UK Court Rules Chinese Law Applies to £4 Billion Fraud Case

UK Court Rules Chinese Law Applies to Fraud Case

The High Court of England and Wales has made a significant judicial ruling in a lawsuit concerning a massive cryptocurrency fraud amounting to billions of pounds, stating that the victims' claims for the return of seized Bitcoin (BTC) will be governed by Chinese law rather than English law.

This ruling clearly emphasizes the importance of the origin of rights arising from transactions and the background of the damages, even for seized assets managed within mainland Britain. The case originated from a large Ponzi scheme led by Zhimin Qian from 2014 to 2017 in China. He illegally raised funds through companies like Tianjin Lantian Ge Rui Electronic Technology, signing over 120,000 contracts under the guise of services for the elderly and investments in digital currency, collecting approximately 40.2 billion yuan (about £9.5 billion) unlawfully.

While some of the funds raised through the fraud were used for dividends to existing customers, much of it was converted into over 100,000 BTC through cryptocurrency exchanges like Huobi.

To evade Chinese authorities, Qian fled to London via Myanmar, where he, along with accomplices, attempted to launder and cash out the cryptocurrency. However, he was caught in an investigation by the Metropolitan Police in London. As a result, 61,000 BTC and a memory device recording approximately $5.07 billion (about £8.03 billion) were seized from safe deposit boxes and related locations, leading Qian to eventually plead guilty to possession of criminal proceeds.

Legal Battle Over Asset Return and Governing Law

Victims who lost funds initiated a civil lawsuit based on the UK’s Proceeds of Crime Act 2002 (Section 281), seeking a declaration that the seized assets are their property.

The main point of contention in the trial was the determination of the "governing law" under which the legitimacy of the return claims should be assessed. The victims argued for the application of English law (or a combination of English and Chinese law) based on claims that the funds were managed under a constructive trust and unique tracing provisions of English law.

However, the DPP (Director of Public Prosecutions) and the bankruptcy trustee firmly countered that since the transactions originated in China, Chinese law should apply.

Judge Turner's Ruling and Future Challenges for Victims

Judge Mark Turner of the High Court dismissed the victims' claims, concluding that the rights in this case should be adjudicated under Chinese law. He stated that since all core actions, including contract formation, fundraising by investors, and Bitcoin purchases, occurred within China, the mere fact that the seized items currently exist in the UK does not change the governing law to English law. This ruling merely clarifies the judicial premise, and it remains uncertain whether the victims will be able to recover their assets.

To receive compensation under Section 281 of the UK Proceeds of Crime Act, it is insufficient to merely prove that one is a victim of fraud; it is necessary to clearly demonstrate "direct ownership interests in individual Bitcoins" under Chinese law.

Moving forward, the focus will be on proving claims under Chinese law, and the hurdles for actual asset recovery remain high.

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