Bitcoin and Darknet

Author: Nyman Gibson Miralis

Subject: Bitcoin and Darknet treatment in Australian Criminal Courts

Keywords: bitcoin, darknet

 

How do Australian Criminal Courts assess the use of Bitcoin and Darknet?

With the increasing popularity of virtual currency, the use of bitcoins and the darknet, Australian Courts are beginning to deal with sophisticated criminal activity involving bitcoins and the darknet to disguise dealings in drugs and illicit profits.

In R v Collopy; R v Collopy [2017] SASCFC 64 (hereafter ‘R v Collopy’), Mr Cooley and Mr Collopy purchased illicit drugs from marketplaces called ‘BMR’ and ‘SHP’ that were hosted on the darknet.

The purchased illicit drugs were sent overseas to the US, the UK and Ireland, in order for them to be repackaged into smaller quantities.

The illicit drugs were sold to Australian-resident customers from their own stall (AUVip) within the BMR and SHP. The repackaged drugs would then be sent to the purchaser by post.

All the transactions were conducted using bitcoins. The estimated profit derived from the  transactions  in a period of 6 weeks was approximately $100,000 but it could not be accurately confirmed.

Mr Collopy and Mr Cooley were charged with a total of 30 counts of drug-related charges under the South Australian law involving trafficking, possession, supplying and attempting to supply prohibited drugs.

The use of bitcoins and the darknet appeared to provide a layer of protection for the offenders as it prevented their detection by the authorities – ultimately they were detected due to intercepted parcels in the post containing prohibited drugs.

 

How was the use of Bitcoin and Darknet relevant in sentencing?

In sentencing the offenders Lovell J (with Peek and Blue JJ agreeing) determined that bitcoins and darknet were an essential part of their sophisticated and untraditional mode of business. The Court accepted the Crown’s submission that the use of those technologies was in order to disguise and avoid detection by the authorities.

The Court, however, determined that the use of bitcoins and the darknet is only relevant in the determination of general deterrence in sentencing. Lovell J stated the following;

“…the relative sophistication of the operation [such as the use of bitcoins and the darknet], particularly the difficulties it presents with detection, are matters to be given weight when considering the question of general deterrence.” [76]

In other words, the Court did not take into account the use of bitcoin and the darknet to disguise the operation conducted by the offender to have any bearing upon the objective seriousness of the offence.

However, the Court further commented that if such use of operation becomes more prevalent, the need for general deterrence may heighten. Peek J (with whom Lovell and Blue JJ agreed) at [3] stated the following;

“I indicate that if this type of enterprise [of using bitcoins and the darknet] continues to be encountered in South Australia in the future, a heightened need for general deterrence may become apparent and lead to a significant increase in the length of prison sentences in cases of the present kind.”

Following the judgment of this case, it is likely that the weight given to general deterrence in the use of bitcoins and the darknet will increase in the future.

 

Is this a universal approach?

The judgment of R v Collopy is limited in its binding effect within South Australia as the case only involved the State crime. In other words, the Courts in NSW do not have to follow the decision in R v Collopy in matters dealing with drug offences under the NSW law or the Commonwealth law. However, being the Full court of the appellate court in a State, it will be determined to be persuasive and powerful in other jurisdictions.

In terms of NSW, there was an earlier case of R (Cth) v Mead [2017] NSWDC 1 involving the use of bitcoin to disguise illicit profits. In that case, it was determined as a necessary context to consider in the objective seriousness of the offence in sentencing the offender for a Commonwealth offence. This is a stricter approach to the use of bitcoins and the darknet than the approach taken in the case of R v Collopy.

 

Conclusion

In light of the recent case, the Courts may be inclined to address the issue of the use of bitcoins and the darknet in sentencing by forming a universal approach across the jurisdictions. However, whether the decision of R v Collopy will be considered and applied in a similar manner in NSW Courts is yet to be tested.

 

Nyman Gibson Miralis specialise in all aspects of Bitcoin and digital currencies, restraining order proceedings, forfeiture order proceedings and proceeds of crime investigation. If you require assistance, contact one of our expert criminal defence lawyers.