Shenaz Muzaffer, General Counsel of the International Association of Prosecutors, spoke at the 8th Global Conference on Criminal Finances and Cryptocurrencies in a panel on “practical challenges in the investigation and prosecution of crypto-related financial crimes.” The two-day conference was co-organised by Europol and the Basel Institute on Governance and hosted by UNODC.

This Q&A takes up the main points of her intervention on prosecuting crypto-related cases.

Where do you see the main challenge for prosecutors in cases involving cryptocurrencies?

Criminals are increasingly using crypto assets to facilitate the commission of their offences and to launder the proceeds of crime. Cryptocurrencies are being used to commit traditional crimes in new and innovative ways, as well as to commit new types of offences.

To continue to be able to meet those challenges, we – as prosecutors – have to evolve and adapt too. But we face a number of challenges, relating to both the investigation and the prosecution of crypto-related financial crimes.

The first challenge relates to the legislative framework in the jurisdictions in which we work. In many of our jurisdictions, if not in all, the relevant legislation was drafted prior to the invention of cryptocurrencies. We know that the first cryptocurrency was launched in 2009. But in the UK, for instance, the Fraud Act dates back to 2006, while the Proceeds of Crime Act is from 2002.

This means that, because of the way the legislation is drafted, it can’t always be readily applied to the prosecution of crypto-related financial crimes. We need to ask, for example, whether the definition of “property” within existing legislation is broad enough to encompass crypto assets. It’s not only a challenge for the prosecution, but also for when we are looking to recover assets.

We have to consider whether our legislative frameworks need to be revised or adapted to make sure that they are framed in a way which is broad and permissive enough so that we can capture these new types of offences and assets that we're dealing with. We must also ensure that we are cognisant of potential further changes that may arise in future and try, insofar as possible, to ensure that the legislation is sufficiently capable of encompassing them as well.

Earlier this year, the UK introduced legislation that enables law enforcement to seize items such as memory sticks or written passwords, and also to transfer illegal crypto assets into a law enforcement wallet.

Crypto-related crimes are often transnational in nature – how does this affect investigators and prosecutors?

We all know that criminals don't respect jurisdictional boundaries and that crime is becoming increasingly international. So the second challenge from a prosecution point of view relates to jurisdictional issues.

We also all know that coordination between law enforcement agencies and prosecutors can be slow and cumbersome, and that the formal process of seeking mutual legal assistance (MLA) comes with its own set of challenges.

All these challenges reinforce the need for effective networks, both at a law enforcement and a prosecutorial level. It makes no sense for us to work in silos when we have to work across so many jurisdictions.

That is why organisations such as the International Association of Prosecutors are absolutely critical. They enable prosecutors to build these necessary networks and facilitate formal and informal international cooperation.

How can law enforcement officers and prosecutors keep up with this fast-evolving topic?

Blockchain technology is inherently complex and new innovations such as non-fungible tokens (NTFs) are going to make things even more complex and complicated. The technical complexity of the subject matter is a very practical challenge.

Consequently, it can be very challenging for prosecutors to properly understand the evidence that is presented to them by law enforcement. It's often even more difficult for those working within the courts, where judges and juries responsible for deciding on the facts of a case may never have come across crypto assets before. As a result, it can be incredibly hard for them to properly understand the relevance and the importance of evidence that's put before them.

The solution, I would suggest, is twofold:

• For the prosecutors, there is an enhanced need for specialised training, so that we can properly understand the evidence we're presented with by investigators.
• For judges and juries, there’s a need to rely on experts that guide them through the process and help them understand the relevance of the evidence before them.

Does digital evidence pose particular challenges?

Yes, there are specific difficulties around the collection and preservation of the evidence. Digital evidence can be more easily altered. It can be encrypted. It can be deleted much more easily than other tangible forms of evidence.

Establishing a chain of custody – a chronological documentation or paper trail that records when, how and by whom a piece of evidence was collected, analysed, controlled, transferred or disposed during an investigation – can be challenging itself, not to mention the added complexity caused by the sheer volume of the material that we have to deal with.

Developing standard operating procedures or guidelines for the identification, collection and extraction of digital evidence, in my view, is absolutely vital. The same goes for using new technology to understand the evidence that is presented to us. Of course, artificial intelligence or AI plays an important role in this.

The flipside is that we, as prosecutors, have to make sure that when we're using AI to interpret evidence, we are always cognisant of the need for transparency and accountability, and make sure that we are using AI responsibly.

What challenges do crypto-related financial crimes pose for asset recovery?

As practitioners we know that a case does not stop at the point of conviction. In fact, the investigation into the money side of things can often take longer than the investigation into the substantive crime itself.

Crypto assets in particular can be moved very quickly at the touch of a button, which means that these assets can be very hard to trace and restrain. That also has a knock-on effect on public confidence because, if digital assets cannot be recovered and victims are not getting restitution, that impacts negatively on how they view the criminal justice system as a whole.

One potential mitigation relates to the point I previously made about legislative frameworks –what they permit us to do and the need for revision. Let’s take another example from the new UK legislation I mentioned. This allows us to authorise the sale of crypto assets in the same way as more tangible forms of evidence. It also gives the police the power to destroy crypto assets, where returning them to circulation is not conducive to the public good.

There’s no digital silver bullet, then?

Unfortunately, there's no single solution that will address all the multiple challenges we’ve identified in both the investigation and prosecution of crypto-related financial crimes.

Instead, we need a multi-pronged approach that includes enhanced training, the use of experts, expanded legislation, robust frameworks for evidence collection and, of course, more effective international cooperation.