Crypto-assets in Iran’s Criminal Legal System

The perspective of criminal law towards emerging technological phenomena such as the internet, virtual space, or crypto-assets is crucial to the extent that it can determine the trajectory of growth or decline of new technologies. This article aims to examine the Iranian criminal legal system’s approach to the emergence of cryptocurrencies. It attempts to analyze the laws, regulations, and existing practices in Iran, presenting a more precise and unbiased view of crypto-assets, particularly cryptocurrencies.

In Iran’s legal framework, the new blockchain technology, especially cryptocurrencies, has not been thoroughly analyzed. According to the author, fairness has not been observed in research, as discussions have largely focused solely on potential threats, crimes, and methods of combating these emerging phenomena. This bias may stem from a lack of familiarity and insufficient knowledge among legal experts about the topic. Meanwhile, relevant institutions such as the Central Bank, the Monetary and Credit Council, the Islamic Consultative Assembly’s Research Center, and specialists in this field are diligently monitoring, exploring, and even effectively engaging in cryptocurrency-related activities, producing commendable research and studies on the subject.

Definition of the Criminal Legal System

One of the most critical aspects of cryptocurrencies is examining how Iran’s criminal and penal law views this phenomenon. Ignoring this facet of law could yield adverse outcomes, potentially conflicting with the principles governing the nation’s legal framework and leading to criminal behaviors whose damages may take years to rectify.

Understanding the criminal legal approach to cryptocurrencies can significantly influence various outcomes, achievable only by focusing on the philosophy underpinning the criminal legal system. Neglecting this matter could erode the foundational rights of individuals, disrupt public and social order, and ultimately undermine the integrity of the legal system.

Criminal law, unlike other legal disciplines, operates independently and remains unaffected by other legal fields. This is because criminal law and penal issues safeguard a society’s fundamental interests.

Through its enforcement mechanisms and penalties, criminal law ensures that all existing laws and regulations are properly implemented. Should members of society fail to comply with these laws, criminal law exclusively determines the conditions for enforcement measures, preventing misinterpretation by law enforcers and addressing legislative gaps as much as possible.

Law is a science that harmonizes relationships and organizes human rules and regulations to ensure public comfort and order while protecting individuals’ property, ownership, and bodily integrity. Therefore, law, as a set of rules and regulations, ensures and secures social order. It is the duty of legal scholars and practitioners to interpret and regulate laws precisely and impartially, avoiding any form of bias or exaggeration.

History of Punishment and Goals of Criminal Law

Punishment, in its literal sense, refers to imposing a painful act on another person as a consequence of their actions. The term is often associated with penalties and fines imposed by judicial authorities on individuals who violate critical societal regulations, thereby committing crimes. Legally, punishment ensures enforcement against criminal acts that infringe laws and norms, involving violators’ lives, property, and freedoms. Definitions of these norms have occasionally evolved over time based on different circumstances.

Throughout history, punishment has been applied in various forms depending on the time, place, and prevailing conditions. In the 18th century, criminal jurists established classical criminal law. During this period, ideas promoting justice and freedom emerged, eventually leading to comprehensive legislation reflecting these ideologies. This development marked a milestone in modern criminal law with the principle of legality for crimes and punishments, emphasizing two main concepts: the “rule” and its “enforcement.” The rule guaranteed the legal definition of crimes, while enforcement ensured the legality of punishments.

Rules identified societal vices, and enforcement mechanisms addressed and penalized identified actions. This perspective defined crime as “any action or omission punishable by law,” a definition that was documented in criminal codes in various legal languages. Subsequently, court rulings were mandated to be reasoned and supported by legal articles.

The Nature of Criminal Law

In recent decades, criminal law has become more flexible, transforming into a tool for addressing human problems and regulating social issues. It embodies norms reflecting its independence from civil law and other legal branches.

A significant characteristic of criminal law is its originality—it is not subordinate to other legal disciplines and defines its own rules and regulations independently.

