UK court says victims can’t automatically claim $5B in Bitcoin

A High Court judge ruled Oct. 12 that Chinese law governs claims to about $5 billion in Bitcoin linked to a Chinese investment fraud. The ruling means investors cannot claim the cryptocurrency simply by proving they lost money.

Justice Mark Turner rejected arguments that English property and trust law should determine the investors’ rights. The claimants must show that they own interests in the Bitcoin and that Chinese law recognizes those interests.

The case concerns investment schemes operated by Zhimin Qian through Tianjin Lantian Gerui Electronic Technology and related companies between 2014 and 2017. The schemes collected about 40.23 billion yuan, or £4.1 billion, through at least 128,409 investment contracts. The court said the number of contracts does not represent the number of individual victims.

About 34.1 billion yuan, or £3.4 billion, was paid back to investors while the schemes operated. Some investors received repayments, while others received nothing.

Qian used part of the funds to buy Bitcoin. She purchased more than 100,000 BTC through an account at the Huobi cryptocurrency exchange and bought additional coins through over-the-counter transactions in China.

Qian left China in 2017 and later moved to Britain. British authorities seized devices, private keys and other assets linked to more than 61,000 Bitcoin. The cryptocurrency is the subject of civil recovery proceedings brought by the Director of Public Prosecutions under the Proceeds of Crime Act 2002.

The Chinese investors argued that the fraudulent investment contracts could be canceled and converted into trust-based ownership claims. They argued that those claims followed their money into the Bitcoin.

British prosecutors argued that the relevant transactions and alleged ownership rights were created in China, so Chinese law should govern the claims. Turner found that the investors, alleged fraud, payments and Bitcoin purchases were primarily connected to China.

“The applicable law is Chinese law,” Turner wrote. He rejected the argument that the Bitcoin’s later presence in Britain should determine which country’s property law applies.

The next proceedings will examine how Chinese law treats the investment contracts, whether investors’ rights survived the conversion of funds into Bitcoin and whether those rights apply to the cryptocurrency held by British authorities.

Under Section 281 of the Proceeds of Crime Act, claimants must establish a property interest in the assets targeted for recovery. Turner wrote that the law “does not create any broader compensation scheme” for people who lost money through criminal conduct.

The court has not yet received evidence setting out the relevant provisions of Chinese law or the individual financial records of the claimants. The scheme involved multiple accounts, investment arrangements and repayments, which could produce different claims for different investors.

Receivers appointed to Tianjin Lantian Gerui have made separate claims over assets held by British prosecutors. Turner described the validity of those claims as “a question for another day.”

Lawyers for the investors plan to appeal the ruling. The court will hear further submissions on the order needed to implement the judgment.