The Supreme Court ruled on Monday that bitcoin trading is to be treated as economic activity, and thus subject to anti-money laundering regulations and state supervision.
The Administrative Law Chamber of the Supreme Court agreed with the Tallinn Administrative Court and upheld the latter’s decision against the complaint of Otto de Voogd of Jun. 18, 2015.
The courts found that bitcoin had financial value and that it could be used to fulfil financial obligations. This is in line with the decision of the European Court of Justice regarding bitcoin, which stressed that a virtual currency had no other purpose than that of a practical means of payment.
As trading currency was an economic activity, it was reasonable to subject the activity of bitcoin traders to Estonia's anti-money laundering regulations and government supervision, the courts found.
The case goes back to 2014, when the Police and Border Guard Board’s financial intelligence unit got in touch with Otto de Voogd, who ran a bitcoin trading site, btc.ee.
The police wanted to know if de Voogd bought and sold the bitcoins he owned as a private individual, or if he had set up a company to do so. If it was the case that de Voogd had done so as a private individual, the police wanted to know who the provider of services behind btc.ee was.
The same message also demanded that de Voogd identify the people with which btc.ee had done more than €1000 worth of business, as it was treating him like any other provider of a financial service and hence needed to know due to the requirements of the Money Laundering and Terrorist Financing Prevention Act.
As such, the police also demanded to see copies of the IDs of de Voogd’s clients, a procedure of due diligence in place, and proof that de Voogd had registered his activity with the state.
An awkward request for information - or a threat
Also, perhaps unluckily, the police’s financial intelligence unit decided to quote § 372 of the Estonian Penal Code to de Voogd to give more weight to its remark in the message that doing business with btc.ee without prior registration may trigger a criminal investigation.
The sections quoted, some of them highlighted, made it clear to de Voogd that in case of a criminal charge he could potentially be facing €32,000 in penalties, or even a prison sentence.
De Voogd didn’t agree with several points made by the police. Firstly, he was asked to give up data that could be used against him in a criminal investigation, which he found went against his right to silence to avoid incriminating himself.
Secondly, he plainly felt he was being bullied. According to de Voogd, the police were dealing with a new form of payment that hadn’t yet been regulated, and thus were only feeling their way into a topic they otherwise didn’t have experience with. De Voogd found that the police’s request for information was a “fishing expedition” and filed a complaint.
No right to silence without a criminal investigation
The police’s position was the same as that of the courts. Because there was no criminal investigation going on, de Voogd didn’t have reason to withhold information on the basis of being afraid he might incriminate himself.
De Voogd didn’t agree. “It would mean that the police could coerce people into cooperating with an investigation against themselves by simply not officially calling it a criminal investigation, and only officially starting a criminal investigation once the information has been collected, just as they are trying to do in my case. That would make the entire right to silence effectively meaningless in Estonia,” de Voogd wrote in a statement on his website.
According to de Voogd, the court demanded that he specified why each of the questions he refused to answer potentially could be used to incriminate him. De Voogd maintained he couldn’t do that without the risk of revealing information that could be used against him.
De Voogd had also argued that bitcoin had not yet been created at the time the Money Laundering and Terrorist Financing Prevention Act was written. But the courts ruled that this didn’t mean that the act’s definition of a provider of an alternative payment service couldn't include providers of a bitcoin exchange service.
The Supreme Court added a recommendation to the legislator. In it, it suggested that the requirements for the provision of an alternative means of payment service should be specified, so that they would then meet concrete circumstances and make sure the regulations were flexible enough.
Editor: Editor: Dario Cavegn