Criminal law does not borrow its definitions from other legal fields. Consequently, criminal courts operate autonomously when adjudicating criminal cases. The late Professor Nasser Katouzian stated that even if criminal law is reduced to a tool for ensuring other rules, its originality cannot be denied, as its provisions are independently established. Therefore, criticizing criminal law for incompletely supporting certain aspects or relationships would undermine its legal independence.

In Persian dictionaries like Amid and Dehkhoda, “property” is defined as possessions with exchange value. Legally, this definition aligns with its linguistic meaning, although civil law does not explicitly define property, merely listing its examples. According to legal scholars, property encompasses anything that has exchange value and is tradable.

Katouzian identified two essential elements for property: (1) it must be useful and satisfy a material or spiritual need, and (2) it must be assignable to a specific individual or group. This implies that societal acceptance of an object as economically valuable determines its classification as property.

In Islamic jurisprudence, property is defined as “that which is desired by rational people” or “that which is exchanged for wealth.” Consequently, all financial crimes or crimes against property revolve around the concept of “property” and the violation of proprietary rights.

The concept of personal ownership forms the bedrock of many societies. As emphasized by prominent criminal law scholar Mirmohammad Sadeghi, ownership is a fundamental element of societal structure and a prerequisite for individuals’ civil liberties.

Undoubtedly, property and ownership are among the main pillars of a society, and protecting them is considered one of the essential goals of the government. Just as individuals in a society enjoy physical freedoms, they should also have the necessary freedom regarding their profession or residence. Financial rights and interests are no exception to this rule and must be protected by law to remain safe from criminal interference. Therefore, an attack on someone’s financial interests can be likened to an assault on their physical integrity, as in both cases, the individual’s boundaries are violated, and society also suffers harm as a result.

For a crime to manifest, its elements must come together. One of these elements is the material component of the crime, which is essential for the crime to be actualized. Among the factors constituting this material component is the subject of the crime.

In the legal system, there are ambiguities regarding property, which is the primary subject of financial crimes. For instance, the Islamic Penal Code (2013), Articles 267 and several clauses of Article 268, along with Articles 656, 657, 662, and 667 of the Discretionary Punishments Law (1996) and Article 1 of the Law on Intensifying Punishment for Bribery, Embezzlement, and Fraud (1988), discuss property. However, some other articles state that the subject of the crime need not be property but rather an object or objects. For example, Article 374 of the Discretionary Punishments Law (1996) stipulates: “Anyone who intentionally destroys movable or immovable property belonging to another, or in any way partially or wholly renders it unusable, shall be sentenced to six months to three years of imprisonment.”

Although the subject of these crimes is property and ownership, it must be noted that the concept of property is not uniform in these crimes. For example, immovable property can be the subject of fraud or breach of trust but cannot be stolen, as it is impossible to say that immovable property was stolen. Conversely, movable property cannot be the subject of adverse possession or obstruction of rights.

To better understand this issue, the concept of property in criminal law must be compared to its concept in civil law. The concept of property differs between criminal and civil law and has its unique characteristics, particularly in the context of the legality of the property that is the subject of the crime. Generally, there are two perspectives among jurists: some believe that such objects can also be the subject of crimes against property. They argue that the prohibition of trading or exchanging these objects implies that individuals cannot own them, thus depriving them of the status of property. However, this does not mean the government cannot own such assets. Instead, such objects are typically seized and held by the government, granting them the status of property.

For instance, if the law stipulates that individuals cannot own illegal weapons or narcotics, this implies that such items must be confiscated or seized and, as a result, come under the government’s possession and ownership.

Based on this reasoning, the concept of property in criminal law has a broader scope than in civil law. In civil law, such objects, which cannot legally be traded or exchanged, are no longer considered property but can still be the subject of crimes against property.

