Can Crypto Coins Be Sezied?

The concept of cryptocurrency is a new concept that occupies the agenda of states, societies, and the press on an international scale. Although it is a term that we are all familiar with now, the lack of a physical equivalent of crypto money is still on a plane dominated by uncertainties in the face of its anonymity and the innovation of its technology. A similar situation exists not only in the eyes of users and society but also from the states’ point of view. Many states prefer to stay away from granting crypto coins a legal status. Since cryptocurrencies have not yet been granted legal status in Turkish law, various discussions are being raised in different branches of law. Crypto coins, mainly discussed in criminal and tax law, how they should be placed as the value of a property is yet undetermined, leading to a dispersion problematic in law enforcement. In this context, conflicts have arisen about whether cryptocurrencies can be confiscated as the value of any assets and how to foreclose on them if they can be.

In this bulletin, the issues of whether cryptocurrencies can be confiscated, if possible, the foreclosure should be done following the provisions of the Enforcement and Bankruptcy Code were focused on, and subjective evaluations were included within the framework of today’s developments.

1.    What is Crypto Money?

Before making statements about the foreclosure of cryptocurrency, we think that it will be helpful to briefly explain cryptocurrency in terms of understanding the subject. Crypto coins are different from the country’s coins issued by the states. These are not currencies belonging to a particular country, and their producers are private entrepreneurs. Information technologies are used in the use and treatment of cryptocurrencies. Money is produced, stored, and used in a virtual environment, and there is no physical equivalent for this money. The value of cryptocurrency is not indexed to any country’s currency nor a valuable mineral such as gold or silver but is determined and varies depending on the supply and demand in the market. However, the exchange of cryptocurrencies with real currencies can be provided. This is possible through intermediary institutions. Cryptocurrency ATMs are also being set up for cryptocurrency purchases and sales.

The owner of the cryptocurrency and the identity of its users cannot be determined because people can register in the system without having to reveal their identity and use cryptocurrencies through electronic keys and wallets. Cryptocurrency purchases and sales can also be made through intermediary firms.

2.    Are Cryptocurrencies Accepted as a Currency in Turkish Law?

Crypto coins do not yet have a legal basis in Turkish law. It is discussed whether they will be traded as a new currency and whether they can be considered virtual currencies or electronic currencies. It is also debatable whether cryptocurrencies can be characterized as a kind of commodity or securities and not as “money .”No consensus has yet been reached on this issue in the doctrine. Although the state has made several regulations related to crypto assets, it has not yet recognized the legal status of the concept of cryptocurrency and has avoided deciding on its qualification.

According to the latest Regulation, crypto assets are prohibited from being the subject of payment transactions. Issued by the TCMB and published in the Official Newspaper dated April 16, Regulation on the Non-Use of Crypto Assets in Payments with the provision of services for the direct or indirect use and use of crypto assets in payments is prohibited, and there is no ban on the use of cryptocurrency as an investment tool. In addition, the Regulation does not prohibit the execution of cryptocurrency transactions through banks.

3.    Can Crypto Coins Be Seized?

Today, it is a fact that cryptocurrencies are used as investment tools in society. For this reason, meaningful discussions are being raised about whether it can be foreclosed like other assets. In particular, the fact that the cryptocurrency was seized for the first time in the Istanbul Enforcement Offices in April 2021 and the non-foreclosure complaint made by the borrower against it was rejected by the executive court has also become a closely watched issue by the media.

Crypto coins are digital assets with a unique structure and differ from the values of support that we know. It is also not determined how they will be processed by the state, so it is necessary to carry out an idea within the principles of general law. First of all, it can be said that its position among the value of its assets is movable. As for the values of movable assets, there is no consensus on whether it is money or securities, or commodities. However, regardless of whether cryptocurrencies are considered a currency, security, or a commodity, it can be said that the foreclosure of cryptocurrencies is possible in any case because it is possible to foreclose all the values of these assets in our law. Already, as a rule, all property and rights of the borrower that have a financial value can be confiscated. The issue of which goods and rights cannot be confiscated is indicated in the laws. Except for the interests, rights, and assets specified in the rules in which they are not subject to confiscation, all the values of the debtor’s assets may be confiscated. Therefore, there is no legal regulation preventing the foreclosure of cryptocurrencies in Turkish law.

4.    How to Seize Crypto Coins?

When the debtor does not pay the debt, one of the legal remedies that the creditor can apply is to initiate enforcement proceedings against the debtor. In the process of enforcement proceedings, if the debtor does not pay the debt with his consent, this time, the values of the debtor’s assets are seized and sold, and the money obtained from this sale, which the creditor will receive, is tried to be paid.

It should be possible to foreclose on cryptocurrencies and other assets. As a matter of fact, Istanbul Executive Offices have carried out cryptocurrency foreclosure this year. However, there are both technical and legal problems related to the confiscation of cryptocurrencies. One of the primary problems arises in determining the owner of cryptocurrencies. Because only the seizure of property and rights belonging to the debtor is possible. It is pretty challenging to decide whether there is crypto money belonging to the borrower. In particular, it is impossible to determine whether there is a cryptocurrency belonging to the borrower on foreign cryptocurrency exchanges. There is also no international cooperation on this issue. However, it is possible to confiscate cryptocurrencies held by brokerage firms on domestic cryptocurrency exchanges. Because in this case, the brokerage firm where the borrower’s crypto money is located can access information about whether the borrower has crypto money or not, if any, in what amount. Another problem is that it is pretty challenging to confiscate cryptocurrencies that are not kept in brokerage firms but are kept in personal electronic wallets. Because it is impossible to determine who owns the asset in the personal electronic wallet unless the borrower declares that there is crypto money from his electronic wallet, this money cannot be foreclosed on either.

