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The Italian Supreme Court on self money laundering and virtual currency offering

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Italy

Last November 22, 2022, the Italian Supreme Court (Corte di Cassazione) (Cass. Pen., Sez. II. n. 44378/2022) ruled with respect to the applicability of anticipatory seizure (sequestro preventivo) to a wallet containing cryptocurrencies; in this occasion the Court took chance to carry out certain considerations on the applicability to cryptocurrencies of the Italian legislation on the offering to the public of investment services or activities.

Specifically, the second criminal section of the Italian Supreme Court declared null an order issued by the Review Court of Brescia (and referred back to the latter for retrial) by means of which had been denied the public prosecutor's request to subject to anticipatory seizure (sequestro preventivo) a wallet containing 30 bitcoins.

To summarise: the Public Prosecutor's Office would have wanted to seize the wallet containing the profit of the charged crime of self-money laundering (art. 648 ter.1 of the Italian criminal code) allegedly committed by the suspect through the reinvestment in cryptocurrencies of other cryptocurrencies in turn deemed to be the proceeds of the crime of abusive exercise of banking and savings collection activities (art. 131 of Italian Legislative Decree no. 385/1993 (the “Italian Consolidated Banking Act”)) or the crime of financial abuse (art. 166 of Italian Legislative Decree no. 58/1998 (the “Italian Consolidated Financial Act”)).

When stating the potential applicability of the seizure to a wallet containing cryptocurrencies, it remarked that a definition of "virtual currency" (deriving from EU directives) was transposed in Italy by Italian Legislative Decree no. 231 of 2007 (i.e., the domestic anti-money laundering legislation) under which "virtual currency" is defined as: "the digital representation of value, neither issued nor guaranteed by a central bank or public authority, not necessarily linked to a fiat currency, used as a medium of exchange for the purchase of goods and services or for investment purposes and transferred, stored and traded electronically." (art. 1, lett. qq) of Italian Legislative Decree no. 231/2007.

The Court, after pointing out that in our legal system the aforementioned provision includes - in addition to what is provided at a EU level – (not only to the exchange of cryptocurrencies aimed at purchasing goods or services, but also to) the "purpose of investment," remarked that: (i) providers of services related to the use of virtual currencies must register within the special register kept by the Italian Authority for agents and mediators (OAM) and (ii) exchangers[1] and wallet providers[2] are subject to specific regulatory duties with respect to anti-money laundering.

Given that, in case a offer of virtual currency is promoted as a genuine investment proposal then such activity would fall within the application of the Italian Consolidated Financial Act, the Court pointed out that door to door offering (offerte fuori sede), as well as offering or placement with distance selling techniques of virtual currencies might entail the application of Article 166, first paragraph, lett. c) of the Italian Consolidated Financial Act, which punishes with detention from one to eight years and a fine ranging from Euro 4,000.00 to Euro 10,000.00 whoever offers, inter alia, investment services or activities without having obtained the necessary authorisations (crime of financial abuse so-called solicitation).

In the case at hand, in particular, the fundraising was aimed at the creation of a decentralised platform of logistics services and, the individuals who had invested their funds had been assigned with virtual currencies which enabled the holders to benefit from the platform's services.

According to the Court's findings, virtual currencies might fall within the broad category of “financial products” where certain distinguishing features exist, such as (i) the use of capital, (ii) the expectation of a return, and (iii) the presence of a risk inherent in the chosen activity, directly related to the use of capital.

According to the Court in the case at hand, given the existence of the use of capital and the presence of a risk related to the use of capital, the expectation of obtaining a return was represented by the exchange of certain virtual currencies with a virtual currency that would, at a later stage, allow its holders to participate to the platform; the price of the assigned virtual currency was subject to variation depending on the time of assignment to the investors and, in case of success of the platform, would have borne the chance to obtain a capital gain.

Therefore, the activity carried out by the platform was traced back to the activity of offering investment services or activities to the public in the absence of the prescribed qualifications and, therefore, the crime under art. 166 of the Italian Consolidated Financial Act was deemed potentially integrated, with possible application of the preventive seizure to the wallet containing the bitcoins.
 
[1] i.e., any natural or legal person who provides third parties, on a professional basis, including online, with services functional to the use, exchange, storage of virtual currencies and their conversion from, or into, fiat currencies or into digital representations of value, including those convertible into other virtual currencies as well as the services of issuing, offering transfer and clearing and any other service functional to the acquisition, trading or intermediation in the exchange of the same currencies.
[2] i.e., any individual or legal entity that provides third parties, in a professional capacity, including online, with safeguarding services of private cryptographic keys on behalf of its clients in order to hold store and transfer virtual currencies.

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