On the other hand, another group of jurists argues that there is no difference between the concept of property in civil and criminal law. In other words, whatever is considered property in civil law can be the subject of a crime against property in criminal law, and if it lacks the attribute of property, it cannot be the subject of crimes against property.

According to this theory, it is explained that the legislator, in enacting criminal laws related to property, seeks to protect the right of ownership. If something lacks the attribute of property, it indicates that no ownership right has been established for the person possessing it. Therefore, if someone seizes or destroys such an object, they have not violated anyone’s ownership rights, and their action does not qualify as theft or destruction.

Assessing the Property Status of Crypto-Assets

Considering the discussions on property and its attributes, it is essential to examine crypto-assets within these frameworks and determine whether they qualify as property or possess the characteristics of property. Given the intangible, non-physical, and non-tangible nature of crypto-assets, it can be argued that their inherent traits do not exclude them from the definition of property. Nevertheless, doubts may arise regarding whether they meet the conditions of property, making it crucial to clarify this aspect.

The first issue that might arise is whether the utility of something—its ability to fulfill a material or spiritual need of humans—implies that it qualifies as property. In this regard, crypto-assets may not inherently satisfy human needs.

However, upon closer examination, we find that satisfying human needs occurs in two ways: either an item has intrinsic value for meeting human needs, such as a house, gold, jewelry, or a car, or it lacks intrinsic value but serves as a means to meet those needs, like currency, which, as a piece of decorated paper, has no intrinsic value but is used as a medium to fulfill human requirements and thereby holds instrumental value.

Based on this interpretation, although crypto-assets cannot be attributed intrinsic value or directly satisfy a need, they can serve as a means, like currency, to meet human needs and thus be deemed valuable and useful. Additionally, when considering that people exchange money for crypto-assets, it demonstrates their economic value and recognition in society.

Today, statistics indicate a growing number of users and adopters of crypto-assets, which means they possess value according to societal norms and rational consensus. Such assets are accepted, and even competition exists to acquire them.

However, some jurists argue that crypto-assets lack property status due to their lack of a specific backing, decentralized nature, and ambiguous essence. This perspective is undoubtedly flawed because crypto-assets, as recognized by market experts and professionals, are acknowledged for their benefits. Thus, their value as property in societal norms is beyond doubt. Moreover, many crypto-assets are backed, and some governments support them.

One of the primary concerns of modern criminology is economic crimes or crimes with a financial origin. Given the devastating political, economic, and social impacts of financial and economic crimes, this issue has become a global concern. Governments have always sought to mitigate the adverse effects of crimes in the financial and monetary sectors and, more broadly, economic crimes.

To better understand this subject, a brief analysis of some of these crimes is warranted.

Money laundering, closely linked to crypto-assets, is a significant aspect of the broader fight against crimes. It is recognized as a transnational, organized crime in international documents and programs. The Iranian legislature, inspired by international conventions, adopted a consistent criminal policy to combat it with the enactment of the Anti-Money Laundering Act in February 2008.

Money laundering is defined as operations carried out by offenders to legitimize illicit incomes from criminal activities. From a jurisprudential perspective, various Quranic verses, Hadiths, and Islamic legal principles address the criminalization of money laundering. Based on existing definitions, money laundering is a secondary crime involving the conscious concealment of the unlawful nature and origin of illicitly acquired assets.

The global prevalence of money laundering, along with its organized, transnational nature and victimless character, underscores the need for its criminalization both globally and in Iran. Consequently, the Iranian legislature introduced a bill to amend the Anti-Money Laundering Act, which was approved in a public session of the Islamic Consultative Assembly on October 3, 2018, and subsequently ratified by the Expediency Council on January 5, 2019. However, the legislation has not yet completed its final stages.

Numerous international and regional instruments address money laundering, including the 1988 Vienna Convention, 1990 Council of Europe Convention, 1991 European Directive, 2000 Palermo Convention, and 2003 Convention Against Corruption. These instruments aim to restrict opportunities for money launderers and increase the costs associated with their operations.

