Does the Bulgarian Government actually hold 213,519 bitcoin?1 March 2022
Blockchain & Cryptocurrency, White collar crimes and investigations, Corporate Clients
Is Bulgaria possibly one of the largest governmental holders of bitcoin? Тhe legal regulation of Government investment in, seizure, holding of and control of cryptoassets.
The beginning of an urban legend?
This is now almost both an urban legend in cryptospace and a meme, and has been such since news appeared in 2017 of the Bulgarian Government seizing more than 200,000 bitcoin during a criminal investigation. The idea that the coffers of the Government have been swelled by this amount has been repeated occasionally in the media.
Most recently in 2021, Kraken Intelligence published a report ranking Bulgaria as the third largest government holder of crypto, on the basis of this presumed holding, but subsequently removed this from the Report.
All of this appears to have been first prompted by an announcement on 19 March 2017 by SELEC, an inter-governmental law enforcement agency in Southeastern Europe about a customs hacking fraud, investigated jointly by the law enforcement agencies of Bulgaria, Greece and others, code named “Shipment/Virus”.
The SELEC press release stated that it had been discovered that the suspects had invested the proceeds of the fraud in more than 200,000 BTC. The SELEC statement is here.
Notably, SELEC did not confirm that such an amount of bitcoin had been seized or was otherwise in the control of the Bulgarian authorities.
Of course, if such an amount had not been seized, then it is not quite clear how law enforcement knew of the amount allegedly invested by the suspects.
The interest in the reported amount is understandable. The amount seized is approximately 1% of the total amount of bitcoin that is intended to be minted, and at current values, is worth USD 7.7 bn, which also equates to about 11% of Bulgarian GDP.
The topic has been therefore unsurprisingly followed up on by Bulgarian politicians and prominent tech investors.
What is currently known?
From the information made public as a result of these media and political enquiries, it has been difficult to obtain a sufficiently concrete and clear story. The sharp end of the enquiries has been mostly deflected on the basis that information about any seizure is protected due to its potential impact on ongoing criminal investigations.
In a recent Freedom of Information Act (FOIA) request to the Bulgarian Ministry of Finance, we asked three groups of questions.
Firstly, about the announcement and potential seizure itself.
Secondly, we raised more general questions about the seizure, confiscation and post-seizure disposal by the Bulgarian Government of cryptoassets generally.
Thirdly, we asked about the holdings of cryptocurrency by the Government of Bulgaria generally, no matter how acquired (eg, whether following a seizure or confiscation or in a bequest, or through its investment activities, for example) both at the factual (what are Bulgaria’s total holdings across cryptoassets) and the practical level (ie, does the Government make provision for the storage of private keys, where needed).
The Ministry of Finance Speaks
The Ministry of Finance responded to our FOIA request very promptly in a letter (Letter) and confirmed that they have taken an interest in the matter at least since 2021. They confirmed that they had themselves enquired with the Chief Prosecutor whether 213,519 BTC is held. They reported receiving a reply from the Deputy Chief Prosecutor in the Supreme Cassation Prosecutor’s Office of Bulgaria, stating that the Specialised Prosecutor’s Office had not confiscated and was not holding 213,519 bitcoin.
However, important questions remain unanswered after the Letter. The Letter does not indicate whether other divisions of the Prosecutor’s Office might have confiscated cryptocurrency as part of the Shipment/Virus Operation or as part of another investigation, or whether they have been seized as evidence in an enquiry.
It may also be that the Prosecutor’s Office is holding a slightly different amount of cryptocurrency, e.g. 213,518 and not 213,519 BTC.
One must appreciate the effort of the Bulgarian executive branch, in particular the Ministry of Finance, to get to the bottom of this – and that a different party was in power at the time of the reported seizure. Still, these efforts have so far unfortunately not produced a cogent answer.
We intend to make further enquiries with the Ministry of Finance, which we think would be helpful to their own effort to get clarity on the matter.
In addition, it may be appropriate for amendments to be made both in the Bulgarian Criminal Procedure Code and the Civil Procedure Code in order to deal with the seizure and where appropriate, realisation of cryptoassets or other digital assets, and for the Government to publicly discuss and ultimately define a strategy on crypto.
Very recently, the Minister of Finance, Minister Vassilev, declared that the government is exploring the possibility of introducing a crypto payment mechanism in Bulgaria. Creating a legal environment accordingly is perhaps just as important in the context as is getting to the bottom of whether Bulgaria does or does not have a large crypto holding.
It is also not surprising that it is impossible for a statement there is still no clarity and official statement from the Prosecutor’s Office as to whether the cryptoassets were seized or were otherwise in the control of the Bulgarian authorities. Bulgarian criminal proceedings are slow and although more than 4 years have passed since the Operation Shipment/Virus was reported in 2017, this is most likely not enough time given the complexity of the case for the investigation. It may easily require another 10 years to complete the criminal proceedings. At that stage, may come to light on whether such cryptoassets were held or controlled by the Bulgarian Government and what happened to them.