The conscious or unwitting exploitation of artificial intelligence, computational thinking, data analytics, digitisation, and machine learning; plus, large language models, the internet of things, robotics and the like, by swathes of people in the developed and developing worlds; implicates a lingering harvest of permanent or quasi-permanent digital assets in the “cloud” and “ether”.
The ethics pertaining to the ownership, regulation, retention and use of those digital assets, of which digital footprints constitute a logical corollary – over the short, medium or long term – springs interesting jurisprudential questions.
Increasingly, interfacing with public and private agencies implies positively consenting to the retention of one’s personal data for access to services. For example, applying for a driving licence, national insurance number, passport in developed countries via portable devices. This extends to accessing healthcare, employment, financial services and payment platforms etc.
Superficially, this is all very well, not least because it safeguards the overriding public interest in maintaining societal order and its coherence with the complex demands of the 21st Century. However, uber libertarians would contend that it is discriminatory to be denied access to key services, whether delivered by the public or private sectors, where they refuse to voluntarily submit personal information to those organisations on the terms determined by the latter. Patently therefore, a tension, and power imbalance, exists between the service provider and libertarians, or persons seeking to access those services, on the modus operandi of the use and deployment of those digital assets.
So, what then are digital assets? Do they fall within the procedural definition of “property”? Can the rights of a digital asset owner be overridden in the absence of a testamentary gift expressed via a will? Are there existing and effective global best practice standards or is it a case of applying relevant administration of estates and probate laws in each jurisdiction?
How much, if any, role does the digital asset owner’s rights to privacy play in these dynamics? To contextualise further, A, holds dual Anglo-American citizenship and is permanently domiciled in South Africa. He has password-protected his Apple, Facebook and LinkedIn online accounts. A does the same with his JP Morgan Private Bank account. Suddenly, A dies intestate. Does A’s biological female spouse have an inviolable right to his online accounts and passwords? Which is the applicable law? Why?
For starters, digital assets mean different things to different people. Therefore, it negates a comprehensive definition, although the particular context, determines the sense in which the term is used. What is generally incontestable, however, is that a digital asset is any item that is retained digitally, electronically, in the “cloud”; and or, any mechanism or platform, which is used for storing such an asset, by any natural or unnatural person/s, which is of value to such person/s and or legitimate and relevant entities.
Typical examples of digital assets as already alluded are audios, videos, social media communications, passwords and virtual bank accounts. It encompasses cryptocurrency, manuscripts, slide presentations, software applications, spreadsheets, websites, data, widely defined, etc. Digital assets cannot exist in vacuo. In other words, they must be discoverable, capable of ownership and have become critical to the normal functioning of society ditto the daily interface between individuals, governments, commercial organisations and others. According to Research and Markets, the global digital asset management market grew from $5.05 billion in 2022 to $5.86 billion in 2023 at a compound annual growth rate (CAGR) of 16.60%.
Upon a statutory foundation, section 2 [77] (b) (1) of the United States Securities Act 1933 (as amended by P.L.117-263 enacted December 23, 2022), and section 10 of the Securities and Exchange Act 1934 (PL 73-291), propounds an extraordinarily wide the definition of a “security”. The former encompasses “any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof)…” .
Based on these provisions, a digital asset is regarded as a “security” and therefore subject to US federal securities enactments, albeit subject to the caveat of the digital asset being an “investment contract” within the meaning of the quadrant tests established by the US Supreme Court in Securities and Exchange Commission v. W.J. Howey Co 328 US 293 (1946). The Supreme Court in that case established the subsistence of an investment contract when: (i.) money is invested; (ii) in a united endeavour; (iii) with an objective of making a profit; and (iv.) is dependent on the efforts of a promoter and/or third parties.
