On 1 February 2022, the Court of Appeal of The Hague ruled in ten criminal cases. Various decisions of principle are taken in the judgments of the Court of Appeal, in which a new framework has also been developed for answering the question of whether the suspects should have had reason to doubt that the bitcoins that were bought or sold with cash had a had a criminal origin. A link has been sought with so-called money laundering typologies. The clustering and labeling techniques are also discussed .

What exactly is it about? The ten criminal cases stem from one of the first large-scale criminal investigations into bitcoin money laundering. This investigation – IJsberg – was led by the Fiscal Intelligence and Investigation Service (FIOD).

The court of The Hague has acquitted two suspects. In the cases of two other suspects, the Court of Appeal granted grounds for exclusion from punishment. This means that, despite the fulfillment of a description of the offence, personal liability of the suspects is still excluded. In the cases of other suspects, the court has imposed prison sentences ranging from three months (and community service) to 51 months, less time spent in pre-trial detention.

Judgment of 1 February 2022

In the judgment – referred to the appeal against the judgment of the District Court of Rotterdam of 30 May 2018 – the Court of Appeal developed a new framework for answering the question whether the suspects should have had reason to doubt that the bitcoins bought or sold with cash had a criminal origin.

But what was going on? The suspect in the case was active as a bitcoin trader and – in the period from 2013 to 2015 – exchanged 39,842 bitcoins with a value of ??????? 4,464,642.03. The bitcoins were purchased with cash for a low, non-market price. Often this happened in public places, such as McDonalds, KFC or Burger King. The purchased bitcoins were then exchanged for euros via regular bitcoin companies and then withdrawn in cash or sold for cash to other cash traders (including through advertisements on the dark web).

In its judgment, the court only included bitcoin addresses that have a relationship with the dark web. In doing so, the court used information from the website walletexplorer.com. The website provides additional information on clustering and labeling .

Clustering is a technique in which different Bitcoin addresses and transactions are attributed to one and the same person based on blockchain analysis. In several legal terms: one or more natural or legal persons who own the addresses. Labeling is giving a name to a particular cluster.

The Court of Appeal is of the opinion that it cannot simply be assessed that the facts and circumstances presented are of such a nature that there is automatically a suspicion of money laundering. Or in plain Dutch: the court does not use the findings from walletexplorer.com that were used by the court. After all, the developer of the website cannot state with certainty at what time the labels (dark web) were given to various wallets – with which the suspect interacted -.

According to the court, it cannot therefore be stated with sufficient certainty that the suspect was or could have been aware that the bitcoins that were exchanged originated from the dark web.

Clustering is a ??????sufficiently reliable method???????

In the judgment, the court has set out which bitcoin addresses will be involved in the assessment of whether it cannot be otherwise than that the incoming bitcoins originate from a crime. To determine which bitcoin addresses are attributed to the suspect, the court uses information from the blockchain analysis company Chainalysis.

It is important here that the court sees clustering as a sufficiently reliable method to determine which bitcoin addresses belong to one and the same person. If one or more bitcoin addresses are determined to belong to a person, the same applies to the other bitcoin addresses belonging to that cluster.

New framework

In the case, the Public Prosecution Service (OM) pointed to so-called money laundering typologies that were drawn up in 2017 by the Financial Intelligence Unit (FIU) with regard to virtual means of payment. Several of these typologies contribute to a suspicion of money laundering in this case, according to the Public Prosecution Service.

The defense disputes this. The typologies were only drawn up in 2017. Since there was no legal assessment framework at the time – tailored to the actions of the suspect in the period charged in the indictment – this does not, according to them, contribute to a suspicion of money laundering.

The court considers restraint with regard to the application of standards formulated in 2017 and generally accepted in case law to be appropriate

According to the court, a different, new framework is therefore needed to answer the question of whether the suspects should have had reasonable doubt that the bitcoins that were bought or sold with cash had a criminal origin. In its search for such a framework, the Court of Appeal based itself on the judgment of the Supreme Court of 13 July 2020. The quote below is quoted in this judgment.

The Public Prosecution Service and the court can also use, as they are called in an international context, ????typologies???? of money laundering for evidence of money laundering (cf. FATF XI, Report on Money Laundering Typologies 1999-2000, 3 February 2000 , presented to the House of Representatives by letter dated 24 February 2000 (Fin 00-171)). These are more or less objective characteristics which, experience shows, indicate the laundering of the proceeds of crime.

The court sought to link up with the version of the Money Laundering and Terrorist Financing Prevention Act (Wwft) that was applicable at the time. The activities of the suspect were so closely related to the category of ??????dealers in things of great value??????? that the suspect fell under this definition.

In the above cases, the suspect could therefore be required to rebut this presumption with a concrete, more or less verifiable and not improbable statement in advance. The suspect failed to do so.

Decision

The court has overturned the trial court’s original verdict and is adjudicating itself. The suspect was found guilty of culpable money laundering over a period of more than two years. In total, the suspect has exchanged 39,842 bitcoins worth ??????? 4,464,642.03. The court sentenced the accused to a prison term of 17 months.

Would you like to read more about new anti-money laundering regulations? Read more here.