Bitcoin fraud seized 7.2 billion dollars! The UK is only willing to compensate a small portion to 130,000 victims.

In 2018, the UK seized the largest Bitcoin fraud case in history, with 61,000 BTC, valued at $1.8 billion at the time, which has now pumped to $7.2 billion. The China-based Bitcoin investment scam orchestrated by Qian Zhimin defrauded 130,000 victims of $6 billion; however, the compensation plan proposed by the UK government aims to withhold most of the funds, causing strong dissatisfaction among the victims.

The biggest Bitcoin scam in history comes to light

(Source: Financial Times)

On October 15, the UK government announced at a hearing in the High Court in London that it has proposed a compensation scheme for Chinese investors who were victims of Bitcoin fraud, but it is also seeking to retain most of the £5 billion ($7.2 billion) worth of Bitcoin wealth confiscated from the criminals. This controversial decision immediately sparked strong backlash from around 130,000 Chinese investors who suffered losses in the scam, who believe that the UK government should not benefit from their losses.

The Attorney General told the victims' lawyer at the hearing that it may be possible to establish such a compensation plan, but the specific details have not been disclosed. This vague promise has left many victims feeling disappointed, as they have been waiting for justice for more than six years. The focus of the controversy is the 61,000 Bitcoins seized by the police in 2018 from a mansion in Hampstead, North London, currently valued at $6.7 billion, which is one of the largest cryptocurrency seizures in UK history.

Qian Zhimin (also known as Zhang Yadi), 47 years old, orchestrated this shocking Bitcoin scam from 2014 to 2017, defrauding victims of up to 43 billion yuan (6 billion USD). Her scam tactics were quite typical: she promised high-return investment plans, attracting a large number of eager-to-get-rich Chinese investors. As funds continuously poured in, Qian Zhimin converted most of the investors' cash into Bitcoin, then fled China and settled in the UK under a false identity.

Qian Zhiming and his 47-year-old Malaysian accomplice Seng Hok Ling pleaded guilty to money laundering last month at the Southwark Crown Court in London. Sentencing for both will take place in November. The scale of this Bitcoin fraud case has not only shocked UK law enforcement but also drawn widespread global attention to cross-border cryptocurrency crime.

Since being seized in 2018, the value of Bitcoin has skyrocketed, rising from around $1.8 billion at that time to approximately $7.2 billion now. This astonishing appreciation adds new complexities to the case and sharpens the conflict of interest between the victims and the UK government. The victims believe that this appreciation should belong to them, as it is essentially the return on their investment. However, the UK government regards these assets as proceeds of crime and claims they should be confiscated by law.

After Qian Zhimin disclosed the access codes and passwords for the ledger and two cryptocurrency wallets, British authorities recently gained access to additional cryptocurrency assets worth approximately £67 million. Martin Evans KC, a lawyer for the Crown Prosecution Service, revealed a dramatic detail in a written statement: "The ledger was found in a hidden pocket specially made inside a pair of joggers worn by Ms. Zhang at the time of her arrest." This detail illustrates Qian Zhimin's meticulous planning to protect his criminal proceeds.

The compensation plan has sparked dissatisfaction and legal challenges among victims

Evans stated in court that the proposed compensation plan would provide "adequate protection" for the victims. However, this claim was questioned by the victims' lawyers, as the definition of "adequate" is quite vague, and the UK government apparently intends to retain most of the assets derived from Bitcoin fraud.

The Crown Prosecution Service of the UK stated that throughout the legal proceedings, it has insisted on seeking civil compensation orders to reimburse victims for their investment losses, as long as they have not received other compensation. The agency also indicated that it would consider how to provide compensation to all victims, not just those involved in the UK legal proceedings. This commitment sounds positive, but it lacks specific implementation details and a timeline.

