When the so-called “freedom convoy” pivoted to Bitcoin and other digital assets as a source of funds when traditional channels were cut off, Canadian authorities ratcheted up attempts to police the cryptocurrency space.
Now, with the convoy’s blockades cleared and some of those financial pressures relaxing, continuing efforts to recoup crypto from organizers are facing technological hurdles.
The fresh attention on crypto regulations began when convoy organizers, cut off from funds raised via GoFundMe and other crowdfunding platforms, turned to Bitcoin (BTC) and other blockchain-based assets to fund their ongoing blockades. Some organizer estimates pegged the total BTC raised at roughly $1 million in equivalent Canadian dollars.
When the Liberal government invoked the Emergencies Act, the unprecedented move included language directing financial institutions — including crypto exchanges — to freeze accounts linked to the protests.
Though popular myths surrounding cryptocurrencies might label the emerging digital assets as secretive and untraceable, in Canada where regulations on crypto exchanges have been in place for years, experts say the framework to track down and crack down on the movement of cryptocurrency is already in place.
“I know in the early days of Bitcoin, a common argument was, ‘Bitcoin is just for terrorists because it’s easily obfuscated and they can hide behind the scenes,’” says Michael Vogel, CEO of Vancouver-based crypto exchange Coinstream.
“Well, the irony is, actually every single Bitcoin transaction is recorded permanently.”
That perpetual financial record is a natural feature of the blockchain, the decentralized ledger that underpins cryptocurrencies, non-fungible tokens (NFTs) and a slew of other emerging, high-tech uses.
While the identities of users on the blockchain can be disguised, the Bitcoin currency system is only “pseudo anonymous,” Vogel says.
Though cryptocurrency can be exchanged user-to-user ad nauseum, in order to convert it into a more useable fiat currency, crypto owners have to go through an exchange, like Coinstream.
In Canada, all crypto exchanges are registered with FINTRAC, the country’s primary financial watchdog. Among the requirements for operating legally in Canada, then, are getting basic identifying details about the exchange’s users.
Through these “on and off ramps,” Vogel says, Canadian authorities can pin down how crypto is flowing to people of interest in the “freedom convoy” or really any other operation underpinned by the digital currency.
This level of regulation is beneficial to the exchanges as well, Vogel says, as crypto platforms also find themselves the targets of fraud on a regular basis.
“So it is actually a symbiotic relationship where, going through a process of knowing your customers and onboarding them and getting their ID when they sign up, it does help cut down on fraud and and in cases of criminal investigations, it helps provide a line of sight into what’s going on,” he says.
The Mareva Injunction
While a federal finance official confirmed Tuesday that bank accounts related to the protest are beginning to be unfrozen, that doesn’t mean convoy crypto is in the clear.
Organizers were slapped with another legal lock on their funds last Thursday, via a rare court order filed by lawyer Paul Champ on behalf of a private group of Ottawa residents and business owners seeking compensation for the weeks of disruptive demonstrations in the city’s core.
The Mareva Injunction, as it’s known, names a number of banks, crowdfunding platforms, crypto exchanges and digital currency holders and a list of crypto wallets and accounts associated with the convoy.
The injunction calls on these companies to freeze the movement of any funds from the specified wallets across their platforms as part of an overall order to prevent key organizers from liquidating their assets — thereby ensuring the class action lawsuit, if successful, has funds to recoup.
It’s believed to be the first time in Canadian history a Mareva Injunction has been used to freeze crypto assets.
Bitbuy, a Toronto-based crypto exchange named in the order, confirmed to Global News that it’s prepared to freeze any assets coming in from the blacklisted accounts on its platform.
Joseph Iuso, the chief anti-money laundering officer at Bitbuy, says that the traceable element of crypto can make it less attractive for illicit activities than even traditional fiat currency.
“I think anything that puts a spotlight on crypto but doesn’t put a spotlight on the other types of payments and funding models is probably a little bit overblown. At the end of the day, every method of payment, every method of being able to transfer money can be used and exploited by the criminal element,” he says.
“I mean, if we want to talk about evil tools, cash! Cash is the most anonymous thing in the world.”
Complications with accessing funds
But even with the crypto regime well regulated in Canada, there are some aspects of the technology that make it difficult to exert control.
One of the convoy organizers, Nobody Caribou (identified as Nicholas St. Louis in the injunction), said in a recent interview with Bitcoin Magazine that 80 per cent of the funds raised in Bitcoin were being consolidated into wallets provided by Nunchuk.io.
The company, named alongside Bitbuy and other crypto exchanges in the Mareva Injunction, posted a public statement on Twitter rebuking the very nature of the order.
The company said that it is not, as the order seemed to suggest, a crypto exchange with custodial privileges over its users’ crypto wallets.
While exchanges like Coinstream and Bitbuy, which are registered with FINTRAC, have significant personal details about their users, Nunchuk is a software developer that makes an app for users to host their own crypto wallets. The company says it merely has email addresses for its clients, nothing more.
Nunchuk isn’t a middle man that facilitates transactions for its clients, thereby giving it no control over the sending of funds or even specific knowledge of what activity happens in its customers’ wallets.
“Please look up how self custody and private keys work,” the statement, addressed to the Ontario Superior Court of Justice, read. “When the Canadian dollar becomes worthless, we will be here to serve you, too.”
Cryptocurrency experts who spoke to Global News largely agreed with Nunchuk’s assessment.
Charlene Cieslik, chief compliance officer of Toronto-based Bitcoin ATM-maker Localcoin, said in an email to Global News that asking Nunchuk to police the cryptocurrency in wallets hosted on its software would be “tantamount to asking Louis Vuitton to monitor my leather wallet once I leave the store.”
“They are a self-custody wallet — they’re not not privy to any information like exchanges. All they could block is the email, but you can get another email and another wallet provider. They’re simply not keeping the data needed to block,” she wrote.
Champ told Global News in an emailed statement Wednesday that even if Nunchuk does not have the ability to freeze assets, other requirements under the Mareva Injunction could still apply to the company.
“If the intermediary does not have the ability to freeze the assets, the order still requires them to disclose any information they have about any assets which may be held by the respondents,” Champ said.
“We are reviewing this particular response from Nunchuk and will address it, if necessary before the court.”
— with files from Global News’ Anne Gaviola