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Employment law insight: New obligations regarding the fair distribution of tips

Posted on: October 1st, 2024 by Hugh Dineen-Lees

October 2024

The Employment (Allocation of Tips) Act 2023 (“the Act”), supplemented by a statutory code of practice and associated non-statutory guidance, comes into force today, 1 October 2024.

The Act significantly impacts the hospitality industry by introducing new rules governing how employers must deal with tips paid by customers, and it is estimated it will lead to an additional £200m being taken home by millions of workers in the UK.

The new requirements

The new legislation affects all retail and hospitality businesses including restaurants, cafes, hotels, hairdressers and taxi firms.

Businesses must now ‘fairly allocate’ all tips received. In addition, tips must be paid straight to workers and cannot be retained by the employer for any reason, including for business expenses.

“Tips” includes gratuities and service charges. However, it does not include cash tips if those are received by a worker and not declared to the employer. It does not matter if the tip is made by card, cash, or via an app.

In addition, employers must not make any deductions from tips except for tax, and where appropriate, National Insurance.

Tips must be paid to the worker/employee no later than the end of the month following the month in which it was paid by the customer.

What does fairly allocating tips mean?

The statutory code states that allocating and distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers, providing there are legitimate reasons why different workers are allocated different proportions.

The code provides examples of the criteria that employers may consider when allocating tips, such as:

  • the number of hours worked in the period the tips were collected;
  • individual and team performance;
  • level of responsibility and/or seniority;
  • customer intention;
  • length of service;
  • type of role (e.g., front of house or back of house); and
  • rate of basic pay.

The code prevents employers from pooling tips from multiple sites and all individuals who are involved in providing a direct service to customers should be considered as part of the distribution, including agency workers.

What do employers need to do?

Unless employers only receive tips on a very occasional or exceptional basis, they will need a written policy in place relating to the collection and distribution of tips.

They will also need to decide on their chosen method of tip distribution. How employers distribute is up to them, as long as it is fair. Some employers may choose to allow each individual worker to retain 100% of their tips received, whereas some employers may choose to implement a tronc system. However, using a tronc does not absolve employers of their responsibilities, so they will need to be careful to ensure the use of a tronc system is appropriate and that it is properly and fairly implemented. Employers should consider whether it is appropriate to seek the agreement of their staff as to which system of allocation will be used.

Employers must keep records of the qualifying tips received and how these are distributed. These records must be kept for three years from the date the tip was received and staff may request copies.

It is recommended that regular checks are made to ensure tips are being distributed in line with policies. It is also recommended that policies are regularly reviewed in line with business changes, such as restructurings or redundancies.

Connected obligations

Employers should be mindful of their data protection obligations when sharing records of tips. Employers should not provide details of the specific amounts paid to other workers, nor other people’s personal data, such as their bank details. Instead they should provide the total amount of qualifying tips received and the amount paid to the worker making the request.

Tips do not form any part of the National Minimum Wage. Employers must ensure that workers are paid in line with the National Minimum Wage and National Living Wage requirements regardless of any tips the worker may receive. 

How should an employer deal with complaints relating to tips?

The code of practice states that parties should attempt to resolve issues relating to tips between themselves. It is therefore imperative that any complaints are investigated and dealt with properly, either informally (if appropriate) or under a suitable grievance procedure.  

If the matter cannot be resolved internally, a member of staff may make a claim in the employment tribunal and they may be awarded up to £5,000 to compensate them for any financial losses relating to their employer’s failure(s).

If you have any questions on the fair distribution of tips or need assistance regarding your compliance with the new legislation, please contact a member of our Employment team.

Emma Cocker comments on ageism in the private wealth sector in eprivateclient

Posted on: October 1st, 2024 by Hugh Dineen-Lees

Senior Associate in the Employment team Emma Cocker comments on ageism in the private wealth sector, and how firms should be proactive in tackling this form of discrimination, in eprivateclient.

Emma’s comments were published in eprivateclient, 27 September 2024, and can be found here

“Employing older workers brings tangible benefits. These individuals often possess a depth of experience that younger workers may not, as well as an ability to connect with older clients. This is particularly important as statistics show that older individuals hold the bulk of private wealth within the UK. As such, workplace ageism ought not to be a problem in the private wealth sector, but this is unfortunately not the case. 

