Legal battle intensifies over £3bn bitcoin haul seized by British police

A fight over whether the British state can benefit from a £3.2bn criminal bitcoin haul has intensified as victims of a Chinese investment fraud insist a proposed compensation scheme is inadequate while prosecutors in England raise concerns that litigation funders and law firms are trying to cash in.

Court documents shed new light on a complex legal battle between authorities in the UK and thousands of individual investors cheated by a Chinese fraudster who ran a Ponzi scheme before she fled to Britain with a crypto fortune.

Police in London seized around 61,000 bitcoin as part of an investigation into Zhimin Qian, who was jailed at Southwark Crown Court in November for orchestrating a fraud between 2014 and 2017 against more than 128,000 victims in China. It was the world’s largest confirmed crypto seizure by law enforcement.

Bitcoin has soared in price since the fraud took place, quintupling since the end of 2017 to around £52,300 apiece. It means the haul, which was seized from electronic devices at a mansion in Hampstead, is worth about £3.2bn.

Various groups of victims are fighting to stop the Treasury from capturing the inflated value of the bitcoin. They are seeking redress through the courts in England under section 281 of the Proceeds of Crime Act, which allows crime victims to recover criminal assets.

The High Court was told last year that UK authorities proposed a compensation scheme for victims, although at the time details were not provided.

According to court documents released last month, victims would be compensated via a redress scheme run from China under London’s proposals.

The UK’s proposed out-of-court scheme is likely to mean the British state would retain much of the bitcoin fortune, in a boost to the public finances.

A law firm representing about 5,700 victims has raised concerns about whether they would be properly compensated under the UK’s plans and said they are right to assert their legal claim through the courts.

“No guarantee has been given as to whether it would be run in accordance with . . . principles of fairness,” law firm Candey said in a statement. Victims “could stand to recover nothing without access to justice before the English courts”, the firm added.

Martin Evans KC, representing the director of public prosecutions, said in a written court submission that the Crown Prosecution Service was concerned that the section 281 claims would benefit “a small subset of victims and their litigation funders”.

He said they were seeking to recover “sums vastly in excess of those victims’ actual losses to the exclusion of other victims and of the Crown”.

Evans also said that “the inevitable consequence” of litigation funding or “contingency fee” agreements was “that if victims receive anything at all, it will be at a significant cost to them”.

However, Candey defended its arrangements as allowing destitute victims to secure much-needed legal representation and said the court proceedings in England gave them the chance to secure proper redress.

Candey said it was “focused on righting this wrong and recovering victims’ monies and securing the justice they deserve”.

The firm said its “fair and equitable” payment arrangements “will leave them with the vast majority of the funds they recover”, adding that its total fees for its legal teams in China and England were capped at 18 per cent of any sums recovered.

“The suggestion put forward by the advocate for the DPP that those victims who might be successful in their applications for civil recovery would be doing so with the purpose of excluding other victims is misleading,” it said.

“The opportunity for the victims to obtain justice . . . must take precedence over the objective of securing the windfall for the Treasury.”

UK authorities plan to transfer necessary compensation funds to China in an agreement between London and Beijing to divide the assets. Victims would then be compensated through an existing scheme that already operates in China.

To make a successful section 281 claim in the English courts, a victim must trace a direct link between their specific stolen money and the seized bitcoin, which is expected to be difficult for many victims to document.

A preliminary hearing has been scheduled for July to resolve whether English or Chinese law should govern the victims’ claims to the seized assets. The court this week ordered that Fieldfisher should act as the “lead firm” representing claimants for this part of the proceedings.

The judge, Mr Justice Turner, also set a deadline of May 22 for the section 281 applicants to make formal claims.