Although the Iranian legislator has somewhat diverged from international practices in defining the physical elements of the crime of money laundering, a proper interpretation of the Anti-Money Laundering Act reveals no significant differences between Iranian and international practices in terms of conditions and circumstances.

Criminal Policy Towards Crypto Assets

Based on research findings regarding the criminal justice policies towards crypto assets in Iran, initially, there were stringent policies prohibiting the use of crypto assets. Over time, as regulatory and legislative bodies gained a more nuanced understanding of crypto assets and developed relevant laws, these policies shifted towards risk-based approaches. A brief review of these policies is provided below.

A) Stringent Policies or Prohibition

Some countries have implemented strict laws and regulations to prohibit crypto-related activities. For instance, banning activities involving Bitcoin and other cryptocurrencies aimed to control these activities.

Such decisions were made by countries that believed there was no necessity or importance in using crypto assets. However, some argue that legal prohibitions on using crypto assets are ineffective or minimally effective in deterring violators. They assert that fear of criminal prosecution is not a strong deterrent, as offenders in this area often show no hesitation in committing crimes and continue to misuse crypto asset capacities illegally.

In light of these perspectives, examining Iran’s laws reveals that, with the growing use of crypto assets, particularly cryptocurrencies, Iran’s Central Bank initially adopted stringent policies, including prohibitions on virtual currencies. According to a directive issued by the Central Bank of Iran (dated December 30, 2017), the use of virtual currencies in the country’s financial and monetary institutions was prohibited due to their potential use in money laundering and financing terrorism.

B) Risk-Based Policies

A risk-based approach to crime prevention, as a modern criminal justice policy, emphasizes crime risk control and monitoring potential and actual offenders. It focuses on pre-crime situations and the dangerous factors of crime in offenders, aiming to prevent potential future harm.

In this view, instead of strict prohibitions and rigid regulations, there is a shift toward security-driven policies, precise oversight, and legislation tailored to modern technologies. This includes identifying high-risk groups, categorizing potential risks, analyzing crime states and conditions, and reducing crime frequency and recurrence. It also involves identifying offenders, neutralizing threats, apprehending offenders, and removing potential and actual offenders from society. This approach has garnered international attention. Efforts focus on adopting risk-management strategies for international crimes, particularly crypto asset-related crimes, to regulate and control offenses.

Economic crimes, including those rooted in financial misconduct, are a significant concern for modern criminologists. Given the devastating political, economic, and social impacts of financial and economic crimes, this issue has become a pressing concern globally.

Governments continually strive to mitigate the adverse effects of financial and economic crimes. Understanding the nature of such crimes warrants an analysis of certain key aspects. Notably, the primary impact of this approach on the criminal justice system is fostering coherence and rethinking crime prevention concepts while introducing necessary elements for proactive justice.

This modern policy posits that merely deterring crimes through the fear of punishment is insufficient and ineffective in preventing offenses. Instead, early detection, identification of criminal acts at their inception, and preemptive actions are essential to reducing such crimes.

Initially, Iran adopted a stringent policy that prohibited cryptocurrencies, reflecting a passive approach that aimed to eliminate the problem rather than establish a structured framework. This approach, however, was neither effective nor practical, as it led to underground activities in the crypto space.

Consequently, the Central Bank of Iran took a more analytical and pragmatic stance regarding virtual currencies. On February 27, 2019, the Central Bank’s Modern Technologies Division published a draft document titled “Requirements and Regulations for Activities in the Crypto Asset Domain.”

This draft sought to introduce new frameworks through detailed expert analysis. It first defined virtual currencies and cryptocurrencies, considering crypto assets as a type of financial asset existing on a decentralized and transparent digital platform called blockchain. It also acknowledged that, under certain conditions, these assets could function as money.

The document also aimed to establish the nature of cryptocurrencies, virtual currencies, or encrypted currencies. It deemed crypto assets as financial assets and stated that they could only be exceptionally considered as money. Moreover, the draft allowed licensed exchanges to operate but prohibited using Bitcoin as a payment instrument.

