Ukraine’s Cybersecurity Strategy, approved by the Presidential Decree of August 26, 2021, identifies the task of legally regulating the status of cryptocurrencies as a strategic priority. And for good reason — according to a study by CoinGecko, Ukraine ranks among the top 10 European countries in terms of interest in cryptocurrencies. Meanwhile, Chainalysis research shows that Ukraine surpasses the United Kingdom and Japan in terms of crypto adoption and development.
By the way, the company Chainalysis regularly publishes detailed reports titled Crypto Crime Report, which I recommend readers explore.
However, the Law of Ukraine “On Virtual Assets,” adopted back in February 2022, has not yet entered into force. The Law of Ukraine “On Prevention of Corruption” modestly includes cryptocurrency among the list of intangible assets that are subject to mandatory declaration by declarants, alongside trademark rights and copyrights.
The Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction” discreetly masks the definition of cryptocurrency under the broader term “virtual assets.”
Despite the well-known inconsistencies in national legislation and the insufficient regulatory framework for legal relations arising from the ownership, sale, or exchange of cryptocurrency for goods or services, cryptocurrency often becomes the target of criminal activity or a tool for committing crimes.
Most commonly, courts deal with cases where individuals use cryptocurrency to purchase narcotics, finance terrorist organizations, or pay for forged medical clearance certificates issued by military medical commissions. It is also frequently used by criminals to anonymize transactions related to fraudulently obtained funds.
Let’s look at a few recent court cases.
Cryptocurrency purchase and sale as a method of money laundering
A minor stole a victim’s mobile phone, bypassed its security system, and illegally accessed a mobile banking application installed on the smartphone.
To gain control over the victim’s bank account funds, the accused transferred money to a third party’s card. Although not an accomplice, this individual was a USDT seller on a peer-to-peer (p2p) platform—the most popular crypto exchange in Ukraine. The recipient of the transfer provided the accused with card details in exchange for the equivalent amount in USDT, which was then sent to the accused.
As the accused could not verify his identity on the crypto exchange due to his age, he had arranged in advance for a friend to give him access to the friend’s Binance account. The USDT was credited to that account upon execution of the purchase order.
Later, to conceal the crime, the accused created a sell order for the USDT and instructed the buyer to send the payment to a third-party bank card.
The funds were then distributed across multiple accounts and successfully withdrawn. As a result, the minor was found guilty of committing a criminal offense under Article 209(1) of the Criminal Code of Ukraine (money laundering).
The court approved a plea deal, and the accused was convicted under Articles 185(4), 361(1), 200(1), and 209(1) of the Criminal Code of Ukraine.
Court decision: https://reyestr.court.gov.ua/Review/118438441
The P2P “Triangle” scheme
Courts have also frozen the bank accounts of individuals who unintentionally became involved in a “p2p triangle” fraud scheme.
Fraudsters, having obtained funds from a victim (a seller on a marketplace) through phishing, decided to “launder” the stolen funds by purchasing USDT on Binance’s p2p platform.
As a result, a legitimate USDT seller who was unaware of the fraud received a bank transfer from the scammers to their PrivatBank card. Along with the transfer came a police search and a freeze on their bank account.
Court decision: https://reyestr.court.gov.ua/Review/115427588
Every crypto exchange user participating in p2p trading could potentially find themselves in a situation where received funds—or the cryptocurrency they sell—are part of a money laundering chain or originate from fraud.
If you use a p2p service to buy or sell cryptocurrency, it’s essential to follow the safe trading guidelines provided by the exchange.
Court-ordered freezing of cryptocurrency wallets.
There are also cases where investigative judges, at a prosecutor’s request, freeze “assets held in electronic wallets,” including bans on using specific USDT holdings.
In one case, a prosecutor requested the Cyber Police Department of the National Police of Ukraine to analyze a wallet used to receive stolen crypto assets from a victim.
To prevent the withdrawal of these assets, the police sent a request to Tether. They identified a wallet holding 100,700 USDT allegedly belonging to the victim.
The assets were declared physical evidence in the case, and the court granted a freeze order.
The investigating judge of the Holosiivskyi District Court of Kyiv ordered Tether to ensure the return or reissuance of the assets to the victim.
Court decision: https://reyestr.court.gov.ua/Review/107216946
Tether International Limited maintains a policy of cooperating with law enforcement and can freeze addresses and provide information when judicial orders are in place.
However, the court’s interpretation of virtual assets as physical evidence under Article 98 of the Criminal Procedure Code is problematic. Virtual assets stored in crypto wallets are intangible and lack individuality, making them unsuitable as physical evidence.
We believe that freezing crypto assets is only appropriate when the goal is to ensure the possibility of asset confiscation as a form of punishment, under Article 170, Part 2(3) of the Criminal Procedure Code.
Confiscation of crypto as punishment: anti-corruption cases.
In a relevant decision, the High Anti-Corruption Court granted the Specialized Anti-Corruption Prosecutor’s Office’s request to freeze crypto assets belonging to a suspect accused under Article 368(4) of the Criminal Code (acceptance of unlawful benefit by a public official).
The assets included USDT, Tron (TRX), and Ethereum (ETH), stored in a multi-currency crypto wallet.
The court noted that although the Law “On Virtual Assets” has not yet entered into force, Ukrainian legislation tends to equate the key holder of a virtual asset with its rightful owner. Under the Civil Code of Ukraine, ownership of a virtual asset is conferred upon its creation, and the key holder is recognized as the owner.
Court decision: https://reyestr.court.gov.ua/Review/111590400
60 seconds to cash out.
A group of young men exploited a flaw in a Ukrainian bank’s system by initiating fake redund-transactions from a U.S.-based company to their cards.
These transactions triggered automatic crediting and conversion of USD into Ukrainian hryvnias.
According to the plan, they had only a few minutes to buy USDT on Binance’s p2p platform before MasterCard notified the bank.
The vulnerability was closed the same day, but the stolen funds had already been withdrawn through unsuspecting USDT sellers.
The purchased stablecoins were later transferred to custodial wallets on the TRX network.
The court approved a plea deal, and the perpetrators were convicted under Article 190(4) of the Criminal Code (fraud involving large amounts or use of computing systems).
Court decision: https://reyestr.court.gov.ua/Review/112481101
As we can see, Ukrainian law enforcement and courts are becoming increasingly familiar with the criminal use of cryptocurrency. As a result, new investigative methods are emerging in the field of crypto crime, and advanced techniques are being used to trace and counter such offenses.
Using cryptocurrency no longer guarantees full anonymity for criminals and, therefore, is no longer an effective way to escape criminal liability.
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