Cryptoassets

can present particular source of funds and financial crime risks because ownership, control and provenance may be more difficult to establish than in traditional banking systems. The fact that a client's wealth derives from cryptoassets does not prevent Keystone from acting. However, lawyers must ensure that they understand how the cryptoassets were acquired, how value has accumulated and how those assets have ultimately become the funds being used in connection with the matter.

Where cryptoassets are connected to a client, transaction or source of funds, the responsible lawyer should seek to understand:

• how the cryptoassets were originally acquired;
• the source of the money or other assets used to acquire the cryptoassets in the first place;
• when they were acquired;
• how value accumulated over time;
• who owned and controlled the relevant wallets or exchange accounts;
• the identity and regulatory status of any exchange, custodian or other cryptoasset service provider used;
• how the cryptoassets were held and transferred;
• whether the assets have subsequently been converted into fiat currency; and
• whether the overall explanation is consistent with the lawyer's wider understanding of the client, their activities and wealth.

The key question is often not whether a client has invested in cryptoassets, but whether the lawyer can explain how the cryptoassets came to exist, how value was created and how those assets ultimately became the funds being used in the transaction.

Depending on the circumstances, relevant evidence may include:

• evidence of mining, staking or other blockchain activities;
• bank statements or other records showing the original purchase of the cryptoassets;
• wallet transaction histories;
• exchange records;
• account statements;
• transaction confirmations;
• evidence of the regulatory status of any relevant exchange or custodian;
• evidence of conversion into fiat currency;
• tax returns or other evidence addressing taxable disposals, where material to the assessment; or
• other information capable of demonstrating ownership and provenance.

Particular care should be exercised where:

• significant wealth has been generated through cryptoasset activity over a relatively short period;
• ownership cannot readily be demonstrated;
• assets have moved through numerous wallets without a clear explanation;
• privacy-focused coins or technologies have been used;
• assets have passed through mixers, tumblers or other anonymising services;
• unregulated exchanges have been used; or
• the explanations provided are incomplete, inconsistent or difficult to verify.

Where significant value is derived from cryptoassets, lawyers should consider whether a Satoshi Test or similar wallet verification exercise is appropriate. This can provide evidence that the individual claiming ownership actually controls the relevant wallet and can assist in addressing concerns regarding undisclosed third parties, nominees or proxies acting on behalf of the true owner of the assets.

Keystone does not accept cryptoassets directly into the Client Account or the Office Account. Crypto-derived funds must first be converted into fiat currency through an appropriate route, with the conversion and resulting payment forming part of the source-of-funds assessment.

Lawyers are not expected to become technical blockchain specialists. However, they should be capable of explaining, in broad terms, how the cryptoassets were acquired, how wealth has accumulated and how those assets ultimately became the funds being used in connection with the matter.

As with all source of funds enquiries, the objective is that an independent reviewer should be able to understand where the value originated and why Keystone was satisfied that it presented no material financial crime concern.