William Glover, the head of the Fieldfisher law firm representing a group of victims, stated in a statement after the hearing: "The DPP (Director of Public Prosecutions) has effectively taken responsibility by establishing a compensation scheme for those who are unable to seek redress under the existing statutory provisions." While this statement affirms the government's efforts, it also reveals the shortcomings of the current legal framework.

However, the victims' lawyers face a severe challenge in proving a direct link between their clients' investments and the seized currency. Jack Ding, managing partner assistant at Duan & Duan Law Firm, which represents about 10,000 victims, pointed out, "Some materials lack sufficient information to establish a clear connection." This issue is quite common in Bitcoin fraud cases, as the anonymity and complexity of cryptocurrency transactions often make it extremely difficult to trace the flow of funds.

What further frustrates the victims is that legal experts warn that the victims are unlikely to recover the appreciated value of Bitcoin. This is because courts typically focus on returning the principal and reasonable interest, rather than speculative gains. In other words, even if the victims ultimately receive compensation, they may only be able to reclaim the value of Bitcoin from 2018 (approximately $1.8 billion), rather than the current $7.2 billion. This means that up to $5.4 billion of the appreciated portion may ultimately belong to the UK government.

This method of handling may be legally justified, but it raises ethical concerns. The victims believe that if their investments had not been stolen, these Bitcoins would have belonged to them, and thus the appreciation should also belong to them. However, the UK government argues that the appreciation of criminal proceeds should not be returned to the victims, as this would amount to acknowledging the "profits" generated by the criminal act.

Due to the limited experience many victims have with digital finance, coordination difficulties have become more severe, making document recording and claim verification particularly challenging. Most of the victims are middle-aged and elderly investors from China, who have a limited understanding of blockchain technology and cryptocurrency transaction records, making it hard to provide strong evidence to prove a direct link between their investments and the seized Bitcoin.

The Dilemma of Financial Temptation and Market Risk

The massive Bitcoin scam proceeds have attracted significant attention from officials at the UK Treasury. Some officials privately question whether these assets could help Chancellor of the Exchequer Rachel Reeves address the anticipated fiscal gap of up to £30 billion by 2029. In the context of severe fiscal pressure facing the UK, this unexpected windfall of $7.2 billion undoubtedly holds great allure.

However, other government officials have warned that this batch of goods may face prolonged legal disputes that could last until 2027. The Treasury has been informed that seized assets cannot be included in its fiscal calculations, as the Office of Budget Responsibility did not take asset seizures into account in its forecasts. This cautious attitude reflects the government's internal vigilance against premature optimism.

At the same time, the authorities face the practical challenge of liquidating such a large position in Bitcoin without causing significant market disruption. 61,000 BTC accounts for about 0.3% of the total circulating supply of Bitcoin, and a large sell-off all at once or in a short period could severely impact the market, leading to a price crash. This would not only reduce the actual revenue the UK government could obtain but also potentially trigger turmoil in the entire cryptocurrency market.

Professional cryptocurrency traders and analysts recommend that if the UK government decides to liquidate these Bitcoins, it should be done in a phased and transparent manner, with clear signals sent to the market in advance. Some countries, when dealing with similar situations, have opted for an auction method, allowing institutional investors to purchase large amounts of Bitcoins over-the-counter to avoid impacting the public market.

The civil recovery case filed in September 2024 will determine the final distribution of assets, and the litigation process is expected to last until January 2026. This lengthy timeline has left victims feeling desperate, with many having already waited six years, and now they may have to wait another two years to see results. For elderly victims, this delay could mean that they may never reclaim their rightful property in their lifetime.

The case has sparked widespread debate over cryptocurrency regulation and enforcement in cross-border Bitcoin fraud cases, and has profound implications for how governments handle seized digital assets. The outcome is expected to set a precedent for international cooperation in cryptocurrency-related financial crime cases, and may influence how other jurisdictions handle similar seizure actions. Law enforcement agencies worldwide are closely monitoring the developments of this case, as it may provide an important reference framework for future handling of cross-border cryptocurrency crimes.