The fact that criminal proceedings arise in Germany because of cryptocurrencies has long since ceased to be a peculiarity. Many tax advisors take on the topic and solicit clients – but those who only think with the view of tax law can cost their clients a lot of money. In recent years, as a German criminal defense lawyer, I have regularly acted as a defender in criminal proceedings concerning cryptocurrencies – and can only urge caution.
Criminal proceedings on cryptocurrencies: How it begins
Problem case monetization of cryptocurrencies
Our financial and legal system tries to pay meticulous attention when money “suddenly” appears somewhere. In fact, it is inherent in the handling of cryptocurrencies that previously there was only something intangible, hardly controllable, digital – and then for the financial system quasi suddenly it becomes money.
It is therefore not the tax (criminal) proceedings with which the facts begin in “my” cases, but a suspicion of money laundering. It may be that a sale was made online and suddenly a bank transfer arrives – or that a sale is made for cash (which is the rule rather than the exception among many of my clients). This money is somehow introduced into the financial cycle – and that’s when the alarm bells start ringing.
The worst enemy here is one’s own bank: The thumbscrews of money laundering compliance are now so tight that I see suspicious money laundering reports from financial institutions even in the smallest of cases. Depending on the bank, it is sometimes enough to open an account as a low-income earner or non-permanent employee, to have only irregular incoming payments and then to deposit a low four-digit sum in cash 2-3 times … or to have a mid-four-digit sum transferred. Most people don’t know that many financial institutions keep an eye on their own circumstances and that action obligations are (or can be) triggered in the event of noticeable deviations in incoming payments.
The money is gone.
In the event of a suspicion of money laundering, which is assumed surprisingly early depending on the public prosecutor’s office, there is the threat of a house search – one’s own liquidity is massively threatened.
The criminal proceedings for cryptocurrencies have only begun to run at this point, so when the doorbell rings and the public prosecutor’s office is at the door, it’s just one more point. The criminal tax proceedings, by the way, still do not play a role here.
The search is primarily intended to clarify the circumstances that led to the payment; the focus is on digital devices, which are seized in their entirety. Anyone who has not created a secure backup of their wallet passphrase will lose access to their assets within minutes. If there is cash in the house that exceeds the usual amounts, this will also be collected. Moreover, a bank account freeze is to be expected. In the current situation, a so-called asset freeze is an absolute standard scenario.
Asset forfeiture (“Einziehung”)
“Normal” tax lawyers and civil lawyers, in my impression, like to underestimate the effects of confiscation in criminal law, especially in money laundering proceedings and criminal proceedings because of cryptocurrencies (keyword: confiscation of cryptocurrencies). The impact of this now-reformed investigator access to assets is downright livelihood-destroying.
In doing so, many underestimate the hostile legal situation: When deciding on an independent confiscation, the court can base its conviction that the object stems from an unlawful act, in particular on a gross disproportion between the value of the object and the legitimate income of the person concerned (§437 S.1 StPO). That means: Even if one can prove no criminal offense, threatens alone, because the amount of money does not fit the lifestyle, that it can be taken away!
Criminal tax proceedings over cryptocurrencies
In my case, it is usually only now, after one has already had criminal proceedings and is financially cold-called, that the criminal tax proceedings come – which were triggered by an FIU report to the responsible tax office. It is not uncommon to learn of these further criminal proceedings in the course of the next house search, this time by the tax office.
In my impression, the tax investigation department is much better equipped technically, works faster in the evaluation – and the technicians have a higher level of technical expertise than the “standard CCC”. This has an effect; the questions are more targeted and therefore more dangerous right from the start. However, the focus here is noticeably on the filthy lucre, the determination of the basis for taxation is the original interest, and criminal liability naturally swims along in these waters.
In a criminal case involving cryptocurrencies, you quickly get the feeling that everything is dragging on, clients are quickly disintegrated and desperate – for example, when real estate is accessed. In the end, the ideal is a defense team – I welcome it when, in addition to me as a specialist lawyer for criminal law & IT law, there is also a specialist lawyer for tax law “on board” and you work together seamlessly.
Defense in criminal cases involving cryptocurrencies
You have to work in a targeted and holistic manner at both levels, in terms of tax law and original criminal law. There is a great risk of losing sight of the big picture.
Classic approaches to criminal defense do not work in criminal proceedings involving cryptocurrencies – if you tie down the facts in criminal law, you can block the tax lawyer in terms of content. I have developed the “black box model” for this purpose, with which the scissors of both areas of law can be traded.
As in almost all white-collar criminal proceedings, in addition to defending the legal position, above all the defense of the economic position – which is difficult to do anyway – must be included in the criminal proceedings from the very beginning. Otherwise, ruin is imminent, and anyone caught cold here will hardly get it cleaned up in a timely manner.
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