Germany may well be where liberty still lives. That’s because a recent judgment by the Berlin Court of Appeal, Kammergericht, takes a very different approach to the extension of legislation by interpretation from federal agencies like Germany’s Financial Services Authority (BaFin).
“The Berlin court held that it is not the task of a federal authority to intervene in criminal laws,” says a well known British law firm, Clifford Chance, in summarizing the case before adding:
“Pursuant to Article 103 of the German Constitution (Grundgesetz) an act may only be punished if it was defined by a law as a criminal offence before the act was committed.
In this respect, the court outlined that it is the sole responsibility of the legislature to specify the conditions under which a criminal offence is committed.
Conversely, BaFin is not competent to extend the scope of existing criminal laws via its administrative practice.”
The matter concerned the legal classification of bitcoin and therefore what regulation entities involved in crypto need to comply with.
In Germany, exchanges, brokers, and so on require licensing by BaFin if they fall within the German Banking Act (Kreditwesengesetz, KWG) which concerns financial instruments defined, among other things, as a unit of account.
BaFin has classified bitcoin, and other likewise cryptos, as a unit of account. The court however has stated cryptos are not a unit of account.
In summarizing the reasoning of Kammergericht, a court of many historical settings, a German law firm says:
“Bitcoin is not issued by a central bank or public authority, nor is there a universal issuer in the network. There is no superior and identifiable person who could exert a central regulatory influence on the distribution of Bitcoin. Rather, all participants themselves monitor Bitcoin transactions within the network.
Bitcoin has no representable or comparable value of its own. It is not a currency nor a means of payment which is accepted by law by everyone for the legally effective fulfilment of the obligations owed.
Bitcoin is merely a means of payment accepted by certain economic participants. The value of Bitcoin, therefore, depends mainly on how the users of the network assign value to it. Consequently, Bitcoin is subject to strong, unpredictable and incalculable fluctuations.”
They say the decision was surprising, “in particular due to its strong wording,” with the court dismissing BaFin’s claim that bitcoin is a complementary currency.
“It is not the task of federal authorities to intervene in laws in a legislative manner,” the court concluded, with this being the sole rebuttal by the judiciary of the over-reaching extension of power by federal agencies which are meant to act as just policemen, rather than interpreters of the law (judges) or makers of the law (parliament/congress).
In great contrast, the US judiciary has rubber stamped any classification they have been asked.
The Financial Crimes Enforcement Network (FinCen) went there and said cryptos are a currency. Yes, they are, US judges said.
The Commodities Futures Trading Commission (CFTC) went there and said cryptos are a commodity. Yes, they are, US judges said.
Now the Securities and Exchanges Commission (SEC) is saying they are a security, like stocks. The judge this time was smart and left it to a jury, so we’ll see what they say, but had it been left to the judge, he probably would have rubber stamped again.
In all this, the US Congress, the actual lawmakers, have not passed one law on cryptos. Leaving everything to these policemen to effectively make law as they go and do so under the threat of prison.
“This is the sole task of the legislator,” the German court said as summarized by the German law firm, which further adds:
“By extending the concept of the unit of account to Bitcoin, BaFin essentially, in the view of the Kammergericht, violates the principle of legal certainty stipulated in Article 103 (2) of the German Constitution (Grundgesetz).
This principle requires the legislator to formulate criminal provisions in such a way that the norm addressee (i.e. normal citizens) can, basically, foresee on the basis of the wording of the statutory provision whether a certain conduct is punishable or not.
As a result of the this unconstitutional extension of the KWG’s punishable licensing obligations to certain commercial Bitcoin transactions, the Kammergericht concludes that BaFin has exceeded its constitutional competence.”
That of course doesn’t mean there won’t be regulations, but the elected lawmakers in Germany might actually get to do their job and make law – after public debate – that covers this very new invention.
Rather than letting “policemen” extend unrelated century old discriminatory laws written at a time when horse carriages was the latest invention, like the Securities Act 1933.
On that point, there has been no court of appeal case on cryptos in US as far as we are aware, let alone Supreme Court case.
Low level first instance judges can be utterly incompetent and very wrong in their decisions, swayed perhaps by the “authority” of CFTC or SEC, but the higher up the appeal process, the more the judges are refined and independent.
And the more they know such basic things as all citizens are free to do anything not explicitly prohibited. That only parliament can prohibit anything, not central banks or SEC, and that agencies make no law, nor interpret the law.
Nor is it their job to make policy on such new and innovative things like a global code network when they are unelected and unaccountable.