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German court: Exchange crypto balance freezing is unlawful, must be revoked

German court: Exchange crypto balance freezing is unlawful, must be revoked

In a significant ruling, the German Regional Court based in Dresden has outlawed the freezing of cryptocurrency holdings in digital asset exchanges by public prosecutors.

In the ruling, the court stated that any existing laws on any third-party crypto confiscation must be revoked immediately, Finance Magnates reports. According to the court ruling:

“A paid transaction exists that precludes confiscation of the proceeds of the offence from others than the perpetrators or participants in the offence.“

Furthermore, the court indicated that crypto confiscation measures would not be applied if the prosecution fails to prove that the target is linked to criminal activities.

According to German law, public prosecutors, alongside criminal courts, can confiscate assets obtained from illegal activities. Notably, the freezing is also viable for the (co-)perpetrator for getting any assets directly from the crime committed.

For third parties, the confiscation only occurs if the assets were transferred at no cost or in the absence of any legal reason. 

In the event of an investigation, public prosecutors can use the law to freeze assets. Consequently, such measures usually involve large amounts of cryptocurrencies resulting in liquidity challenges. 

Decision applies across Germany

Worth mentioning is that the court decision can be generalized across Germany and not related to the individual case. The ruling is significant for the German cryptocurrency scene, considering that it is the first case by a criminal court. 

Cryptocurrency trading has gained popularity, with exchanges emerging as the perfect medium for linking people to digital currencies. However, criminal elements are capitalizing on the anonymous nature of digital currencies to engage in illegal activities. 

Notably, cryptocurrencies like Bitcoin are cited for aiding vices like money laundering. To curb this challenge, law enforcement agencies are focusing more on exchanges. 

Despite the ruling, crypto exchanges remain a target by authorities. Prosecutors might argue that exchanges can recognize some of the transactions linked to criminal activities. 

Although authorities have set up cybercrime agencies, it has become challenging to track cryptocurrencies linked to the crime. Therefore, in recent months, authorities are on the case of crypto exchanges as they are the easier option to arrest potential criminal elements. 

German institutional funds to allocate 20% to crypto

Additionally, the court ruling now forms part of the changing German crypto legal landscape.

Recently, a new law in the country enabled almost 4,000 institutional funds accounting for about €2 trillion in assets under management to invest 20% of their portfolios in Bitcoin and other cryptocurrencies.

The Fund Location Act (Fondsstandortgesetz) law went into effect on July 1. The German federal parliament affected the law. 

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