“The Equality Act 2010 protects against age discrimination in all aspects of employment including recruitment, terms and conditions, promotions, training and dismissals. Treating a worker less favourably simply because of their age, or in any way connected to their age, is (with very limited exceptions) illegal and should be avoided. Employment Tribunals are quick to root out issues of age discrimination, even in cases where employers attempt to dress up ageism as a legitimate reason for less favourable treatment. Compensation can be high, and cases attract adverse publicity.

“Leaving aside the risks of litigation, firms should be proactive in tackling age discrimination because of the noted benefits of employing older staff. This starts with the recruitment process where “blind recruitment” should be used to eradicate bias based on an applicant’s personal characteristics, including their age. Firms should also use initiatives such as discrimination and diversity training, as well as ensuring workplace policies do not discriminate on the grounds of age. Employee rewards ought to be based on performance and not length of service, and assumptions regarding “slowing down”, or older people being more likely to accept redundancies, should also be avoided.”

Danny Schwarz and Sophie Levitt discuss the proposed outdoor smoking ban in The Times

Posted on: September 26th, 2024 by Hugh Dineen-Lees

Director and Head of Commercial Real Estate, Danny Schwarz, and Solicitor Sophie Levitt discuss the potential impact of the proposed outdoor smoking ban on the hospitality sector, as well as the legal implications for landlords and tenants, in The Times.

Danny and Sophie’s article was published in The Times, 26 September 2024.

Ministers are considering imposing stricter rules on outdoor smoking to reduce the number of preventable deaths connected to tobacco use. There are no final plans, but smoking could be banned in pub gardens, outdoor restaurants and sports grounds.

The proposed ban appears as a puritanical tendency to reach for authoritarian solutions to complex public health problems. When politicians choose to cement their intolerance of the behaviour of others through legislation, it restricts individual freedom, further eroding people’s right to choose what they can do and where they can do it.

Arguably, such misuse of state control is antidemocratic: an extreme anti-smoking agenda which is not supported by scientific evidence that smoking in the open air creates any quantifiable threat to public health.

And now the British Beer and Pub Association (BBPA) is pleading with the government to abandon plans for greater smoking restrictions in pubs since it would affect their viability as businesses. But not all pubs would be impacted equally by such a ban. For instance, gastropubs are less worried about a slowdown following the ban, given the focus of their business on serving full meals, typically indoors.

While there is some disagreement within the hospitality industry regarding the precise impact of such a ban, there is a broad consensus that beefed up rules need to be clearly worded and ‘outdoor area’ must be precisely defined to minimise uncertainty.

A pub garden smoking ban could affect both landlords and tenants. If the ban has a heavy impact on the viability of tenants’ businesses, they may be unable to generate enough income to pay their rent. Landlords may have to forfeit leases, leaving them with vacant possession and the need to remarket the property.

Tenants would be obliged to comply with the smoking ban, which could be outlined expressly in leases or implied under a compliance with laws clause. If the tenant used the property in a manner which was not permitted, the landlord could forfeit the lease and end the unlawful use. Alternatively, the landlord could claim damages if they suffered any loss because of the tenant’s breach.

While the government’s proposals have received support from public health experts, many landlords, operators and customers have voiced concern that the rules would be unenforceable.

Bar staff would have to police this ban in addition to their existing obligations. Smokers would crowd on pavements outside of pubs, which would cause disturbance and nuisance to neighbours, or breach licence conditions, particularly in residential areas. Smoking could also be prohibited in parks and therefore create confusion in public spaces as it would be difficult to police.

If you are needing advice on matters relating to the hospitality sector or the legal obligations of landlords and tenants in commercial real estate, please contact a member of our Commercial Real Estate team.

Employment law insight: Mohammed Al Fayed allegations and an employer’s duty to prevent sexual harassment at work

Posted on: September 20th, 2024 by Hugh Dineen-Lees

A recent BBC article highlighted that more than 20 female former employees have come forward to report their experience of sexual assault (and in five cases, rape) whilst working at Harrods.

This is unfortunately the latest in a series of high-profile sexual harassment cases in the workplace. The effect of such behaviour is extremely damaging, not least because of the risk of costly employment tribunal claims against employers, but also because the significant reputational damage inflicted affects the ability of organisations to attract and retain staff, as well as potentially losing them valuable customers. Cases of sexual misconduct undoubtedly affect businesses’ “bottom line”.

What is the law on preventing sexual harassment in the workplace?

While these latest allegations relate to cases of sexual assault and rape, these cases are thankfully rare. What is much less rare is allegations of sexual harassment at work.

