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What are the implications of using Bitcoin and the Darknet in criminal cases?

posted 7 years ago

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

With the increasing popularity of virtual currency, Australian Courts
are beginning to deal with sophisticated criminal activity involving bitcoins
and the darknet which appears to be intended to disguise the supply of
prohibited drugs and the proceeds of crime.

In a recent South Australian decision, R v Collopy [2017]
SASCFC 64 (hereafter ‘R v Collopy’), the Supreme Court was required to
 regard how these factors should be assessed in determining the
application of sentencing principles such as general deterrence and an
assessment of the objective seriousness of an offence. In that case, Mr Cooley
and Mr Collopy purchased prohibited drugs from marketplaces called ‘BMR’ and
‘SHP’ that were hosted on the darknet.

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

Ultimately the prohibited drugs were sold to Australia based customers
from their own virtual stall (AUVip) within the “BMR” and “SHP.” The prohibited
drugs were then distributed to the end user by post.

All of the transactions were conducted using bitcoins. The estimated
profit derived from the transactions (in a period of 6 weeks) was approximately
$100,000.

Mr Collopy and Mr Cooley were charged with 30 counts of drug-related
offences under South Australian drug laws, alleging trafficking, possession,
supplying and attempting to supply prohibited drugs.

It was contended that 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 – they were ultimately detected however as a result of
parcels being intercepted in the post which contained prohibited drugs.

 

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

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

The Court determined however that the use of bitcoins and the darknet
were only relevant to the question 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]

The Court did not take into account the use of bitcoin and the darknet
to disguise the offender conduct as having a direct bearing upon the assessment
of the objective seriousness of the offence.

However, the Court commented that if such offending became more
prevalent, the need for general deterrence could assume more relevance in
sentencing offenders. 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 this decision, it is likely that Courts will be asked to place
more weight on general deterrence in cases where there may have been a similar
use of bitcoins and the darknet.

 

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 South Australian
criminal law. Although courts in NSW do not have to follow the decision it may
be persuasive in other jurisdictions where a case may have similar facts.

In NSW, the case of R (Cth) v Mead [2017] NSWDC 1
concerned the use of bitcoin to disguise proceeds of crime. The Court
determined that it was necessary to consider the use of bitcoin in the context
of the objective seriousness of the offence in sentencing the offender for a
Commonwealth offence. This was arguably a stricter approach to the use of
bitcoins and the darknet than the approach taken in the case of R v
Collopy.

 

Conclusion

As Courts become more familiar with offences involving the use of
bitcoin and the darknet, it is likely that we will see an increased focus on
how these factors are to be used in sentencing offenders for drug supply and
dealing with the proceeds of crime offences. Presently, the number of cases
which have considered these issues in the context of sentencing is small and
there is no universal approach being adopted across Australian courts.

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