A tip for ATO? Australian man arrested, charged for holding bitcoins as “tainted property”

In March, a 21-year old Australian man was charged for allegedly hacking the systems of Riot Networks, a US-based gambling

In March, a 21-year old Australian man was charged for allegedly hacking the systems of Riot Networks, a US-based gambling company. He allegedly copied files and hijacked their Twitter account. In April, a court confirmed bail conditions barring him from all access to computers.

Several days ago, the man was again arrested by the Queensland Police for violation of bail terms and the possession of “tainted property”:

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“Police will allege the man had possession of approximately $110,000 worth of Bitcoin (a digital currency) he allegedly obtained from these offences and will now be considered proceeds of crime…He was charged with tainted property.”

What exactly is tainted property? According to the Australasian Legal Information Institute (AustLII), “‘tainted property’, in relation to an offence, means—(a) property that was used, or was intended by an offender to be used, in relation to the commission of the offence; or (b) property that was derived by anyone from the commission of the offence.”

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Will the case help guide the Australian Taxation Office (ATO)?

Queensland University of Technology emeritus professor Bill Caelli asks, “The man appears to be charged for holding tainted property, not stealing money, so this throws into question, around the world actually, is what is the status of these Bitcoins?” The implication is that bitcoins, at least according to the judicial system right now, aren’t good enough to be considered stolen and take on a status of “second class citizen” as tainted property when gained illegally (this would have far reaching consequences for Bitcoin thefts surrounded by talk of police investigations).

It can also set a precedent for the Australian Taxation Office (ATO), who has been struggling with how to treat bitcoins for tax purposes. Even though Bitcoin’s definition can technically vary depending on the intention of a given context, ATO’s seeking of legal advice may be enough for any precedent to tip the scales.

Not so fast. AustLII goes a step further in noting that “property” should be defined as in the Legislation Act of 2001, which reads: “property means any legal or equitable estate or interest (whether present or future, vested or contingent, or tangible or intangible) in real or personal property of any description (including money), and includes a thing in action.” So we might really be back to square one.

In the US, the classification of Bitcoin as property by the IRS has not prevented authorities from pressing charges against Silk Road operator Ross Ulbricht for money laundering, although his lawyer has argued otherwise.

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