Sexual harassment is unwanted conduct of a sexual nature which has the purpose or effect of either violating the person’s dignity, or creating an intimidating, hostile, degrading, humiliating or offensive environment.

The scope is broad and includes a wide range of behaviours. As the effect of sexual harassment is viewed subjectively (i.e. through the eyes of the victim) it is not uncommon for accused individuals to claim their behaviour was “banter” or, “a compliment” when it was, in fact, sexual harassment.

As well as the accused individual’s responsibility for sexual harassment, employers may also be responsible (or “vicariously liable”) for the conduct of their employees (and in some cases, other third parties such as customers). This can be the case even where they did not condone, or even know, the conduct had occurred.

Legislation will shortly come into force which increases the burden on employers to prevent sexual harassment in the workplace, making it even more important that employers are aware of, and acting in line with, their duties.   

The new duty

The Worker Protection (Amendment of Equality Act 2010) Act 2023 is due to come into force on the 26 October 2024 and creates an anticipatory duty on the employer to take reasonable steps to actively prevent the sexual harassment of their employees; not just to investigate them if they arise.

This is a law which was passed by the last government, but the current government is considering further extending this duty to require employers to take ‘all’ reasonable steps, rather than the reasonable steps that will be required from 26 October 2024.

What should employers do to comply with their new duties?

Having clear sexual harassment policies and procedures, providing anti-sexual harassment training and encouraging a “speak-up” culture are all critical steps for employers. Taking time to consider where the risks lie in a specific working environment, as well as the sector in which the organisation operates will help determine what further action needs to be taken. All of the above should be regularly reviewed and monitored.

Supporting HR managers in dealing with sexual harassment claims is also crucial. They are likely to be the first employee in a senior leadership position to whom such claims are reported and they must be well equipped to deal with allegations appropriately to avoid further potential damage to the organisation.  

What should a business do if a claim of sexual harassment is raised at work?

Any allegations should be properly investigated under an anti-harassment policy or grievance policy and appropriate action should be taken, based on the conduct identified.

Employers that are regulated, such as financial services organisations regulated by the FCA and/or PRA must remember that a failure to investigate and resolve such allegations could lead to regulatory investigations, as well as possible enforcement action.

The behaviour did not take place at their place of work – does this matter?

No. Employers may be liable for sexual harassment committed by their employees ‘in the course of employment’, meaning any place the employee is working, not just their regular place of work. Liability can also attach to acts committed when employees are not working but they are somewhere connected with work. This could include, for example, social drinks after work and Christmas parties.

Creating a culture of acceptable behaviour

It is important that employers create a workplace culture that minimises the risk of sexual harassment. Sometimes sexual harassment can stem from other inappropriate behaviours not being properly investigated and addressed. Turning a blind eye to these behaviours can fail to set the tone as to what is appropriate and inappropriate in the workplace, leading to costly claims against employers.  

If you have any questions on the new duty to prevent sexual harassment, or how to investigate allegations of sexual harassment, or if you require workplace training, please contact a member of our employment team.

Abtin Yeganeh comments on the Renters’ Rights Bill in Property Week

Posted on: September 18th, 2024 by Hugh Dineen-Lees

Head of Real Estate Disputes, Abtin Yeganeh, comments on the Renters’ Rights Bill and how the proposed legislation must carefully balance the rights of tenants and security for landlords.

Abtin’s comments were published in Property Week, 11 September 2024, and can be found here.

“While the proposed Renters’ Rights Bill will be welcomed by the majority of UK tenants, providing them stronger legal protections and implementing a ban on ‘no-fault evictions’, the proposed reforms must strike a balance between the rights of tenants and security for landlords.

“No-fault evictions create a degree of uncertainty for many, with landlords able to evict their tenants without cause at the end of the fixed term of the tenancy. The new bill proposes to abolish this practice, and provide tenants with greater peace of mind.

“No-fault evictions have previously provided landlords with security, as they know they can obtain possession at the end of the tenancy without cause, and the banning of no-fault evictions may therefore provide them with cause for concern. However, importantly, the bill will reform the grounds of possession, with new grounds being introduced to address repeated serious arrears, and situations where possession is required to allow the landlord to sell a property or for the landlord and/or family members to occupy the property.”

