Tracing Digital Assets of Debtors: Current Trends in Ukraine and Abroad

The global financial landscape is rapidly changing with the emergence of digital assets — primarily cryptocurrencies and also non-fungible tokens (NFTs). Debtors often try to “hide” their funds in these modern assets, as their decentralized and anonymous nature complicates traditional enforcement mechanisms. As a result, state authorities and private professionals face a new challenge: locating and recovering digital assets of debtors.

This article analyzes current trends in tracing cryptocurrency assets of debtors in Ukraine and abroad, focusing on both legal mechanisms (public and private) and practical technologies and case studies. Special attention is given to the situation with NFTs, which, although less common, may also appear in debt recovery cases. Based on a review of practice, the most effective methods for detecting digital assets are identified, along with the conditions under which they work best. The conclusions provide practical guidance for lawyers and creditors.

Digital Assets as an Object of Tracing and Recovery

Digital assets is a general term that covers various types of value in digital form that may belong to a debtor. These include:

• Cryptocurrencies (Bitcoin, Ethereum, stablecoins, etc.) — decentralized currencies based on blockchain technology;
• Non-fungible tokens (NFTs) — unique tokens certifying ownership rights to digital artworks, collectibles, in-game assets, etc.;
• Other tokenized assets — for example, tokens linked to real-world assets (securities, real estate) or central bank digital currencies (CBDCs), which currently exist mainly in pilot projects.

From a legal standpoint, crypto assets in many countries are already recognized as property or property rights. In Ukraine, cryptocurrencies are officially recognized as an object of civil rights, meaning they can be treated as a debtor’s property available for enforcement. Similarly, courts in the United Kingdom and the United States recognize virtual currencies as property that can be subject to freezing orders or other protective measures (as early as 2019, the English court in AA v Person Unknown confirmed that Bitcoin is a form of property that can be the subject of a court injunction).

NFTs are also gaining legal status as assets: in February 2022, the UK tax authority (HMRC) seized NFTs for the first time during a fraud investigation, demonstrating that such digital objects can be confiscated as property of a debtor or offender.

Specific Features of Digital Assets in the Context of Tracing and Recovery

These characteristics make them attractive to unscrupulous debtors while creating challenges for creditors:

• Anonymity and pseudonymity: The owner of a cryptocurrency wallet can remain unidentified until a link is established between the wallet and a specific person. This complicates detection, although modern blockchain analytics tools partly address this issue.
• Decentralized nature: The absence of a central administrator (such as a bank) means there is no traditional intermediary to which an enforcement order can be sent. If bank accounts are frozen by a bank upon an enforcement officer’s request, crypto wallets have no “center” where such an order can be delivered. Currently, in Ukraine, there are no registered virtual asset service providers (VASPs) through which a court ruling on cryptocurrency could be enforced.
• Difficulty of identification and access: Seizing cryptocurrencies requires access to the private keys of the wallet. Without the debtor’s voluntary cooperation, obtaining these keys is extremely difficult. If funds are stored on a centralized exchange, an enforcement officer can act through the exchange (for example, by blocking the debtor’s account and debiting funds pursuant to a court decision).
• Cross-border nature: Digital assets do not “reside” in any particular country — they can be transferred anywhere in the world in seconds, with the applicable jurisdiction often unclear. This creates problems for national courts and enforcement bodies, since even if it is established that a debtor’s cryptocurrency is stored on a foreign exchange, a Ukrainian court would have to go through a complex process of recognition and enforcement abroad.
• Volatility and valuation: The value of cryptocurrencies is highly volatile. At the time of a court judgment, the debt amount in Bitcoin may differ significantly from its value at the moment of actual sale. This creates risks for both debtor and creditor in terms of fair valuation.
• Novelty and lack of precedent: Enforcing recovery of cryptocurrencies is still rare both in Ukraine and globally. Some precedents exist (for example, in Poland in 2018, a private enforcement officer seized and auctioned a debtor’s Bitcoins to settle a debt), but there is no widespread experience or established standard procedures yet.

Thus, tracing digital assets of debtors is a complex interdisciplinary task at the intersection of law, finance, and cybersecurity.