Kenya was shocked recently when word spread on social media that a 21-year-old woman had 102 million Kenyan Shillings (about $900,000) deposited in her bank account. It was revealed that the money was a present from the lady’s cryptonaire partner, Marc De Mesel. The cryptonaire explained on his YouTube channel that the money was part of the profits he had made trading and that he had given it to her account in various transactions, taking into mind the applicable laws and regulations.

However, under the provisions of the Proceeds of Crime and Anti-Money Laundering Act, 2009, the Asset Recovery Agency filed an application in the High Court (Anti-corruption and Economic Crimes Division) seeking Preservation Orders for the money in the aforementioned bank account (POCLAMA).

The injunction was issued and will be in effect for 90 days to allow the Agency to perform its investigations and determine the source of the funds.

Various challenges in the blockchain and crypto realm are highlighted in this scenario:

• The case for bitcoin as laid out in the Whitepaper by Satoshi
• Laws that regulate the transmission of money
• Claims that bitcoin facilitates crime with the aim of discouraging any form of investments

Satoshi developed a mechanism that allows parties to make online payments without the use of financial institutions. These institutions are recognized as trusted partners in transactions under the traditional system, and they function within various constraints imposed by governments.

Take for example, in Kenya, banks are required to:

• Conduct customer due diligence on their clients
• Keep a record of all business transactions and parties involved with their clients as per the POCLAMA

Other stipulations include:

• Stating the source of funds when depositing or transferring a certain amount
• Disclosing particulars of the transacting parties when required
• In some circumstances, obtaining approvals to make certain money transmissions

Without a doubt, if the parties had utilized crypto exchanges and wallets to conduct the transfer and store the money, they would not be in this situation today, dealing with agents and police officers raiding their homes, arresting them, and revealing their identities.

Because the public keys are anonymous, Bitcoin is considered a permission-less system that assures transaction privacy. Most crucially, because crypto exchanges are not formally recognized as reporting institutions, they are not required to monitor and disclose the activity of their customers to regulators. However, regulators are concerned about the possibilities created by the system, particularly since the transactions are anonymous. There have been worrisome rumors that the anonymity provides a platform for criminals to launder money, transfer proceeds from illicit activity, and finance criminal acts like terrorism.

Some exchanges have taken notice of this and established a set of guidelines relating to Know Your Customer (KYC) processes for identifying and verifying their clients, as well as Anti-Money Laundering rules that span multiple countries to create a system for compliance with the Financial Action Task Force.

As such instances are projected to become more common in the crypto community, participants must understand how preservation orders, also known as freezing orders or asset freezing, are granted and reviewed.

The orders are gazetted once the agency seeks to the court for them to be granted, and the Court grants them. They are effective for 90 days after being gazetted unless the Agency seeks seizure orders for the property that was frozen. The other party can, however, file an application to have the orders revised or varied on the grounds that he or she has been deprived of a means to provide for his or her living expenses, and that the undue hardship caused as a result outweighs the risk that the property will be looted, destroyed, or transferred.

They can also show that the preservation order is malicious, that it is based on bad faith, and that it is an abuse of authority or court processes.

After the Agency submits evidence before the court, the court must assess if the property includes proceeds of crime or money laundering.

Millions of people now have legitimate sources of income thanks to blockchain technology and cryptocurrencies, and they should be acknowledged as such. Regulators have the responsibility of ensuring that public funds are preserved, and they should do so while remembering that everyone is presumed innocent until proven guilty in the eyes of the law.