If you would like further information on the implications of the Renters’ Rights Bill or have any questions regarding landlord/tenant matters, please contact Abtin Yeganeh

Matt Green comments on D’Aloia v Persons Unknown and Others

Posted on: September 18th, 2024 by Hugh Dineen-Lees

Head of Blockchain and Digital Assets, Matt Green, comments on the recent case of D’Aloia v Persons Unknown and Others and discusses how this case will impact future cases involving the recovery of stolen or hacked cryptocurrency.

Matt’s comments were published in Law360, CDR Magazine, CoinTelegraph and CoinLive.

“This is a lesson for all blockchain analytic report providers to ensure evidence is articulated and evidenced in the clearest terms. It is vital that legal teams understand the fact patterns carefully in order to advance proprietary claims and ensure mixing issues are dealt with accordingly. Legal teams need to scrutinise evidence, using experience and knowledge of blockchain technology and movements of funds, in order to ensure cases are put forward properly.

“The heads of case need to be carefully considered with an understanding of how purported organised criminal gangs may operate, and the potential mixing processes at play.

“As a strategy, it is always best to follow the funds and then seek to work cooperatively with exchanges who can play vital roles in assisting asset recovery.

“This is an unfortunate outcome if the relevant purported money mule Defendants are indeed laundering money, but the team failed to evidence it to the Court’s satisfaction. Hopefully, there will be more positive open judgements that show that the cryptoasset recovery process is real and effective, when done right.

“The targets should be those who receive the funds – in this instance it appears as though the Claimant was pursuing the wrong parties.”

William Bowyer comments on Brazilian clubs signing European players in City A.M.

Posted on: September 16th, 2024 by Hugh Dineen-Lees

Will’s comments were published in City A.M., 16 September 2024, and can be found here.

“Investment in football from the Americas has grown substantially in recent years, with a move to Brazil’s top flight becoming an increasingly viable and profitable route for players.

“There is a strong argument to say that the standard of clubs (facilities, funds, squad quality and academies) in Europe is still growing and attracting the best global talent. However, as a result, European leagues are becoming increasingly saturated, with players now looking to other leagues to play their football and progress their careers.
 
“The growth of the Saudi Pro League is also hard to ignore. As noted recently by Ronald Koeman in relation to the moves of Steven Bergwijn to Al-Ittihad and Memphis Depay to Corinthians, the former effectively “closed the book” on his international career whilst the latter remains available for selection. Moving to Brazil is therefore an attractive option for players who want a move away from Europe but to keep their international aspirations alive.

“Importantly, Brazil’s Série A clubs have experienced a period of growth in revenue since 2010 which has meant that they have been able to offer higher wages than they had historically for the right players.

“Larger European clubs are also increasingly looking at Brazilian leagues for potential talent. For a young player or a player struggling to get minutes at a European club, playing in Brazil could therefore be a good opportunity to get some game time in a competitive league, with the view to hopefully returning to Europe later in their career.

“With football being the number one sport in Brazil, a move to Brazil is a chance for a player to broaden their own fan base, social media following and personal brand which could lead to brand deals and image rights related work.”

If you would like more information on how our Sports and Entertainment team help protect and innovate for top athletes, please contact a member of the team below.

Mohit Pasricha explores the UFC antitrust case in Law360

Posted on: September 11th, 2024 by Hugh Dineen-Lees

With the UFC receiving an unexpected setback in its $335 million settlement with former fighters, Head of Sports & Entertainment Mohit Pasricha discusses whether this case could set a bold precedent for sporting class actions. 

Mohit’s article was published in Law360, 10 September 2024, and can be found here.

By refusing to accept a $335 million settlement agreed between Ultimate Fighting Championship and a group of former fighters, the U.S. District Court for the District of Nevada has delivered an unexpected knock-down requiring all parties to get back into the legal ring early next year.

In late July, U.S. District Judge Richard Boulware rejected the settlement reached in two class actions, Le v. Zuffa LLC, and Johnson v. Zuffa[1] in a dispute over a number of UFC fighters’ ability to negotiate other promotional opportunities. The judge had stated during a previous hearing that he was seeking a “life changing” settlement for fighters who had fought through 10 years of litigation. The ruling stated that the settlement amount that had been agreed between the parties was too low and, as a result, the settlement lodged with the court was rejected.

Prior to this decision, it had been hoped that the offer by UFC’s parent company, the TKO Group, would have resolved the long-standing dispute once and for all. Instead, a trial date has been set for February 2025.[2]

This is a seminal ruling that may have huge ramifications for UFC, a global business that merged with World Wrestling Entertainment in 2023 to form the TKO Group. It also sets a bold precedent within antitrust case law that will undoubtedly affect the sporting world more widely; there is not only the prospect of new claims arising, but also the risk of the floodgates opening on a long line of established antitrust case law.

