Can we seize cryptocurrencies in a recovery procedure?

Absence of a precise legal regime in France in the context of recovery

Seizing cryptocurrencies in collection proceedings is likely to attract increasing interest from creditors. Indeed, cryptocurrencies occupy an increasingly important place in the investment portfolio of the French.

To consider entering cryptocurrencies, you must first consider their storage. If the cryptocurrencies are stored on Hot Wallets, then they are in the hands of a third party. Therefore, the procedure of the attribution input would be the one to apply. However, this type of seizure can only be made on a sum of money. However, cryptocurrencies are currently not considered a currency.

Indeed, the article L111-1 of the Monetary and Financial Code specifies that “the currency of France is the Euro”. On the other hand, cryptocurrencies are also not recognized as electronic currencies either, as stipulated in the article L315-1 of the Monetary and Financial Code.

On the other hand, the seizure of a Cold Wallet could be operated by a commissioner of justice (formerly bailiff) during a forced execution. We would then be faced with the unprecedented situation of a seizure of intangible property, materialized by tangible movable property. However, intangible assets must be seized from their issuer as part of a recovery procedure. Since cryptocurrencies do not, by definition, have a single bearer, the procedure therefore does not currently seem to be applicable.

The identification of cryptocurrency holders facilitated by taxation

Since 2019, gains made on an occasional basis by individuals when selling cryptocurrencies benefit from a specific taxation. Indeed, when an individual converts his cryptocurrency into euros for an amount greater than 305 euros over a year, he must declare this amount to taxes. In addition, when it is a usual and / or professional practice, capital gains from the sale of digital assets, bitcoins or other cryptocurrencies, are taxed as industrial and commercial profits (BIC).

From 2023, the tax regime for capital gains on the sale of cryptocurrencies will be modified thanks to article 79 of the finance law. Objective: to simplify the identification of transactions relating to an occasional practice (private investors for example) from those relating to a usual practice (professionals for example) and to propose a tax scale more suited to the whole.

It is still necessary that the owner of cryptocurrency actually declares his added value. Nevertheless, more and more foreign cryptocurrency exchange platforms like Binance (and soon Coinbase are now not only present in Europe, but also registered in France under the status of Digital Asset Service Provider (PSAN). This status, issued by the Autorité des marchés financiers, clearly risks moving in the direction of more transparency for the identification of cryptocurrency holders.

What scenarios should be considered for the seizure of cryptocurrencies in recovery?

Can we imagine that tomorrow, the cryptocurrency holder will have to worry about their possible seizure as part of a recovery procedure?
Last year in France, as part of criminal proceedings related to cybercrime, 611 bitcoins (equivalent to 24.6 million euros) were seized and auctioned for the very first time by AGRASC ( Agency for the management and recovery of seized and confiscated criminal assets).
One can then wonder whether this type of procedure could take place in the future within the framework of a civil procedure such as debt collection. This is already partly the case in the United States. In addition to having carried out numerous cryptocurrency auctions, the American tax authorities do not hesitate to use the taxpayer’s crypto-assets in the event of default in payment of their taxes since 2014.
If the legislation really hardens in France and in Europe on the subject of cryptocurrency, the cryptocurrency exchange platforms managed by a third party (such as Binance or Coinbase), could theoretically be led to collaborate with the judicial authorities in the part of a recovery procedure – like the fight against money laundering.

Indeed, insofar as this type of online platform requires, in theory, identity verification for any purchase of cryptocurrency by credit card, it could be possible in absolute terms for this third party to have the obligation to open its registers to facilitate debt collection. Although it will always remain complex due to the nature of a blockchain.

In the case of a cryptographic wallet held on hardware in the form of a USB key or storage software, the operation could prove to be even more difficult. Any recovery attempt will have to go through a necessary collaboration with its owner (implying the obligation to return the hardware and reveal its passwords for example).

In conclusion, it is to be expected that for the sake of anticipation, collection firms will be increasingly aware of the risks and opportunities related to cryptocurrencies in order to carry out any future steps in this area. This debt collection procedure will in any case remain complex and will probably require legal officers specialized in cryptocurrency.

Article written by 2A Recoverycommercial debt collection company

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Can we seize cryptocurrencies in a recovery procedure?

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