As for how the cryptocurrency foreclosure was carried out, it will be more enlightening to go through how the first instance of the cryptocurrency seizure was carried out. The first example of a lien placed on a cryptocurrency in Turkish law was carried out in the same way as a lien placed on a person’s bank account and in this way. Mentioned in the 89th of the Enforcement and Bankruptcy Code in the procedure of “foreclosure of the debtor’s property and rights in third parties,” due to the debtor’s money in the bank, the bank owes the debtor this money, and the debtor is considered to be in the position of the creditor from the bank. Therefore, the debtor’s right to assets from the bank is foreclosed by the enforcement agency, and it is requested that this money is no longer paid to the debtor but to the enforcement agency. The enforcement agency sends a confiscation notice is sent to the bank the enforcement agency by this foreclosure procedure contained in Article 89 of the IIK. This lien specifying the amount in the notice by the borrower’s deposit account in the bank put a lien on it is this money, the money should be paid to the executive office within 7 days, unless, if such money is not present, the same notice must be appealed within 7 days; otherwise the money belongs to the bank. When the bank responds to the notification, issues such as whether the borrower has any money in the bank, how much money he has, etc., arise, and the process continues to operate accordingly. If the bank does not object to the fact that the borrower does not have any money with him, the same warning is repeated by sending a second foreclosure notice to the bank. Again, if there is no objection, it is stated in the notification that the requested money is finalized at the bank and that this money should be paid to the enforcement agency within 15 days. The bank can no longer stop the pursuit by objecting to this third notice. Within 15 days, it may try to prove that the borrower does not have money in the bank by filing a vices detection lawsuit.

According to the same logic, a foreclosure notice is sent to the brokerage firm where the borrower’s cryptocurrencies are traded for the foreclosure of cryptocurrencies. For this notice to be sent, the borrower must have reported the cryptocurrencies in his assets when declaring goods. Otherwise, enforcement proceedings should be continued or terminated according to the response from the brokerage firm to the foreclosure notice. If the brokerage firm has crypto money belonging to the borrower at its disposal, it is obliged to indicate this and its amount in response to the notice. In this case, a confiscation is placed on the number of the borrower’s cryptocurrencies that will cover the creditor’s assets. In the foreclosure notices issued by Article 89 of the IIK, it is requested that the TL equivalent of the cryptocurrency be paid to the enforcement agency at the exchange rate on the day the notice reaches the brokerage firm. Another point discussed in this regard is that if the cryptocurrency is foreclosed, which current exchange rate will be converted to TL. Because the december value of crypto money can change in brief time intervals, however, it is considered that the most correct solution is to make a transaction at the exchange rate on the day the notification reaches the institution.

According to Article 89 of the IIK, a cryptocurrency foreclosure is no different from a foreclosure placed on a person’s money in a bank, a bond issued to the bank for collection, or a stock issued as a pledge. In this case, it is possible to say that cryptocurrency is treated as a security in Turkish law. As a matter of fact, the decision of the Executive Court regarding the complaint that crypto money cannot be confiscated also drew attention to this situation; “Tough plaintiff filed a complaint against crypto coins whether the securities of such money is seized, claiming evaluated within the scope of commodity and should be accepted as some kind of digital currency or virtual currency, hence it was decided that the complaint be rejected, that can be attached understood.”

5.    Can Crypto Coins Be Seized Like a Regular Money?

If cryptocurrencies are considered a currency, they must be confiscated by the provision of article 102 of the IIK and stored by the enforcement agency by the condition on the foreclosure of the movable property contained in article 88. More clearly, a foreclosure report is issued on the foreclosure of cryptocurrency, and the amount of the cryptocurrency that has been foreclosed on and the information of the parties to the enforcement proceedings is written down; then, the cryptocurrency is confiscated by the executive director. We have stated that crypto money does not have a physical presence. Therefore, to confiscate in this way, the enforcement directorate will need an electronic wallet where it can hold crypto money. It is not yet possible to carry out this type of foreclosure at first glance due to technical impossibilities. However, considering that it is possible to convert cryptocurrencies into country currencies, it may be requested to be converted to national currency from the brokerage firm and sent to the account of the enforcement directorate.

Conclusion

The issue of the decommissioning of cryptocurrencies as an asset value in exchange for the debtor’s debt is one of the crucial discussions occupying the agenda. Today, we have witnessed that cryptocurrency has been foreclosed on in Turkish law. The anonymity of cryptocurrency users and the difficulty of determining their belonging due to technology is the first factor that makes it challenging to confiscate. Secondly, crypto money does not have a legal equivalent or qualification. It is pretty natural that cryptocurrency foreclosure, which cannot be placed on a solid footing within the framework of the current legal regulations, will cause disagreements. Firstly, the legal status of the cryptocurrency will be determined, and uncertainties will be resolved if a path is followed it.

You can contact our team for detailed information on the subject of legal questions and problems.

Best regards,

Solmaz Legal and Consulting Team.

References

ÖZSOY, Ilker Mete, Foreclosure of CryptoCurrency Assets by Forced Execution, Başkent University Institute of Social Sciences, Department of Private Law, Ankara, 2019, p.70-75.

Mr. Bozkurt YÜKSEL, Armağan Ebru “A Legal Overview of Electronic Money, Virtual Money, Bitcoin And Linden Dollars”, IUHFM, C. LXXIII, P. 2, p. 173-220, 2015.

DURDU, Erdal, Bitcoin as a Cryptocurrency and Criminal Law, Master’s Thesis, Galatasaray University Institute of Social Sciences Department of Public Law, Istanbul, 2018.

“How Was the Foreclosure Process Applied to the CryptoCurrency? Justification of the Istanbul Executive Civil Court“, the CNN Turkish Economic News bulletin dated 20.04.2021, was used to access the rationale for the decision.