In March, UFC had agreed to the $335 million sum in response to two class actions that represented about 1,200 former UFC athletes. These fighters had principally claimed, among other matters, that their UFC contracts suppressed their chances of taking advantage of other potentially lucrative options acquired through their sporting fame.

By way of background, there are currently two separate lawsuits, one filed by fighters Cung Le and Nate Quarry in 2014 representing fighters from 2010 to 2017, and a second filed by fighters including Kajan Johnson that represents fighters from 2017 to the present.

Zuffa, the predecessor entity that owned and operated UFC, was also the defendant in five related class actions filed between December 2014 and March 2015, which were consolidated into a single action in June 2015 — Le v. Zuffa.

The lawsuits alleged Zuffa violated antitrust laws by paying UFC fighters far less than they were entitled to receive and thereby eliminating or hurting other mixed martial arts promoters. UFC fighters Le, Quarry and Jon Fitch filed their initial complaint against Zuffa in federal court in the U.S. District Court for the Northern District of California in December 2014; that was subsequently joined by fighters Brandon Vera, Luis Javier Vazquez and Kyle Kingsbury.

On June 23, 2021, Johnson and C.B. Dollaway filed another antitrust class action with similar allegations that UFC engaged in illegal anticompetitive action.

Of the proposed $335 million settlement, 90% was to have been paid to the plaintiffs represented in Le v. Zuffa. Under the proposed settlement, fighters in this case were to receive on average $200,000, with a median recovery of $73,000 and a minimum of $13,000 — with 36 class members to have been paid more than $1 million.

UFC said at the time that they had reached a joint settlement that encompassed both cases. In such circumstances, UFC would have certainly hoped and very much anticipated that this was the end of the matter; unfortunately, none of the parties expected the District of Nevada’s decision, which, as rare as it was, remained fully within judicial discretion.

Following this ruling, which refused the negotiated settlement, UFC publicly announced that it disagreed with the decision. Nonetheless, it was evident from UFC’s public statement that the parties could reach a new settlement agreement — as a result, we would fully expect UFC to engage in new settlement discussions with regard to both class actions.

Plaintiffs in both cases also stated that they too are open to reengaging with UFC over a new settlement or moving forward with the trial. Eric Cramer, an attorney for the plaintiffs, said in a statement that the fighters in the case “respect the court’s ruling” but “are keeping an open mind with respect to a potential new resolution.”

As with any matter that proceeds to trial, there is always litigation risk to be considered and a settlement for both parties would be the most favorable way to resolve the disputes in question.

There is therefore a clear desire for both parties to get back up from the proverbial canvas and continue to build upon the momentum of the settlement position that had already been reached to find a new resolution — one that should avoid the need for a further costly and lengthy trial.

Beyond the high-octane world of professional fighting in the U.S., this case is one that may have far-reaching implications for entities involved in such lawsuits across the sporting world. In addition, this case also serves as an important and emphatic reminder that, regardless of the specific case background, the filing of a settlement does not automatically mean it will be approved or accepted, and it is likely that those involved in future sporting class actions will tread with caution as a result.

Going forward, and with the alarm bells sounded by this recent ruling, it is highly likely that UFC will not want to be exposed to any future litigation risk. The likelihood, therefore, is that a new settlement will be negotiated, as both sides seem extremely keen to avoid being counted out and suffer a defeat at the mercy of a trial. On this basis, both parties are undoubtedly going to remain keen to reach acceptable settlement well in advance of any trial.

In such circumstances, and given the time pressures involved, we may very well see a settlement sum agreed in excess of $1 billion to remove any possibility of a final knockout blow ahead of the next year’s trial.

Matt Green explores the tracing and recovery of stolen cryptoassets in FTAdviser

Posted on: August 28th, 2024 by Hugh Dineen-Lees

Matt Green explores the tracing and recovery of stolen cryptoassets in FTAdviser

Director and Head of Blockchain and Digital Assets and Technology Disputes, Matt Green, explores the challenges of tracing stolen crypto and discusses how the recovery of digital assets is a real, established and carefully considered process.

Matt’s article was published in FTAdviser, 27 August 2024, and can be found here.

