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I sold some of my Bitcoins on LocalBitcoins UK to an account that appears now to have paid using stolen funds from a hacked bank account. I checked that the buyer was ID-verified with LocalBitcoins and released the Bitcoins to the buyer. I find now that my bank account is frozen. I am awaiting further information from the bank but want to understand the legal position here.

My understanding is that bank insurance is for cases of shortcomings in bank account security, and that it is appropriate for the owner of the hacked bank account to be reimbursed by their bank's insurance. The bank can then pursue the person who stole the funds. I cannot see how a seller can be expected to distinguish legitimate from stolen money because money is fungible. Why should I be at a loss for deficiencies in a bank's security?

I would welcome guidance and thoughts on this. If a thief uses stolen money to purchase items in various shops, for example, can an institution demand repayment from those various shops? How about if the owner of one of those shops spends the money elsewhere? Can an institution demand that money also? Where does the buck stop?

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  • I expect your money goes back to who it was stolen from, and you need to try and recover your bitcoins from the hacker. This is based on what I understand to happen with stolen bikes: if person A buys a bike off person B, but it turns out it was stolen from person C, then person C is able to recover their bike, and person A has to try and get the purchase price back from person B. {Comment not answer as I'm doing this from a very dodgy memory plus guesswork.}
    – AndyT
    Apr 13, 2018 at 9:17
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    "If a thief uses stolen money" - that's different from AndyT's case, because money has no identity. If a thief has $100 in has pocket (legally) and steals $100 from nine people each, and pays you $100 for an item, then you can keep the money because nobody knows if it was stolen money. But if you get paid using a hacked bank account or stolen credit card, that's something entirely different.
    – gnasher729
    Apr 13, 2018 at 11:31
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    And when I say money, I literally mean money as in banknotes or coins.
    – gnasher729
    Apr 13, 2018 at 11:32
  • "I am awaiting further information from the bank." Don't hold your breath: I assume your account has been frozen for money laundering; they won't say anything until the cops have lost interest in your case. This is a separate issue to whether or not the original transfer gets unwound.
    – richardb
    Apr 13, 2018 at 22:37
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    @gnasher729, one does not simply get to keep stolen money. Such a policy would lead to an untenable situation where, even in the best case scenario, an unwitting merchant is a bar to victims retrieving their money.
    – A.fm.
    Apr 14, 2018 at 19:51

1 Answer 1

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If the stolen funds can be reliably tracked and identified, as physical cash generally cannot be, then it can be seized.

It is classic that after a bank robbery, if the serial numbers of bills stolen are known, an alert can be put out for them, and those specific bills can be seized when found.

]The case in the question seems analogous. Specific stolen funds can be traced to the purchaser of the bitcoins, and those specific funds were transferred to the seller. If that can indeed be proved, then the seller has no right to those funds, even though the seller had no knowledge that the funds were stolen.

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  • If we can make this work, we can reverse all transactions for the cryptolocker type malware. There's no real difference between them.
    – Joshua
    Jun 11 at 3:55

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