In summary, while buying, selling, and holding Bitcoin for personal use is not a crime in Iran, its use in large-scale payment systems remains unauthorized. Bitcoin mining or mining of other digital currencies is legal, provided miners obtain permits from the Ministry of Industry, Mines, and Trade. Mining without such permits is deemed illegal. Additionally, miners must secure electricity for mining at export tariffs from the Ministry of Energy.

This type of policy in the context of crypto-related offenses can be termed “preemptive criminalization.” It represents a method of expanding criminal law interventions, often breaching the principle of minimal intervention. The inherently risky nature of cryptocurrencies plays a significant role in the formation of this preemptive criminalization approach. The Central Bank of Iran’s policy in this context acknowledges that the issuance and circulation of global cryptocurrencies, such as Bitcoin, remain under the control of their developers, with the Central Bank disclaiming any responsibility or role in such matters.

Due to the uncontrollable nature of global cryptocurrencies like Bitcoin, the Central Bank has prohibited their use as payment instruments within Iran. However, for cryptocurrencies with identifiable creators and developers, the Central Bank of Iran retains indirect control. When virtual currencies are developed and distributed either by the Central Bank itself based on multilateral monetary agreements or by identified individuals or entities, the Central Bank can regulate, manage, and control this domain through monetary and financial policies. With this understanding, the Central Bank has banned using global cryptocurrencies such as Bitcoin as payment instruments within Iran.

The Central Bank of the Islamic Republic of Iran has not ignored the growth of virtual currencies in Iran and has sought to regulate their purchase, sale, and exchange. As a result, it has been determined that cryptocurrencies can only be bought, sold, and exchanged through exchanges that adhere to the regulations specified in the section on general requirements for exchanges.

Accordingly, the Central Bank of Iran has adopted an approach similar to the “wait and see” policy. This means that no guarantee is provided by the Central Bank regarding the authenticity of cryptocurrencies, and no mechanisms are implemented to manage or stabilize their prices. All risks and dangers associated with investments in this field are borne by the investors themselves. Despite adopting a reasonable policy compared to outright banning Bitcoin, there remain shortcomings in this area that need to be addressed.

Iran’s stance toward cryptocurrencies began with statements from the Money and Credit Council prohibiting their use due to the risks of money laundering and financing terrorism associated with them. This indicated that Iran, like leading countries in the field of criminal regulation of cryptocurrencies, aimed to regulate its criminal policy against the risks of cryptocurrencies by enhancing knowledge and taking appropriate measures to include money laundering laws. However, in practice, efforts have been directed toward applying regulations related to currency smuggling and exchange rates to cryptocurrency technology.

This policy has also led to challenges. An examination of the policies adopted by leading countries shows that these countries strive to reduce the credibility of cryptocurrencies like Bitcoin, downgrading their status from an alternative to traditional legal tender or the existing monetary system to merely a commodity. In contrast, Iran’s adopted policy has, in practice, legitimized and recognized cryptocurrencies as a form of currency, which, given the unique characteristics of global cryptocurrencies, will create numerous legal and criminal challenges, particularly for transactions beyond the regulatory oversight of designated bodies.

Nonetheless, the legislator has attempted to apply currency laws and requirements (e.g., specific regulations for currency trading such as buyer identification, transaction volume, or the necessity of retaining purchase receipts) in this area with a heightened risk-based approach. However, such measures are unnecessary, as adopting a risk-based approach to virtual currencies for money laundering, similar to other countries, is sufficient on its own.

If Iranian policymakers insist on applying currency regulations to virtual currencies, this requires amendments to the Anti-Smuggling of Goods and Currency Law and defining virtual currencies as foreign currencies or equivalent to them.

