This week there is news again that a cryptocurrency entrepreneur is facing criminal charges. In the case of Do Kwon, the co-creator of the failed cryptocurrency TerraUSD, South Korean authorities claimed 280,000 investors lost $40 billion when its cryptocurrency value crashed. “The crash would also have resulted in more than $500 billion in losses in the broader crypto market worldwide,” the report said.
With numbers like this, the immediate thought is that someone has to pay. And when there is real criminal fraud or misdirection in failed investments, authorities should try to prosecute violators.
But. Cryptocurrency-related companies and investments have created financial activities that have never been seen in our exchange-traded markets. While cryptocurrency is no longer new, cases related to cryptocurrency in the world’s judicial systems, especially criminal courts, are quite new. These often involve allegations of fraud and other financial crimes that fall under the heading of money laundering.
With each new phenomenon, new forms of criminal prosecution 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 commit fraud – wire transfer fraud, postal fraud, contract-making fraud, etc. – fraud involves deceiving another person to make a profit. That has not changed as cryptocurrency has become a normal part of our financial lives.
Cryptocurrency: a complex pattern of facts + different regulatory schemes + big losses = changing the defendant’s treatment
What’s different about the criminal charges we’re seeing in cryptocurrency cases is that jurisdictions don’t always know how—or haven’t yet agreed upon a common schedule—to regulate cryptocurrency financial transactions. Accordingly, a person may be wanted and detained for a red notice even if it is ultimately not honored by the other INTERPOL member states.
Another factor is that the government officials charged with prosecuting and adjudicating related charges do not always understand cryptocurrency. I’ve seen in my practice that a criminal and judicial lack of understanding of cryptocurrency and its associated business models often triggers an alarming response when large sums of money are said to have disappeared. This response may lead to orders to continue proceedings without clearly marked criminal charges; to keep suspects in pre-trial detention rather than issue a bond; and to freeze assets without formulating the required grounds.