Court File and Parties

Ontario Court of Justice

Date: March 20, 2023

In the Matter of: an application for a General Warrant, pursuant to s. 487.01 of the Criminal Code and an Assistance Order, pursuant to s. 487.02 of the Criminal Code.

Before: Justice P.K. Burstein

Received on: March 7, 2023 Reasons for Judgment released on: March 20, 2023

Reasons for Judgment

BURSTEIN J.:

[1] Generally speaking, applications by law enforcement for judicial authorization to exercise a “search” or a “seizure” are determined on an ex parte basis. That process typically involves a law enforcement officer preparing and submitting an application in support of the request for judicial authorization of the proposed investigative step. The ex parte application will include a sworn affidavit outlining the “evidence” relied upon by the law enforcement agency to satisfy the judicial officer that the statutory (and, in some cases, constitutional) prerequisites to authorizing the investigative step have been satisfied.

[2] In the vast majority of such applications, the judicial determination is resolved either by a “yay” or a “nay”; that is, either the application is granted, and the authorization sought is signed or the application is refused, and it is not. In making such a determination, the judicial officer will rarely give detailed reasons either way. There is no statutory or constitutional obligation to provide reasons on these applications. Given the ex parte nature of the applications and the fact that they are usually undertaken in advance of charges being laid, providing detailed reasons is usually not advisable nor practical. Indeed, given that it is always open to law enforcement to re-apply for a judicial authorization (assuming that they disclose the details of the prior refusal), there is a risk that providing reasons for a refusal could be perceived as providing advice to law enforcement on how to overcome their previous failure.

[3] Keeping all of those factors in mind, I have decided that this is one of those rare cases where it is necessary for me to provide reasons for dismissing the above-captioned application.

[4] To repeat, given that this matter is still at the pre-charge stage, I do not intend to provide much in the way of a summary of the facts underlying the application. In short, the Durham Regional Police Service have applied for a “general warrant” (and “assistance order”) in relation to a fraud investigation involving cryptocurrency. The target of the orders being sought on the application is a well-known online cryptocurrency “exchange”. Based on the application materials, it seems clear that the target of the orders being sought are a third party and not a suspect.

[5] The application makes out probable grounds to believe that the offence of fraud was committed and that the commission of this offence involved the transmission of cryptocurrency from the victim to the suspects through the targeted online exchange company. According to the application materials, a cryptocurrency exchange functions much like its name suggests – it is an online financial institution which facilitates the exchange of cryptocurrency between individuals over the internet. The application also establishes that at least some of the cryptocurrency involved in the fraud remains in the possession or control of the targeted exchange company on behalf of the suspects.

[6] The orders being sought on this application are aimed at compelling the exchange to facilitate the recovery of some of the cryptocurrency transferred from the victim to the suspects. The application was not aimed at gathering evidence relevant to the investigation or prosecution of the alleged perpetrators, such as by obtaining records from the exchange company to help identify the perpetrators or the location of proceeds of crime not already known to investigators. Indeed, the application seems to concede that, given the online nature of the offence, the arrest and prosecution of the suspects is unlikely. The targeted cryptocurrency accounts “are controlled by three Nigerian individuals”. There is nothing in the application which suggests that the investigation has come close to being able to arrest and prosecute the foreign suspects since it began in November of 2021.

[7] Before turning to the merits of the application, it is also important to note that the application materials do not reasonably establish that the cryptocurrency said to be present in the three targeted accounts in December 2022, is the same cryptocurrency which the victim transferred to the suspects in or around September 2021. For example, while the application initially indicates that investigation in November of 2021 identified the suspects’ exchange accounts to be holding .08022315 of the victim’s cryptocurrency (of the 0.178117 transferred by the victim in total), the investigative update in December of 2022 showed that the targeted accounts now hold a total of .0890681 of cryptocurrency. This is not to say that there may not be a lawful basis to seize the cryptocurrency that is still in the accounts, but only that this application was aimed at facilitating compensation to the victim at the expense of exchange accounts probably controlled by the fraud suspects.

[8] As the application materials acknowledged, use of a general warrant to facilitate recovery of fraudulently obtained cryptocurrency is novel. Regrettably, as the application also makes clear, Parliament has yet to directly address the difficulties of policing cryptocurrency crimes. Given their online nature, enforcement typically involves transnational entities and foreign suspects. Regardless of the outcome, I commend the officers involved in this case for their ingenuity in trying to find a legal means by which to facilitate recovery to a fraud victim. The nobility of their effort did not, however, overcome its legal deficiencies.

[9] The application in this case solidly shows that the victim was defrauded of approximately $60,000, or 0.178117 in cryptocurrency and that approximately half of that amount is currently being held in exchange accounts associated to the suspects. I am readily satisfied from the application materials that the cryptocurrency in those exchange accounts is probably “proceeds of crime” (i.e., “property, benefit or advantage, within or outside Canada, obtained or derived directly or indirectly as a result of” a crime committed anywhere that would have been a crime in Canada). That conclusion alone, however, does not justify granting the request for the general warrant in this case.

