How to protect investments in cryptocurrency: risks, practice, and the role of an advocate
The virtual asset market in Ukraine is developing rapidly, outpacing regulatory developments. The lack of a clear legislative framework, inconsistent court practice, and new fraudulent schemes create challenges for digital asset owners and lawyers.
To discuss pressing issues and develop common approaches to the legal protection of investments in cryptocurrencies, lawyers and experts from various fields gathered on June 11 at a round table discussion entitled «The Virtual Asset Market: How to Protect Investments?» held at the Ukrainian National Bar Association.
The event was initiated by the UNBA Committee on Business and Investor Protection. The meeting was moderated by Committee member Denis Nahorniuk. In his opening remarks, he emphasized the importance of cooperation between advocates, law enforcement agencies, government bodies, and business to strengthen legal guarantees in the digital asset market.
On the role of advocates
The challenges faced by advocates working on cases involving cryptocurrencies or other digital assets were outlined by Committee member Pavlo Shikov. According to him, the number of such cases, both criminal and civil, is constantly growing, requiring advocates to have specific knowledge and skills.
The speaker paid particular attention to the specifics of representing clients in criminal proceedings related to the illegal circulation or theft of crypto assets. He noted that, despite the active work of the cyber police and the existence of specialized units, there is still a shortage of specialists to investigate such crimes. This places an additional burden on advocates, including conducting blockchain analysis to build a case and prepare procedural documents that take into account digital realities.
The advocate also focused on civil disputes, which increasingly involve the distribution of virtual assets during divorce or inheritance. There is no established practice for such cases yet, so lawyers need to pay close attention to details and understand the specifics of crypto asset transactions.
On international cooperation
Yevhen Panchenko, First deputy head of the International police cooperation Department of the National Police, drew attention to key aspects of international cooperation in investigating illegal activities involving virtual assets. He emphasized that modern crime in the field of crypto assets knows no borders, so effective prosecution of those responsible requires rapid and coordinated cooperation between law enforcement agencies in different countries.
Y. Panchenko stressed the need to join forces for international asset tracing, developing digital tools for evidence sharing, and joint analysis of criminal schemes.
The roundtable participants agreed that advocates should also take these features into account when gathering evidence and defending clients' interests in cases with an international element.
On seizure and its cancellation
Member of the UNBA Committee Alona Radeva focused on the topic of seizure and cancellation of seizure of virtual assets in criminal proceedings. She emphasized that, despite the absence of specific legislation, crypto assets are increasingly being seized, which creates a number of practical and legal problems for both the prosecution and the defense.
The speaker drew attention to the fact that judicial practice in this area is still developing and often demonstrates the primacy of state interests over the rights of asset owners. An advocate representing the victim has the possibility to initiate the seizure of crypto assets, but the success of such a motion depends on the completeness of the evidence and the availability of the suspect. Therefore, advocates must carefully substantiate their motions for seizure or its cancellation.
A. Radeva emphasized that in cases where seizure is imposed without sufficient legal grounds or proper evidence, there is a real prospect of appeal. This is particularly relevant if the seizure is justified solely by the need to preserve material evidence, whereas crypto assets are intangible and non-individualized in nature.
On the enforcement of decisions
The main problems faced by enforcement officers when enforcing virtual assets were outlined by private enforcement officer Ivan Zhabotinsky. He stressed that even with court decisions and rulings, actual enforcement remains difficult due to the lack of a clear procedure and insufficient regulation of interaction with crypto exchanges.
I. Zhabotinsky shared his own experience of submitting requests to popular exchanges: some platforms respond only through specialized portals or forms, while others do not respond at all or require additional decisions to seize or exchange assets for fiat money. In addition, the requirement that all documents be in English adds to the complexity, often resulting in requests being left unconsidered.
According to him, the enforcement system in Ukraine is not yet ready to work effectively with digital assets. To solve this problem, legislative changes are needed, as well as the introduction of standards for interaction with exchanges and the creation of special tools for enforcement officers.
About transaction analysis
Vladislav Tsvirkun, Vice president of law enforcement relations at GlobalLedger, presented the capabilities of specialized software for working with crypto assets. He spoke about tools that allow users to verify the source of funds, detect money laundering schemes, and conduct forensic analysis of blockchains.
V. Tsvirkun emphasized that modern technologies make it possible to find links between wallets belonging to the same person or organization, even if the owners try to hide their identity. Clustering and transaction tagging algorithms are used for this purpose.
According to the expert, such software solutions are already actively used by law enforcement agencies and can become an effective tool for advocates handling cases related to the circulation of virtual assets.
About AML risks
Tetyana Dmytrenko, a UN expert on international projects to combat money laundering, outlined the economic and legal risks for Ukraine due to the lack of proper regulation of the virtual asset market. She focused on the taxonomy of crypto assets, licensing, registration, and the development of EU and Ukrainian legislation in the field of digital finance.
T. Dmitrenko emphasized that with the development of new technologies, potential threats are also growing: from complex fraudulent schemes to the use of meme coins and scam projects for illegal enrichment. In particular, examples were given of large-scale scams using popular themes to quickly attract investment.
According to the expert, the lack of a clear and modern regulatory framework in the field of crypto assets creates significant risks for the financial stability of the state, complicates the work of both Ukrainian and international specialists, and increases the market's vulnerability to the legalization of criminal proceeds.
On regulation and taxation
Vita Forsyuk, advisor to the chairman of the National securities and stock market commission, outlined the key areas of legislative regulation and taxation of transactions with virtual assets in Ukraine. She focused on the structure of draft law No. 10225-D «On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine Regarding the Regulation of Virtual Asset Transactions in Ukraine», which defines the basic approaches to licensing, market supervision, investor protection, and combating market abuse.
V. Forsyuk emphasized the importance of clearly defining the types of tokens and service providers related to the circulation of crypto assets, as well as the introduction of transparency and reporting requirements. The roundtable participants paid particular attention to the discussion of taxation of transactions with digital assets and the definition of the scope of transactions that will be subject to taxation or exempt from taxation.
The expert noted separately that tax breaks for individual investors, tax administration issues, and legal nuances of the transfer of ownership of digital assets need further study and improvement to ensure the financial stability and attractiveness of the Ukrainian market.
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The discussion showed that real protection of investments in cryptocurrencies requires not only updating legislation and developing judicial practice, but also introducing clear procedures for the seizure and enforcement of decisions regarding digital assets, establishing international cooperation, and applying modern analytical tools. Advocates already play a key role in forming the evidence base, supporting such cases, and protecting the interests of clients in the virtual asset market.
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