Recently, an American law firm asked for strategic advice on a multi-million-dollar crypto recovery case. Their plan was to use securities laws which required the scammers’ genuine identities from the outset. The list of defendants was endless- bogus usernames, individuals across the globe using VPNs, spurious connections based on social media. It was clear- not everyone is familiar with the alternative method- follow the money and the ghosts materialise.

According to the Chainalyasis 2024 Crypto Crime Report[1], revenue from different species of crime, including romance/ pig-butchering scams jumped from $5.9billion 2022 to $6.5billion in 2023. Similarly, Immunefi’s Crypto Losses in Q2 2024 report[2] details a 112% rise in hacks and scams compared with the previous year. Although crypto-assets are at play in these cases, to quote Aidan Larkin of Asset Reality, Ari Redbord of TRM Labs, and Nick Furneaux of both, “there is no such thing as crypto crime”. Instead, if we treat it like any other crime, we remove the inertia, and can start the recovery process.

For many, the hope of recovery dies on the pretence the assets disappear into the ether, bad actors are sophisticated masked hackers in faraway lands, that processes for recovery lack maturity or that authorities have no appetite. In the clearest terms, recovery of crypto-assets, or their equivalent monetary (fiat) value is a very real, established and carefully considered process.

However, often with crypto-assets, hackers and fraudsters operate in increasingly sophisticated ways.

Examples Of Hacks And Scams

In 2019, a Canadian hospital was hit with a ransomware attack demanding $1,200,000 to recover the data- computer screens read: “No free decryption software is available on the web… You have to make the payment in Bitcoins”. Here, my task was to help trace the Bitcoin paid using blockchain analytics tools and prepare novel Court procedures to freeze funds. This now seminal case AA v Persons Unknown, set the precedent that “a crypto asset such as Bitcoin is property” – the genesis of all crypto-asset recovery cases.

Over the past few years, I have acted on matters involving a North-Korean sponsored $100million hack at a major crypto exchange, scams in which the perpetrators utilise dating apps  (which includes blackmail after sending explicit photos), as well as fake investment platforms promoted via forums like Reddit which promise lucrative returns, falling apart when the return of capital and profits are refused until further withholding taxes (not a real thing here) are paid, usually via bank transfer. A contact of mine once met with Disney executives to pitch a Web3 gaming product, only to immediately receive a convincing phishing email offering a contract, and which led to the complete drain of his crypto-wallet. Another attended a gaming event showcasing facial-recognition technology, which was later exploited to side-line iPhone biometrics safeguards leading to loss of significant crypto-assets. 

Most heartbreakingly, my client lost her husband following a heart attack and was manipulated by an individual in a Facebook group called “I Miss My Husband” into transferring over £500,000 worth of Tether (a stable coin designed to hold value to the US dollar) to a fraudster. Funds were traced to individuals in South East Asia, with certain physical addresses including a human organ harvesting facility in Myanmar, which resulted recovery of funds. This is not merely naivety – rather, these are highly sophisticated scams that prey on emotions, utilise data that is designed to instil trust, or by virtue of a small mistake, like phishing.

All too often, it seems there is no recourse for victims. However, it is not only possible but in fact a real and effective process.

Tracing Shadows

The first step is to instruct investigators who utilise blockchain analytics software to trace the funds. Where a victim has paid a threat actor (the thief/ scammer) in cryptocurrency, there will be an immutable public record of the transaction including the blockchain address receiving the funds, and a transaction identifier. Some might point to issues in tracing, like mixing services which seek to obfuscate the movement of funds. The trend leans to shutting these down these facilities- consider the now sanctioned Tornado Cash. Also mixing software can largely be undone by unmixing software, subject to the obfuscation processes and technology available. However, in any event, it must be remembered that the focus here is not on the who, but on the assets themselves, their movement and their whereabouts.

Like those examples given above, organised criminal gangs (OCGs) use crypto-assets to extract funds from victims, then convert into fiat money as part of the laundering process. They utilise cryptocurrency exchanges, which convert those gains into local currencies, at the demand of their money mule customers. Investigators can see that the funds moved from the threat actor’s address to several other addresses and landed at an exchange. The exchange is then put on notice that it has the proceeds of crime, and requests are made about its customers’ identities, usually provided subject to a Court Order.

