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.