Bitcoin, Crypto, Tax Law & Criminal Law – What Truly Applies Regarding Access to Seed Phrases

What the decision of September 18, 2024, truly means and why Bitcoin and crypto investors should now be particularly vigilant

Decision by the Higher Regional Court of Braunschweig Causes Discussion

On September 18, 2024 (File no. 1 Ws 185/24 ) the Higher Regional Court of Braunschweig issued a decision within the framework of an ongoing investigation, which is currently causing discussion. At its core, the question was whether the assets of an IT employee, who allegedly gained unauthorized access to a seed phrase, could be seized.

This was not a judgment, but a criminal procedural decision at the investigative stage. Nevertheless, the case raises fundamental questions about digital access data such as seed phrases and their criminal relevance.

We explain what the OLG’s decision is about and what criminal and tax law consequences may arise from it for Bitcoin and crypto investors.

The Case: Access to Seed Phrase by IT Employee

An investigation is underway in the Göttingen district court against a former IT employee who allegedly gained unauthorized access to a wallet’s seed phrase. The accused was reportedly tasked with setting up the crypto wallet for the later complainant. Contrary to agreement, he is said to have then transferred coins to two wallets not under the control of the witness. In doing so, he allegedly used the correct public and private keys – which the accused accessed by entering 24 security passwords that he had assigned when creating the wallet and kept contrary to agreement.

By transferring the crypto assets, he removed them from the control and disposal of the complainant. This allegedly involved access data to significant crypto assets amounting to approximately 2.5 million Euros.

The investigation is being conducted by the Göttingen public prosecutor’s office on suspicion of data alteration according to § 303a StGB, data espionage according to § 202a StGB, and computer fraud according to § 263a StGB.

The question of whether the IT employee’s conduct meets the requirements of a criminal theft act under § 242 StGB is not the subject of the investigation.

The public prosecutor’s office then applied for an arrest to secure the assets. The Göttingen Local Court ordered this. Upon the accused’s appeal, the Göttingen Regional Court lifted the arrest, and the Higher Regional Court of Braunschweig has now confirmed the lifting:

No sufficient initial suspicion of a specific criminal offense.

According to the OLG, data alteration under § 303a StGB was not present, as only an infringement of the interests of the person affected by the data’s content existed, meaning the requirements of the criminal offense were not met. A criminally reprehensible wrong only exists if someone other than the perpetrator is affected by the act, i.e., a third-party legal position is violated.

While the logging of a transaction in the blockchain and the associated data-related change in the allocation of crypto assets involves a change in the allocation of crypto assets (and simultaneously a partial rendering useless) of data, this is carried out by the network operators and thus not by those authorized to dispose of them.

An initial suspicion under § 202a StGB cannot be substantiated – according to the OLG Braunschweig – because the accused accessed a third party’s wallet using correct passwords that were not obtained unlawfully but were already known to him. The required condition of overcoming a special access security is therefore not met.

Furthermore, the commission of computer fraud under § 263a StGB must also be rejected in this specific case, as there is a lack of deceptive data use. Initiating a transaction in decentralized blockchain networks does not imply a co-declaration of genuine authorization to do so.

What was not decided by the ruling?

• • No final determination of the legality of access
  • No assessment of whether the conduct constitutes an act of theft
  • No conclusive criminal law assessment, as this is not a court decision concluding the proceedings

Core statement of the court: An arrest requires a concrete initial suspicion. This was not present in the specific case.

Criminal Classification: Not Theft – But Other Offenses?

Why is there no investigation for theft?

Quite simply: Theft under § 242 StGB requires a movable, tangible object. A seed phrase is digital information and therefore not an “object” in the criminal law sense. Therefore: No criminal act of theft.

However, other offenses could be fulfilled:

Offense	Norm	Illustrative Application
Data Espionage	§ 202a StGB	Access to the Seed Phrase
Data Alteration	§ 303a StGB	Alteration of Wallet Contents
Computer Fraud	§ 263a StGB	Use of the Seed Phrase for Asset Shifting

These criminal offenses may be fulfilled in similar cases. However, in the case decided here, the OLG Braunschweig denied the prerequisites.

When could theft be assumed?

Theft in the criminal law sense can occur if, for example:

• • a hardware wallet is stolen
  • a paper backup of the seed phrase is stolen
  • someone physically accesses a device that allows wallet access

Tax Risks for Bitcoin & Co.

Bitcoin and other cryptocurrencies entail not only technical but also tax risks. Many investors make similar mistakes:

Common Mistakes:

• • Selling coins within the speculation period (1 year)
  • Staking or lending income is not taxed
  • Missing or incomplete transaction documentation
  • Incomplete information in the tax declaration

Consequence:

Investigations for tax evasion according to § 370 AO

Criminal Risks Beyond Tax Law

Even outside of tax law, criminal investigations can threaten, e.g., due to:

• • Suspicion of money laundering
  • Embezzlement, for example, with third-party wallet access
  • Use of anonymous mixers or unregulated decentralized platforms

Our law firm specializes in criminal defense in the crypto sector.

Voluntary Disclosure: Last Opportunity for Exemption from Prosecution

If you have not yet taxed your profits or have done so incompletely, a voluntary disclosure may be the right path – but only under the following conditions:

• • It is complete
  • It is timely (before official knowledge)
  • All relevant wallets, transactions, and profits are verifiable

Only under these conditions can a voluntary disclosure lead to immunity from prosecution.

Our services for you

As a law firm specializing in white-collar crime, we advise and defend clients nationwide in the area of digital assets:

• • Legal assessment of wallets, coins & transactions
  • Tax structuring for hodlers & entrepreneurs
  • Defense in investigations – from tax evasion to computer fraud
  • Preparation of voluntary disclosures
  • Review of international cases & crypto access