[10] Before a general warrant may issue, s. 487.01(c) of the Criminal Code requires that there be “no other provision” in the Code or any other Act of Parliament which would provide authority for the procedure at issue in the general warrant application. The general warrant being sought in this case was aimed at recovering property obtained by the commission of an offence. There are, however, already a variety of legal mechanisms which would have authorized that. In particular, s. 462.33 of the Code would have allowed for the Attorney General to apply for an order prohibiting the exchange company from “disposing of, or otherwise dealing with, any interest in the property specified in the order”. Even if it could be said that the cryptocurrency held by the targeted exchange company is not “within a province”, s. 462.33(3.1) of the Code says that “[a] restraint order may be issued under this section in respect of property situated outside Canada”. The same materials filed in support of the application before me could likely have satisfied the statutory requirements for a restraining order under s. 462.33.

[11] The application contended that a restraining order (albeit one sought pursuant to s. 490.8 of the Code) would be ineffective because:

… it is not … safe to assume [the exchange company] will agree to freeze the cryptocurrency in its systems indefinitely. If [the exchange company] lifts its freeze, police would have little recourse to secure the cryptocurrency against dissipation. Adding to this risk is the fact that [the exchange company], unlike a traditional financial institution such as a bank, operates largely outside traditional financial regulatory regimes. There is… a substantial risk that [the exchange company] could unfreeze the cryptocurrency in the future and permit it to pass into the control of others, including the unknown suspect(s) of the fraud…. Seizure is necessary to bring the cryptocurrency within the direct control of Canadian authorities.

[12] I am not satisfied that there was a reasonable evidentiary basis for the application’s professed concern about the inefficacy of a restraining order. To address any concerns about the court’s territorial jurisdiction to issue a general warrant in relation to the exchange company, the application went to great lengths to establish that, despite its transnational nature, the exchange company “has both a physical and virtual presence in Canada such that… it is subject to Canadian jurisdiction and required to comply with court orders issued under the Criminal Code”. For example, according to the application, the company “is registered with the Financial Transactions and Report Analysis Centre of Canada as a money service business in Canada” and has a business registration with an address in another province. The application also notes that a senior official with the exchange company confirmed as recently as December of 2022 that the exchange company would cooperate with a Canadian judicial authorization. That assurance of compliance was consistent with communications from exchange company officials dating back to the first four months of the investigation. I find that it was speculative for the application to assert that, while the exchange company would comply with a general warrant, there was a legitimate concern it would ignore a Criminal Code restraining order and thereby place its legal status in Canada at risk. Indeed, it was entirely illogical for the application to suggest that the exchange company would comply with the proposed general warrant compelling the transfer of funds but not with a court order requiring a freeze of those funds. The latter order would create less legal exposure for the exchange company than would the former. Based on the application materials, a Criminal Code restraining order was a reasonable legal alternative to the general warrant sought in this case.

[13] Over and above the application’s failure to make out a reasonable basis for its claim that, in this case, a Criminal Code restraining order would not have sufficed, I was also not satisfied that it would be legally appropriate to seek a general warrant for the purpose of seizing suspected proceeds of crime. The Criminal Code allows for police to seek authorization for the seizure of property for a variety of reasons, such as to afford evidence of a crime, to remove dangerous contraband from the public domain and to compensate victims for harms suffered. According to the phrasing of s. 487.01, a general warrant may be authorized to obtain “information concerning the offence”. It would stretch the intended meaning of Parliament’s use of the word “information” in s. 487.01 to define the investigative purpose of general warrants, to extend the scope of general warrants to include the seizure of property for the sole purpose of future compensation.

[14] Use of the general warrant provision by the police to seize suspected fraudulently obtained cryptocurrency from an exchange company for future victim compensation would also risk bringing the administration of justice into disrepute. The procedure proposed by the general warrant application in this case seems to amount to an abuse of the court’s process. The police in this case proposed to set up their own cryptocurrency account for the sole purpose of allowing them to force the cryptocurrency exchange to transfer them the suspects’ proceeds so that those proceeds can be available later to compensate the victim. As noted earlier, while the application may have shown that the targeted proceeds probably belong to the suspects who defrauded the victim, the application did not reasonably show that the proceeds in the exchange company’s accounts approximately 18 months later are actually the monies taken from the victim. In effect, the police have sought a general warrant for the purpose of taking money from the suspects so that the police may eventually give that money to the victim. Like the famed heroic villain Robin Hood, despite the laudable purpose of the proposed taking by the police, that taking would nevertheless still be unlawful (as there are other Code provisions authorizing an equivalent interim remedy).

[15] If there is any merit to the concerns raised in the application about the enforceability of Criminal Code restraining orders on transnational cryptocurrency companies, then the appropriate remedy is for Parliament to address the issue. For example, as with the exchange company targeted by the application before me, Parliament could somehow ensure that cryptocurrency companies operating in Canada must also be formally registered here. As I have already observed in respect of the exchange company targeted in this application, registration would necessitate compliance with the law and court orders. Alternatively, if meaningful corporate registration is believed to be insufficient for proper enforcement of the existing Criminal Code provisions dealing with proceeds of crime in the context of cryptocurrency, then perhaps it is time for Parliament to consider new legislation dealing specifically with the issues said to arise in that context.

[16] The application for the general warrant is dismissed. In the absence of a general warrant being issued, the application for an assistance order, pursuant to s. 487.02, is consequently also dismissed.

Released: March 20, 2023 Signed: Justice P.K. Burstein