As technology has evolved, Canadian authorities have grappled with novel challenges investigating and prosecuting financial crime, including those crimes involving cryptocurrency and other digital assets. Parties affected by these enforcement developments have included not only potential illicit actors, but also innocent third-party custodians of digital assets, such as cryptocurrency companies.
The Ontario Superior Court's recent decision in Durham Regional Police Service (Re)1 considered the current state of Canadian authorities' search and seizure powers over digital assets, and whether police could obtain a general warrant under the Criminal Code for seizure of cryptocurrency. The Court held that Parliament's establishment of specific provisions for seizing digital assets — through the June 2023 introduction of special warrants under section 462.321 of the Criminal Code — precludes authorities from seizing those assets by way of a general warrant.
Background
In Durham Regional Police Service (Re), the Durham Regional Police Service (DRPS) traced bitcoins alleged to have been fraudulently transferred into digital wallets belonging to three Nigerian citizens held on Binance's cryptocurrency exchange. In March 2023, the DRPS applied for a general warrant and related assistance under section 487.01 and 487.02 of the Criminal Code to compel Binance to transfer the subject cryptocurrency from the suspects' wallets into a secure wallet held by DRPS.
The application judge dismissed DRPS's application, finding it had failed to satisfy the three preconditions to issuing a general warrant under section 487.01(1), that
- there are reasonable and probable grounds to believe an offence has been committed and that information concerning the offence will be obtained
- it is in the best interests of justice to issue the warrant
- there is no other provision under the Criminal Code or other Act of Parliament permitting the seizure
The application judge notably found there were a variety of other legal mechanisms that would have authorized recovery of the property, such as a restraint order under section 462.33 prohibiting Binance from "disposing of, or otherwise dealing with, any interest in the property specified in the order."
Subsequently, in June 2023, Parliament amended the Criminal Code to add section 462.321, providing for the seizure, management, and disposition of digital assets, including virtual currency. These amendments came into force on September 20, 2023.
The decision
The Attorney General for Ontario applied to the Superior Court for orders quashing the application judge's dismissal and compelling the Court to issue the DRPS's requested general warrant and assistance order. The Court dismissed the Attorney General's application.
Police cannot circumvent use of tailor-made digital asset warrants in favour of general warrants
The Court's finding largely turned on the third precondition for issuing a general warrant under section 487.01 — that there be no other provisions that would provide for a warrant, authorization or order permitting the technique proposed by the DRPS.
The Court held that, in addition to the provision allowing for restraint orders under section 462.33, the new section 462.321 was "tailor-made" by Parliament for the seizure of digital assets held on a third-party cryptocurrency exchange. Under section 462.32, the Attorney General (as opposed to the police) may apply to a judge for a warrant to search and seize digital assets, and the Attorney General must give an undertaking with respect to damages and/or costs in relation to the issuance and execution of the warrant.
The Court noted that general warrants should play a modest role to assist police in their investigative techniques that Parliament has not addressed. It held that the proposed use of general warrants should be highly scrutinized where Parliament has authorized an investigative technique that is substantively equivalent to what the police seek, so as to prevent the circumvention of more onerous preconditions by law enforcement.
Binance's jurisdictional concerns
The Court also heard arguments from Binance that the proposed warrant was not enforceable as against it on jurisdictional grounds, since Binance is domiciled in the Cayman Islands and not Canada. Binance argued that the proper approach was for authorities to make a mutual legal assistance request to the state in which the property in question resides. Having already dismissed the application for the reasons discussed above, the Court did not rule on the issue.
Takeaways for businesses
As technology continues to evolve, so too will the tools and techniques available to Canadian authorities to investigate and prosecute criminal activity. As we have previously written, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) recently undertook public consultations on proposed amendments to the Criminal Code and Canada's anti-money laundering and anti-terrorist-financing (AML/ATF) regime to address risks and vulnerabilities emerging in light of new financial technologies. These and other developments may affect not only illicit actors, but also innocent third parties.
In an enforcement context — whether or not they are the target of the investigation — companies should be aware of their legal rights and be thoughtful in their engagements with authorities. For example, while the judge in this case did not deem it necessary to address the jurisdictional issue raised by Binance, it may well be relevant in a future case.
While cooperation with authorities is in many circumstances encouraged and often advisable, companies may incur significant costs if they do not fully understand their legal rights, including understanding whether authorities have properly followed applicable procedures and whether any enforcement measures have the compulsion of law. Companies should seek advice from counsel as soon as they become embroiled in any enforcement or government investigation context to ensure their rights are understood and protected. This becomes increasingly important in an evolving enforcement framework as new technologies emerge.
Footnote
1 Durham Regional Police Service (Re), 2024 ONSC 1928.
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