Improving understanding of cryptocurrency regulation, crime and sentencing

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Improving understanding of cryptocurrency regulation, crime and sentencing

RMIT researchers found that using cryptocurrency to commit a crime leads to a harsher sentence than if a similar crime was committed using regular currency.

Key points

The emergence of cryptocurrency has led to radical changes in global finance and a need for financial regulation review and improved legal understanding.
The research findings have demonstrated the importance for the legal and court system to involve greater bitcoin and cryptocurrency literacy from legal practitioners.

The research study

The research team systematically reviewed court cases involving Bitcoin and other cryptocurrencies in Australian courts between 2013 and 2022.

Led by author and Senior Lecturer in Law at RMIT’s Blockchain Innovation Hub, Dr Aaron Lane, the investigation examined 103 court cases, with 59 criminal decisions and 44 other decisions.

Lane said almost 80% of the criminal cases involved allegations of drug offences, ranging from minor possession charges through to more serious importation and commercial trafficking charges.

Other criminal cases included charges for firearms offences, dealing with proceeds of crime, and money laundering.

“In the cases where Bitcoin or another cryptocurrency was relevant to the offending, it was generally used as a means of payment for illicit goods,” explained Lane.

Importantly, cryptocurrency use itself was a factor associated with harsher sentencing in many of these cases.

Dr Aaron Lane

Dr Aaron Lane is a Senior Lecturer in Law with the RMIT Blockchain Innovation Hub

Our study found that the use of cryptocurrency in the commission of a criminal offence is seen by courts as a factor that indicates sophistication or seriousness of the offence. This results in a harsher sentence for offenders, compared to those who commit a similar crime with regular currency.

Dr Aaron Lane

Study co-author and Associate Lecturer in Law at RMIT’s Graduate School of Business and Law, Lisanne Adam, said there has long been a perception that Bitcoin and other cryptocurrencies are associated with sophisticated criminal behaviour.

“One reason for this is that cryptocurrency is the only method of payment on dark web marketplaces, and sentencing judges are keen to send a message to deter potential offenders,” she said.

"Cryptocurrency is potentially attractive to criminals because the technology facilitates seamless global transfers without the friction of the traditional banking system – and in a way that can be difficult to identify."

Analysis showed while Australian law enforcement has cryptocurrency expertise, most offenders are caught using traditional police methods such as intercepting packages or telephone intercepts.

Cryptocurrency is no longer a niche with an estimated 1 million Australians now holding a cryptocurrency account.

The study showed that it is appearing more frequently in Australian courts as adoption of the technology has grown. In 2013, there was a single court case involving cryptocurrency. In 2020, there were 46.

Mass adoption has implications for the courts and the wider legal profession. In many of the sentencing decisions there was little, if any, consideration given to the type of cryptocurrency transactions being made, which Adam said is a cause for concern.

“There is a risk that law enforcement prosecutors characterise cryptocurrency as a marker of sophistication in crime, which is not always the case. Law enforcement need to effectively determine the level of sophistication in the crime and present a fair case,” she said.

Research outcomes and impact

The research findings have highlighted that in the courts, cryptocurrency can be strongly associated with crime and therefore, legal practitioners must become blockchain and cryptocurrency literate.

Greater literacy will be needed to ensure appropriate submissions are crafted for their clients, appropriate court orders sought, expert witness reports are obtained and reviewed, and the commercial and legal significance of cryptocurrency transactions are understood.

The research was presented to State, Federal and International law enforcement agencies and provided specialist officers with an empirical understanding of the court’s decisions in addition to their own anecdotal experience.

Senior officers noted that “Crime and Cryptocurrency in Australian Courts” is now required reading for trainees. This research has formed further engagement opportunities to work with law enforcement to better understand the legal constraints in investigating matters involving cryptocurrency.

Next steps

This research forms part of a broader research project into cryptocurrency regulation. The next phase will consider the latest dataset of cases, with a focus on family law disputes.

Crime and Cryptocurrency in Australian Courts is published in the Monash University Law Review (Vol 48, No 3).

Key contact

Dr Aaron Lane
Senior Lecturer
Blockchain Innovation Hub
College of Business and Law

SDGs

Cryptocurrency regulation global finance crime law sentencing bitcoin

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