The Crown Prosecution Service (CPS) has demanded new laws to allow Bitcoins to be seized in order to stop terrorists and other criminals using the digital currency to hide funds.
Bitcoins are a virtual currency - just lines of computer code that are digitally signed each time they are transferred from one owner to another. As the currency is independent of any country, government or central bank, there is no third party to oversee or manage transactions, it is practically untraceable.
Whilst the new laws sought by the CPS are clearly needed, the misuse of Bitcoins as a means of hiding assets clearly has far wider implications. Although I have not yet come across it myself, using Bitcoins to conceal assets in divorce proceedings is apparently a hot topic amongst husbands on divorce forums.
The problem is two-fold: (1) enabling assets to be hidden; and (2) putting assets beyond the reach of the Court.
Whilst it may be a virtual asset, it is an asset nonetheless, so there is no question in my mind that Bitcoins must be disclosed within financial proceedings. The requirement is to provide "full frank clear and accurate disclosure of your assets and other relevant circumstances", which effectively covers anything of any value. But what if they are not disclosed?
In most cases, using Bitcoins is unlikely to be a viable option for concealing your assets. It's not as if you can ask you employer to start paying you in Bitcoins or nip down to the local Bureau de Change with a sack full of cash to change up. There will normally be an audit trail somewhere that points to assets being concealed or hidden; if £50,000 disappears from a savings account, an explanation will most definitely be required.
Bitcoins are more likely to be an issue where they are received for payment of goods or services and no cash has changed hands, but I suspect the circumstances where this is likely to arise are quite limited. Unless you already trade in Bitcoins, how would you actually go about doing this?
There will be people out there who do, for various reasons, have large quantities held in Bitcoins, but it does seem that this will be almost impossible to prove unless you have evidence. That being said, there are probably even more people out there with large sums held in cash stuffed under mattresses and under floorboards that is equally as hard to prove or quantify.
The more interesting problem perhaps is what the Court can actually do where Bitcoins are disclosed or discovered in the course of proceedings. The first issue will be to establish their value - what is the current exchange rate for a Bitcoin? I'm sure there is an expert out there that can advise the Court on this, but it probably comes back to the old adage that “they are only worth what someone is willing to pay for them or trade for them” – it is no doubt a constantly moving target.
Secondly, what can the Court actually do with them? I suspect in most cases, where there are sufficient assets available, the Court will simply offset the value of the Bitcoins against other assets. This becomes more problematic where there are insufficient assets available to enable the Court to offset. Is the Court able to order the transfer of Bitcoins from one spouse to the other? I think that would be difficult given that the currency is virtual and there is no way of establishing legal ownership. The Court certainly would not be able to enforce the transfer from one spouse to the other, because there is nothing to transfer.
The Court does, however, have other options. It could simply order one party to make a lump sum payment to the other in good old pounds sterling, despite the assets being in Bitcoins. If they then fail to pay up the order can be enforced in the usual way (i.e. attachment of earnings order, charging order, execution against goods and ultimately bankruptcy).
Alternatively, the Court could direct that higher levels of spousal maintenance are paid to compensate for the lack of available assets to meet the needs of the financially weaker party or it could simply keep the claims of the financially weaker party open indefinitely until such time as there are assets available to achieve a fair settlement. The uncooperative spouse would therefore effectively be prevented from ever owning anything in their name, as the Court would immediately order a sale or transfer of the assets to the other party.
The Court therefore has many weapons in its armoury to try and combat dishonest and uncooperative spouses, although there are of course some cases where the Court’s hands are tied because assets simply cannot be traced or retrieved; thankfully they are few and far between.