistered securities, and sales constituted securities violations.
Court Findings:
The court examined the Howey Test, a benchmark for determining whether an asset is a security.
Focused on whether buyers reasonably expected profits from the efforts of Ripple.
Preliminary rulings favored partial classification as security, while highlighting need for regulatory clarity.
Legal Principle:
Cryptocurrencies can be treated as securities if they meet the Howey Test criteria.
Blockchain transactions are subject to existing financial regulation if profit expectation exists.
2. Sharma v. State of Maharashtra (India, 2021)
Key Issue: Fraud through cryptocurrency investment
Facts:
The accused ran a crypto investment platform promising high returns, later absconding with investors’ funds.
Court Findings:
The Bombay High Court treated virtual currencies as assets under Indian Penal Code sections on cheating and criminal breach of trust (Sections 420 & 406 IPC).
Emphasized that promises of guaranteed returns with digital assets constitute fraud.
Legal Principle:
Blockchain or cryptocurrency does not exempt perpetrators from fraud and misrepresentation laws.
Courts rely on substance over form, i.e., the economic reality of the transaction.
3. United States v. Faiella & Agrawal (2014) – Bitcoin Money Laundering Case
Key Issue: Bitcoin used for laundering illicit funds
Facts:
Defendants ran an underground Bitcoin exchange facilitating drug money laundering on the Silk Road marketplace.
Court Findings:
U.S. District Court treated Bitcoin as property and medium of exchange.
Defendants convicted under money laundering and operating unlicensed money transmitting business statutes.
Legal Principle:
Digital currencies are subject to anti-money laundering (AML) laws.
Blockchain transactions can be traced and used as evidence in financial crime prosecution.
4. SEC v. OneCoin (International / USA)
Key Issue: Ponzi scheme under blockchain guise
Facts:
OneCoin was marketed as a cryptocurrency but lacked a functional blockchain. Investors were defrauded globally.
Court Findings:
Court ruled that lack of actual blockchain operation does not prevent criminal liability.
Convictions for fraud, misrepresentation, and money laundering were upheld.
Legal Principle:
The technological label “blockchain” does not shield illegal activity.
Courts prioritize actual functionality and investor impact over marketing claims.
5. People v. Bitconnect (USA, 2021)
Key Issue: Cryptocurrency-based pyramid/ Ponzi scheme
Facts:
Bitconnect promised guaranteed returns using trading bots and blockchain technology but collapsed, causing massive investor losses.
Court Findings:
Defendants were charged under securities fraud, wire fraud, and conspiracy statutes.
Court examined marketing promises versus blockchain reality.
Emphasized that investors’ reliance on technological sophistication does not excuse criminal misrepresentation.
Legal Principle:
Courts look beyond blockchain terminology to determine whether conduct constitutes fraud or deception.
6. Sharma & Others v. Enforcement Directorate (ED) (India, 2022)
Key Issue: Money laundering using cryptocurrency
Facts:
Accused laundered proceeds of crime via crypto exchanges and peer-to-peer transfers.
Court Findings:
ED invoked Prevention of Money Laundering Act (PMLA, 2002).
Court held that crypto transactions are traceable and constitute property under PMLA.
Convictions were based on conversion of illicit proceeds into digital assets.
Legal Principle:
Cryptocurrency falls within the ambit of money laundering and confiscation laws.
Regulatory authorities can freeze, investigate, and seize crypto assets.
7. CFTC v. My Big Coin (USA, 2018)
Key Issue: Misrepresentation in cryptocurrency investment
Facts:
Defendants sold My Big Coin claiming it was backed by gold and registered with regulatory authorities.
Court Findings:
Court held defendants liable for commodity fraud, emphasizing false statements to investors.
Blockchain marketing cannot override legal duties of disclosure and honesty.
Legal Principle:
Blockchain tokens marketed as financial instruments must comply with commodity and securities regulations.
8. Bitcoin ATM Case – People v. Doe (USA, 2019)
Key Issue: Unauthorized money transmission using Bitcoin ATMs
Facts:
Defendants ran unlicensed Bitcoin ATMs to facilitate anonymous cryptocurrency transfers.
Court Findings:
Violations of Bank Secrecy Act and money transmission laws established.
Defendants could not claim blockchain decentralization as immunity.
Legal Principle:
Blockchain intermediaries or facilitators are accountable under financial regulations.
Operating unlicensed exchanges or ATMs can result in criminal liability.
SUMMARY OF PRINCIPLES FROM CASE LAW
Regulatory Classification Matters: Courts distinguish between cryptocurrencies as securities, commodities, or property (Ripple, Bitconnect, My Big Coin).
Fraud and Misrepresentation Apply Equally: Marketing a blockchain project does not shield against fraud (Sharma, OneCoin).
Money Laundering Laws Apply: Digital assets can be traced, frozen, and prosecuted (Faiella & Agrawal, Sharma ED case).
Ponzi and Pyramid Schemes: Blockchain terminology does not legalize such schemes (Bitconnect, OneCoin).
Technological Labels Are Subordinate: Courts focus on actual functionality and investor impact, not the buzzword (Bitconnect, OneCoin).
Intermediary Liability: Crypto exchanges, ATMs, and operators can be held liable under financial and criminal statutes.
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