Helpful Ghosts

Importantly, substantive claims and injunctive relief (orders to freeze assets) can be obtained against a hypothetical category called Persons Unknown (PU). In doing so, we can use ghosts to our advantage. In this instance, there are usually two: PU who committed the act, being the threat actor (D1) and PU who received the proceeds of the misappropriated funds, being the customer of the exchange (D2). D2 is the target and exchanges can provide identifying data taken during the onboarding processes (anti-money laundering and counterterrorism financing checks) including passport information and email addresses. Even questionable information (I have seen 123[expletive]@protonmail.com), is useful. Vitally, this identifying data allows D2 to be served with the claim and kick starts the formal process.  

Role Of Crypto Exchanges

Despite mixed reputations, crypto-exchanges are often open to helping victims of fraud, namely because it builds sector confidence, improves their reputation and avoids time-consuming and costly legal proceedings. However, there are instances where exchanges are registered offshore, claim to be decentralised, or simply fail to reply to requests. Debate reigns on whether crypto exchanges owe a duty to consumers where they are on notice of fraud and allow a withdrawal, and a formal duty may mitigate risks in the future and compel exchanges to act. In any event, market pressures ensure customers, including OCGs, are attracted to the reliability, ease and stability of trusted exchanges.

Service and Recovery

Once the individual has been identified, they then must be served with legal documents and victims can rely on the crypto-exchange’s disclosure: email and physical addresses. However, in certain instances exchanges fail to onboard customers properly and no data is available. Here, parties can still be served documents via non-fungible tokens (NFTs), a process ratified by the Courts utilising blockchain technology. In addition, information gathered via intelligence agencies, as well as published data on the dark web following a hack, or proprietary software to identify individuals, can assist, starting with very few breadcrumbs. Investigators are also able to review open-source intelligence, social media sites, those behind websites, and gather clues via geolocation of account access.

In most cases, D1 and D2 do not respond, given bad actors’ resistance to open Court procedures. This usually results in an on-paper win for victims.  

Next is getting the funds back. In the instance there are funds at the exchange, Court sanctioned processes allow for the repatriation of those funds, whether in crypto or fiat currency. In the event exact funds are not in the account, victims are often entitled to compensation on a restitutionary basis. There is usually a clear link between D1 and D2, so any funds associated with either are fair play. Intelligence plays a key role in identifying potential assets- firms like GreyList utilise big data to determine whether email addresses are registered at banks or exchanges, so more funds can be located.

Centralised Token Issuers

Importantly, in instances where there is a centralised token issuer (Tether, for example), there are alternative processes. If the funds have not reached a crypto-exchange and are instead sitting in a private address, blacklisting the address with a token issuer’s assistance can freeze assets by preventing withdrawals.

For example, in November last year US authorities worked with Tether and exchange OKX resulting in a freeze of $225m, with assets linked to a human trafficking syndicate in South East Asia. Further, Grant Thornton’s Independent Audit Report[3] of Circle Internet Financial, Inc., the issuer of USD Coin (another stable coin) notes the “ability to blacklist addresses”, stopping private wallets from transacting altogether.

These processes are available via civil routes too, usually with help from law enforcement. Through these methods, including a token burn and remint, victims can be made whole again.

Moving Forward

Quiet stoicism keeps the industry at a plateau and all instances of fraud should be reported to law enforcement. Of course, more should be done to discourage bad actors and prevent frauds altogether, but by sharing stories we can educate other potential victims and break the fraud cycle. The Law Commission has also recommended that the direction of travel should be driven by case law, so the more trodden the path, the more precedents set for recovering crypto-assets.

While the recovery of crypto-assets can often feel like chasing ghosts, in many instances those ghosts are incredibly helpful – casting a wide net to allow exchanges and token issuers to be the force for good in helping recoveries.

Matt Green comments on AI and crypto assets in eprivateclient

Posted on: August 27th, 2024 by Hugh Dineen-Lees

Director and Head of Blockchain and Digital Assets and Technology Disputes, Matt Green, comments on the role of artificial intelligence and machine learning in securely managing and trading digital assets and cryptocurrency.

Matt’s comments were published in eprivateclient, 23 August 2024, and can be found here.

“AI must be used carefully if algorithms are used to execute trades without a human safety net. For instance, blockchain transactions are typically irreversible so individuals should not simply let AI run algorithmic trading without occasional guidance and review.

“The aim here is efficiency and the removal of unnecessary obstacles. The marriage of blockchain and AI can be the perfect partnership; AI can near auto decision make and blockchain technology allows for transactions to be made immutably at high speeds and in huge volume. The results can be mass trading without grey matter slowing down the process.

