Over the past decade, cryptocurrency has been steadily gaining traction globally, and Bulgaria is no exception to this trend. The rise of blockchain technology and the widespread digitization across various aspects of human life have given rise to innovative payment methods alongside conventional forms of currency. Concurrently, cryptocurrency has emerged as a symbol of freedom, characterized by its independence from central banks or credit institutions. It offers easy accessibility to individuals worldwide through the Internet, making it a symbol of financial liberation for virtually anyone.
1. Markets in Crypto Assets Regulation (MiCA) in Bulgaria
All European Union members are anticipating the implementation of the Markets in Crypto-Assets Regulation (MiCA) by the end of 2024. This regulation marks a historic milestone as the first comprehensive framework for the cryptocurrency sector for the European market. It aims to provide legal certainty for businesses and individual users seeking alternatives to traditional fiat currencies.
Despite the lack of prior regulation, cryptocurrency has been used in various transactions with the mutual consent of involved parties. It has been employed for the acquisition of real estate and other assets, as well as for compensating individuals for their work and delivered services. Although virtual and intangible, cryptocurrency qualifies as a digital asset with measurable value in terms of fiat money. As such, it constitutes a part of its owner’s property and is subject to foreclosure in the event of non-payment by a given debtor. This places cryptocurrency on par with real estate, movable assets, and receivables from third parties, including bank accounts with positive balances.
2. Bulgarian law on Asset Recovery (foreclosure) over digital crypto assets
Although Bulgarian laws currently lack specific regulations addressing the foreclosure of cryptocurrency; nevertheless, the general provisions of the Code on Civil Procedures may be applicable in such cases.
A significant challenge in potential execution proceedings arises from the difficulty in locating and accessing the debtor’s cryptocurrency assets. The unique nature of these assets precludes the existence of a traditional ownership registry. Notably, transactions involving Bitcoins, the most widely used cryptocurrency, are untraceable, and the identities of wallet holders are kept confidential. Despite these challenges, a creditor can assert with certainty that the debtor has acquired Bitcoins and may petition the bailiff to initiate the seizure of these assets.
3. Bitcoin Asset Recovery and Seizures in Bulgaria
Seizing Bitcoins involves restricting access to the digital wallet where they are stored. The bailiff places a ban on access through official notifications, explicitly detailing the attached assets, which are sent to both the debtor and the third-party responsible for holding the Bitcoins (typically, the exchange company offering wallet services). Upon receiving notification of the attachment, the debtor loses the right to dispose of, modify, alter, or destroy the Bitcoins; failure to comply may lead to criminal charges. Simultaneously, the company providing the wallet services must block the debtor’s access to the wallet, preventing any further trading. This is possible because the private key of the wallet, where the Bitcoins are stored, is known only to the exchange.
Similar to situations where a creditor is unaware of the banks holding the debtor’s accounts and a positive balance, and thus notifies all banks within Bulgaria through a bailiff, in the case of seizing Bitcoins, the creditor will seek notification of various exchange companies, aiming to target the specific company associated with the debtor. Information about such companies is available in the public register under the Anti-Money Laundering (AML) Law, which governs entities offering services for the exchange of digital currencies and wallet services.
Once the notification process is completed, the exchange company is obligated to halt the operations of the attached user and retain the Bitcoins on behalf of the executing creditor. By law, the exchange company must collaborate with the bailiff, adhering to its directives, providing requested information, and enforcing imposed restrictions. Failure to comply may result in fines and potential criminal charges against the exchange company.
If the debtor holds the cryptocurrency and is the sole possessor of the private key, making them the wallet owner, the creditor may request the bailiff to seize assets located at the debtor’s residence and other associated places. The objective is to uncover the private key of the wallet, either through the debtor’s voluntary disclosure or by searching the premises.
In this scenario, the debtor might choose not to cooperate to prevent the confiscation of their Bitcoins. Nevertheless, the bailiff should have forewarned the debtor about the potential criminal consequences of non-cooperation. Consequently, it would be in the debtor’s best interest to promptly provide the private key of the wallet.
Upon obtaining the private key, the bailiff organizes a public auction following the regulations for real estate assets, the most rigorous form of auction ensuring higher prices. The highest bidder gains access to the private key, and the creditor is content with the amount of money collected from the auction.
4. Conclusion on BITCOIN and Crypto Assets Recovery in Bulgaria
Our Law Firm includes specialized Bulgarian lawyers in asset recovery. Although the existing Bulgarian legislation does not provide specific rules for crypto asset recovery, we consider that the existing legislation allows creditors to seize digital assets such as Bitcoin or other crypto assets to satisfy their claims.
Yet, we consider that cryptocurrency foreclosure needs specific amendments to effectively address the unique aspects, particularly related to the identification and confiscation of private keys and wallets. It is imperative to incorporate insights from international experiences in handling such matters to enhance the legal framework.