Financial fraud/credit: designer491/Shutterstock.com

The increased digitisation of fraud can be seen not only from the way in which victims are targeted – through hacking, malware, and other cybercrime – but also in terms of the assets being fraudulently obtained.

April 2020 marked 10 years since Bitcoin was invented, but until recently its legal status had not been examined. The last few months were a period of significant development in the legal response to frauds involving cryptocurrencies. The recent cases have highlighted that our traditional conceptions of property rights and interim remedies which can be marshalled in response to fraud, needed rapid re-thinking in order to be fit for purpose.

Judges grappled with the novel question of whether cryptocurrencies could be considered property for the purpose of granting interim relief in Robertson v Persons Unknown (16 July 2019, unreported) and Vorotyntseva v Money-4 Ltd & ors [2018], (not reported until November 2019). In both cases, the judges were willing to classify cryptocurrency as property notwithstanding the difficulty of situating it within the traditional distinction between choses in possession and choses in action.

November 2019 also saw the release of the UK Jurisdiction Taskforce's Legal Statement on Cryptocurrencies and Smart Contracts, in which it was argued that the technical classifications of the old case law could be overcome; cryptocurrencies had the necessary indicia of property and should be classified as such. The Legal Statement emphasised the English common law's ability to adapt and respond flexibly to new technologies and commercial innovations.

More recently, in AA v Persons Unknown [2019] (17 January 2020) an (anonymised) insurance company, like Travelex, suffered a hacking attack, where hackers bypassed the company's firewall and installed encrypting malware on one of its insured customer's systems. The hackers demanded a £950,000 ransom payable in Bitcoin and, following payment, sent decryption software.

The insurer tracked the ransom bitcoin to a wallet operated by a cryptocurrency exchange called Bitfinex.  Bryan J approved the analysis in the Legal Statement that cryptocurrencies are property, and so granted proprietary injunctions against all defendants, including Bitfinex. However, he adjourned the question of freezing and Norwich Pharmacal relief.

When a fraudster dissipates traditional currency away, fraud practitioners are well-versed in obtaining freezing, Norwich Pharmacal and Bankers Trust relief, including against intermediary banks, who are often a vital source of information. However, in crypto-fraud, there is no equivalent middleman owing to the de-centralised nature of the currency.

Robertson and AA both involved orders sought against crypto-currency exchanges, as a proxy for the traditional bank, to disclose the identity of wallet-holders and the onward destination of funds. However, in AA, where the exchange was located overseas, the Judge doubted whether permission to serve out of the jurisdiction could be granted. Given that digital fraud is likely to involve parties located abroad, this could seriously limit the effectiveness of interim relief in such cases and it is hoped that this issue will be revisited.

Another key trend for 2020 is litigation arising out of fraudulent data hacks. The CPR was updated in October 2019 to include a dedicated Media and Communications List for GDPR claims, and on 4 October 2019, Warby J granted a Group Litigation Order in proceedings brought against British Airways, arising out of the well-publicised breach of its website and mobile app which resulted in the theft of around 500,000 customers' data. Thought to be the first group action under the GDPR, the claim will examine the 6000 claimants' right to compensation under Article 82.

Shortly after, the Court of Appeal allowed a representative action to proceed in Lloyd v Google [2019], permitting a single claimant to pursue claims on an opt-out basis for all affected individuals with the same interest. A representative action is also being pursued for the Equifax data breach.

Given that fraudulent attacks on data, as opposed to currency, affect many more potential claimants, these developments are a welcome step towards providing redress to victims from the companies responsible for protecting their data, in circumstances where a claim against the fraudulent hacker is unlikely to be possible.

Finally, the impact of Covid-19 on fraud litigation should not be underestimated. The Fraud Advisory Panel has already warned of an increased risk of digital attacks such as phishing emails, malware, and payment diversion/mandate fraud as businesses have been forced to shift to operating remotely online.

We may see Covid-specific frauds surrounding applications for financial relief, or relevant websites and apps being compromised to harvest data. Furthermore, history tells us that periods of crisis and economic downturn, and the insolvencies which inevitably ensue, often expose financial frauds and mismanagement which may previously have gone undetected.

What is clear is that the increasing digitisation of fraud is forcing the law to adapt to keep pace, and there will be no shortage of litigation to test its flexibility.

Sophia Hurst is a barrister at Serle Court