In conclusion, Iran is among the countries that have cautiously dealt with un-sanctionable virtual money. This virtual money is currently controlled outside Iran’s borders due to its lack of formal recognition by the Central Bank of Iran. Detailed studies on the advantages, disadvantages, and both restrictive and facilitative regulations for this new financial tool have been initiated by various organizations and institutions, including the Central Bank, the Islamic Parliament’s Research Center, the Securities and Exchange Organization, the Headquarters for Combating Smuggling of Goods and Currency, the Ministry of Communications and Information Technology, the Cyber Police (FATA), and the National Cyberspace Center. However, unfortunately, no significant measures have yet been implemented.

Currently, there are exchanges in Iran that buy and sell Bitcoin in real-time. Bitcoin’s primary use in Iran is for paying hackers who compromise companies’ systems and return the data in exchange for Bitcoin as ransom. Additionally, it is said that a portion of drug transactions and some other illegal goods is conducted using Bitcoin. There are also individuals who view cryptocurrencies like Bitcoin as investment opportunities.

Meanwhile, the Supreme Council of Cyberspace has been deliberating regulations and determining the Iranian government’s stance on virtual currencies. However, Bitcoin’s official status in Iran remains ambiguous, and the government has not taken a definitive position on it.

This decision also prohibits currency exchanges from promoting or facilitating the purchase and sale of virtual currencies. The Central Bank’s actions align with Iran’s recent efforts to address deficiencies in its policies regarding anti-money laundering and counter-terrorism financing, aiming to comply with the operational plans of the Financial Action Task Force (FATF).

The FATF is an intergovernmental organization established to combat international money laundering and terrorism financing. In its June 2018 plenary session, it was decided whether or not to remove Iran from the FATF’s list of non-cooperative countries.

Article 91, Paragraph 1 of the Constitution of the Islamic Republic of Iran stipulates that the jurists appointed by the Leader to the Guardian Council must be “just” and “knowledgeable about the requirements of the time and contemporary issues.” By emphasizing awareness of contemporary needs, the legislator aims to ensure that appointed jurists can interpret emerging matters like Bitcoin and virtual currencies using jurisprudential sources and provide informed decisions.

It seems that in cases where a conflict arises between primary rulings and expediency due to the role of time and place in jurisprudence, a jurist aware of contemporary needs must resort to secondary rulings and infer the opinion of the Shari’a. Although the Islamic Consultative Assembly has not yet enacted any legislation regarding digital currencies, according to a Cabinet resolution dated July 6, 2021, only domestically mined cryptocurrencies may be used under specific regulations, and trading other cryptocurrencies is prohibited. This resolution appears to reflect the Iranian government’s approach to digital currencies.

Final Remarks

To reach a general conclusion regarding cryptocurrencies in Iran’s criminal legal system, it should be noted that, as with other new technologies introduced to Iran, challenges will arise in legislating and establishing legal discipline in this area.

However, one cannot disregard regulation and legislation in these areas under the pretext of incomplete oversight, a lack of need for such technologies among the public, or their unauthorized use in committing crimes. It is evident that a precise and expert approach to new issues, coupled with leveraging opportunities and consulting relevant specialists, can lead to the establishment of effective and accurate laws and regulations.

Sources:

• The Role of Iran’s Criminal Policy in Managing Cryptocurrencies (Authors: Mostafa Karamipour, Mona Rajabzadeh Baghi)
• Solutions and Challenges of Using Cryptocurrencies in Capital Markets: A Jurisprudential-Legal Perspective (Authors: Reza Mirzakhani and Meysam Doaee)
• Anti-Money Laundering Law with the Latest Amendments as of October 25, 2018
• Legal Challenges of Digital Currencies with a Focus on Money Laundering Offenses (Authors: Mohadese Qavamipour and Amirreza Mahmoudi)
• Identifying the Legal Nature of Cryptocurrencies by Analyzing Their Structure in Iran’s Legal System (Authors: Mahmoud Khademan, Abutaleb Kousha, and Fatemeh Nouri)