This week the 2023 Tainted Cryptocurrency Recovery Bill was tabled in Parliament and referred to a select committee for consideration and report. Cook Islands crypto expert, Ano Tisam says the Bill, making its way through Parliament, raises some serious concerns about civil liberties, privacy and due process. Melina Etches reports.

What is cryptocurrency? According to Google, cryptocurrency is digital money that doesn’t require a bank or financial institution to verify transactions and can be used for purchases or as an investment. Transactions are then verified and recorded on a blockchain, an unchangeable ledger that tracks and records assets and trades.

Cryptocurrencies (or “crypto”), such as Bitcoin, have many applications. They can be used as alternative payment rails, speculative investments, or as a store of value, to name a few.

Cryptocurrencies get their name from the cryptographic techniques that let people spend them securely without the need for a central government or bank.

While the Tainted Cryptocurrency Recovery Bill includes several measures aimed at addressing these concerns, such as establishing a Cryptocurrency Restitution Tribunal and provisions for judicial review, Tisam says “the effectiveness of these safeguards in practice would be key to determining their sufficiency in protecting Cook Islanders civil liberties”.

The key point is the advice for the legislative construct requires expert advice as decisions made will impact future Cook Islands prospects in the crypto world, he says.  

Lawyer Tim Arnold, who drafted the Tainted Cryptocurrency Recovery Bill, briefed MPs on the proposed law during a special briefing this week.

Tisam noted that Parliament is engaging with cryptocurrency experts to ensure a more informed and comprehensive approach to the Tainted Cryptocurrency Recovery Bill 2023 via the Facebook group started up by Alex Olah, and the Cook Islands Internet Action Group (CIIAG), a non-government organisation (NGO) made up of local Information Technology (IT) experts.

Going forward, for Parliament to ensure better collaboration and consultation with cryptocurrency experts in future legislative processes, Tisam says the legislation should not be rushed through.

“There’s a lot of technicalities that most governments/legislators still have to wrap their heads around,” he says.

“The crypto legislation being introduced could infringe on civil liberties and open up the possibility of abuse.

“As well as cryptocurrency, the underlying blockchain technologies have huge potential and we don’t want to kill that potential by introducing legislation that could have a negative impact on investment and the development of the technology.”

Schedule 1 of the Bill states: “The Powers and Procedures having effect in relation to the Cryptocurrency Restitution Tribunal – An Act having extraterritorial effect and providing for the systematic identification of cryptocurrency that is tainted by proscribed conduct, to allow for its seizure and forfeiture in certain circumstances, and to provide for restitutionary claims and asset-sharing in respect of that cryptocurrency in the Cook Islands.”

Tisam raises his concerns regarding the Bill, which include:

Extraterritorial effect: “The concern is overreach into international transactions – this could mean that your transactions and holdings might be scrutinised or intervened upon by the Cook Islands’ authorities, even if the activities occur outside their jurisdiction.

“This broad scope could lead to complex legal scenarios where conflicts with other countries and questions about the enforcement of Cook Islands law internationally. A recommendation is to limit scope to national jurisdiction.”

Civil forfeiture: “Risk of asset seizure without criminal conviction, is a concern. The ability to seize assets without a criminal conviction poses risks and raise concerns about property rights, due process, and the potential for misuse. Innocent investors could potentially have their assets frozen or seized if they are unknowingly linked to tainted cryptocurrency or get sent tainted crypto.”

There is no need for criminal conviction: “Unlike criminal forfeiture, in rem civil forfeiture (sanctions the confiscation of a defendant’s property before a criminal conviction has been obtained) does not require a criminal conviction of the property owner. The proceedings can occur independently of whether a criminal charge or conviction is in place.”

Burden of proof: “The burden of proof is typically lower in civil forfeiture cases than in criminal cases. The government may only need to show that the property is connected to illegal activity by a preponderance of the evidence, rather than beyond a reasonable doubt.”

Controversy and criticism: “This process can be controversial, as it allows for the seizure of property without the need for a criminal conviction, raising concerns about due process and property rights.”

Judicial framework: “The establishment of a specialised tribunal could lead to decisions made by bodies without traditional judicial oversight, potentially affecting due process. A concern is decisions made without traditional judicial oversight.”

Ethical recovery hacking: “This legitimises hacking for recovery purposes, raising questions about the methods used and the security of all cryptocurrency holdings. There are security and ethical concerns in hacking methods, recommendation, and clear guidelines must be set.”

Privacy and confidentiality: “The focus on tracking could lead to increased surveillance and data collection, impacting individual privacy and confidentiality in financial dealings. A concern is increased surveillance and data collection. Strict privacy safeguards must be implemented.”

Tisam argues that if the Bill is really about money laundering and terrorism financing, then the focus should shift to the “opaque” operations of banks, not cryptocurrencies.

“Most retail crypto investors here operate on public blockchains e.g. Bitcoin, Ethereum etc. It would be silly to launder or finance terrorism using that way.”

Tisam says that according to the United State Treasury Department, the use of virtual assets for money laundering remains far below that of fiat currency and more traditional methods.

United Nations research indicates anywhere between $800 billion and $2 trillion is laundered via traditional fiat banking channels each year.

However, cryptocurrencies are used in just a small fraction of such activity.

In Thursday’s Parliament sitting, Minister of Justice, Vaine “Mac” Mokoroa moved for the second reading of the Bill which was seconded by Member of Parliament (MP) Tingika Elikana.

Mokoroa also moved that the Bill be referred to a special select committee for consideration consisting of the following members: Tukaka Ama – chair, Vaitoti Tupa – deputy chair, and members - Akaiti Puna, Tuakeu Tangatapoto, Tim Varu, Toa Isamaera and Tetangi Matapo.

Before seconding the motion, Elikana made a plea to the select committee to seriously consider the “title” of the Bill.