“Machine learning is helpful to transacting securely and can auto-prompt irregular withdrawals or movements of assets which may relate to fraud. By relying on open source data and marking illicit cryptographic addresses, machine learning can actively understand and adapt where required to mitigate risks and criminality.”

Joanne Leach comments on the ‘right to disconnect’ in City A.M.

Posted on: August 21st, 2024 by Hugh Dineen-Lees

Joanne Leach, Senior Associate in the Employment team, comments on the government’s plan to give workers the ‘right to disconnect’ outside of their work day, in City A.M.

Joanne’s comments were published in City A.M., 21 August 2024, and can be found here.

“The implementation of the “right to disconnect” will require employers to carefully weigh up the competing interests of various employees. One individual’s “right to switch off” might curtail the right of another to work flexibly. This would impact others who require flexibility.

“To manage this risk, employers should suggest practical measures such as requiring any staff working outside core office hours to delay the sending of internal emails until the next working day. This is likely to be more effective in managing any conflicts as opposed to mandating all employees to switch off when it does not suit them.

“It remains to be seen whether employers can implement such practices and benefit from the increased productivity that the policy aims to deliver without opening themselves up to the chance of claims brought by staff who feel that their right to work flexibly has been curtailed by a government order to disconnect.”

If you would like some advice on how to support your staff in relation to flexible working and wellbeing, please contact a member of our Employment team.

JCT Construction contracts and the question of joint names or composite construction insurance

Posted on: August 21st, 2024 by Hugh Dineen-Lees

Construction projects are necessarily complex risk structures in themselves, relating to a mix of workmanship, design and the particulars of the construction process. Parties to a construction project will often extend beyond those commissioning the work (the employer) and carrying it out (the contractor). It is often more likely that the parties will include architects, engineers, project managers, numerous subcontractors and suppliers and – via collateral warranties – future purchasers, tenants and funders. All of these actors can contribute to loss or damage and, ultimately, legal liabilities.

This contractual complexity requires construction insurance arrangements which match the risks facing each party and the nature of their interest in the project. It is sensible therefore to obtain insurance advice to ensure the correct policy terms – joint names or composite insured – are in place before works begin.

What is joint names construction insurance?

Joint names is an insurance policy extension that covers the contractual responsibilities of both the employer and the contractor. It applies to new build and refurbishment contracts where there is a requirement to name parties on a construction insurance policy that will cover the contract works and any existing structure as under the standard terms JCT suite of contracts.

A joint names extension has the following likely characteristics:

  • removes the need for each party to take out separate policies covering their own responsibilities and therefore eliminate the risk/cost of duplicated insurance arrangements;
  • ensures that the named parties – e.g., employer and contractor – cannot claim against one another; and
  • makes it impossible for one party to cancel the policy without notifying one or all of the other named parties.

Joint names works when the contracted parties’ interests are aligned – as are those of the employer and contractor who are both going to be looking for the works to be completed on time, on budget and to the agreed contractual standard.

What is composite insured construction insurance?

Composite insured is different and is often applied where the project parties have a separate and individual interest in the works. The most obvious example is that of a funder’s interest in a construction project which, unlike the employer or contractor, has as its primary interest the return of its loan facility and interest. This may or may not be separate from the successful completion of the works.

A composite insured extension is generally written on a bespoke basis to reflect the different interests of the various project parties so as to protect their individual interests – this can be achieved by the inclusion for instance of first loss payee provisions which generally seek to cover the original loan plus interest.

This risk cover is obviously different to one based on a joint names extension which just notes a funder’s interest in a project.

In brief: the difference between joint named and composite insured

  • Both joint names and composite insured are insurance policy extensions applicable under JCT contracts standard terms.
  • Joint names extensions are most commonly applicable where the insured parties have similar undivided interests in the project.
  • Composite insured extensions are more applicable where one or more parties have their own interests, separate from the other parties.

The insurance market is a market, which changes on a daily basis as to what risks it will accept, on what terms and at what cost.

Construction professionals – including lawyers, contractors, funders and others need to work together as closely and openly as possible with brokers and underwriters in order to find the best risk cover solution for a project. The preparation and analysis of risks will lead to the actual insurance contract terms – almost certainly by way of addendum or changes to the standard terms, This is where the assistance of lawyers will most likely be needed.

If you would like further information on construction contracts and the types of insurance that can be used to cover them, please contact a member of our Construction team.