Other Crypto Assets and Blockchain-related Businesses

Crypto assets and blockchains are technological and business areas that are constantly evolving. This includes regulations over stable coins, which were regulated under the revised Funds Settlement Act of 2022, and IEOs, a funding method that reviews virtual currency exchanges, and staking-related businesses. Our firm keeps up with the latest developments and provides support for such businesses.

As a law firm comprised of a founding lawyer with previous experience as a former IT engineer, along with IT consultants with experience in understanding white papers, technical documents, and other materials released overseas to understand the technology and business models.

Tracing and Freezing Stolen Crypto Assets in Japan

Exchange hacks, investment fraud and insider misappropriation occur across the world, and stolen crypto assets rarely stay where they were taken. Funds that escape immediate freezing move on, looking for an exit at which they can be converted into fiat currency. Japanese crypto asset exchange service providers are one such exit.

For a victim company outside Japan, or for counsel acting on its behalf, the practical question is this: once the funds arrive at a Japanese exchange, what can be done under Japanese law? The answer is that recovery is possible, but the route differs from the one familiar to common law practitioners.

1. No Ownership, but a Claim Against the Exchange

   Under Japanese law, a crypto asset is not treated as a “thing” under the Civil Code, and is therefore not subject to ownership. A claim framed as “return of the asset I own” does not work here. What does work is the account holder’s contractual claim against the exchange for the return of the assets held in the account. That claim is attached in much the same way as a bank deposit: the account holder is the debtor, and the exchange is the garnishee. To reach it, the victim must first hold a monetary claim against the account holder, typically in tort or unjust enrichment.

2. Two Obstacles Specific to Japan

   First, Japan has no equivalent of a freezing order against “persons unknown.” The parties must be identified in the application, so on-chain analysis showing that funds reached a particular deposit address is not, by itself, enough. Second, crypto asset exchanges fall outside the statutory procedure by which a judgment creditor may obtain account information from banks. Even after winning at trial, that route is unavailable. Closing this gap is what determines whether recovery succeeds.

3. Identifying the Account Holder

   Before proceedings begin, the principal tool is an inquiry made through the bar association, by which an attorney may ask a private body to report specified matters. Responses are permitted under the personal data protection framework as disclosure required by law, but they are not compulsory, and practice varies between exchanges and cases. Once proceedings are pending, the court may also be asked to make inquiries or to order the production of documents. Notifying the exchange of the incoming funds may, separately, prompt it to suspend withdrawals under its own terms of service.

4. Provisional Attachment Without Notice

   Once the account holder is identified, the claim against the exchange is provisionally attached. The application is decided on the documents alone, and the respondent learns of it only when the order is served, which is what makes it effective. The applicant must show a prima facie case and the necessity of preservation, and must provide security in an amount fixed by the court. Importantly, where the asset is located in Japan, a Japanese court may grant provisional attachment even though the substantive dispute is being litigated abroad.

5. Timing Determines the Outcome

   Provisional attachment is an interim measure. If the debtor applies for it, proceedings on the merits must be commenced within the period set by the court, failing which the attachment is revoked. A foreign judgment may be enforced in Japan through an execution judgment, provided the recognition requirements are met, though a foreign freezing order cannot be enforced in Japan as such. Throughout, the account holder remains free to move the funds at any moment. Waiting for the outcome of proceedings abroad before starting in Japan is, in many cases, waiting too long.

MONOLITH LAW OFFICE has long handled matters requiring the identification of anonymous parties, and we accept instructions from victim companies and their counsel outside Japan concerning the tracing and preservation of crypto assets within Japan. We also work directly in English with foreign counsel, which matters here: on-chain analysis reports and contractual records prepared abroad must be reorganised into a form that a Japanese court will accept, and that reorganisation cannot wait until the application is being drafted.