In the notable United Kingdom case of AA v Persons Unknown [2019] EWHC 3556 (Comm), the Court considered digital “crypto” assets as “property”. And, it relied upon the four criteria enunciated by Lord Wilberforce in National Provincial Bank v Ainsworth [1965] 1 AC 1175 in the exposition of the term “property” as being: (1) definable, (2) identifiable by third parties, (3) capable in their nature of assumption by third parties, and (4) possessing some element of permanence. A strikingly similar conclusion on the same point was reached by Singapore’s International Commercial Court in B2C2 Limited v Quoine PTC Limited [2019] SGHC (I) 03 [142]. These authorities settle the question of whether digital assets constitute “property”. They absolutely do!
Whilst the Investment and Securities Act 2007 regulates securities in Nigeria, the dynamic pace of evolution of the digital assets in the country has forced regulators to develop guidance aimed at protecting investors, safeguarding the public and enhancing market confidence. The Nigerian Securities and Exchange Commission (SEC) Rules on Issuance Offering and Custody of Digital Assets of May 11, 2022, seeks to meet those overarching aspirations. The Rules characterise digital assets as a “digital token that represents assets such as a debt or equity claim on the issuer”.
They also establish a quintet of regulatory guidance within the operational context of digital assets regarding 1.) Issuance of Digital Assets as Securities; 2. Registration Requirements for Digital Assets Offering Platforms (DAOPs); 3. Registration Requirements for Digital Asset Custodians (DACs); 4.) Rules on Virtual Assets Service Providers (VASPs); and 5.) Digital Assets Exchange (DAX) mechanics.
Building upon these statutory and regulatory foundations, Nigeria’s Finance Act 2023, which established seminal riders, imposes a 10% capital gains tax on the disposition of digital assets, from a strategic fiscal enhancement perspective.
Where a deceased owner of digital assets leaves a will, executed when compos mentis, explicitly specifying how his digital assets should be administered, and who should administer it; the logic of testamentary freedom, rationally honouring the testator’s intentions; and extant procedural rules on probate and administration of estates law, will guide domestic courts in giving full effect therein. Authority for this proposition is the Nigerian case of Asika v Atuanya (2013) 14 NWLR (Pt 1375) 510 at 528; where Ariwoola JSC (now CJN) expressed the view that “a will or testament is the declaration, in prescribed manner, of the person making it with regards to matters which he wishes to take effect upon or after his death. It must however be noted and appreciated, that in the disposition of his property in the Will, it is the intention of the testator in the matter that is the sole-guide and control”.
The absence of a will, that is where a person dies intestate, muddies the waters in the sense that there is no way anyone could have definitively known the intentions of the deceased, regarding the administration of his digital assets (part of the personal estate). This would be determined by the Court via an application to the probate registry. The Court upon a careful assessment of all the relevant facts and evidence, would typically, albeit not exclusively, grant letters of administration to the relevant parties, that is, the deceased’s closest relatives via consanguinity rules. This is consistent with the Administration of Estates law in Nigeria and the Civil Procedure Rules applicable in each state.
Thus, Order 61 Rule 1 of the Lagos State High Court (Civil Procedure) Rules 2019, establishes that “subject to the provisions of Orders 61 to 63, when any person subject to the jurisdiction of the Court dies, all petitions for the grant of Letters of Administration of the Estate of the Deceased person, with or without a will attached, and all applications on matters relating to the Administration of the Deceased’s Estate shall be made to the Probate Registrar of the Court.”
As exemplified in the case of Asika v Atuanya (supra), the only mechanism by which the testator’s expression intentions can be executed is via a properly executed will. In the absence of that, upon intestacy, procedural rules will apply. This addresses the poser on who assumes the privacy rights – relative to digital assets – exercisable by the deceased in his life time. Accordingly, A’s natural female spouse in the above illustration does not automatically have an inviolable right to his passwords and online accounts!
And because A was domiciled in South Africa upon his demise, that country’s Intestate Succession Act 1987, will ordinarily govern the residuary estate. This, however, would turn on the particular facts of the case and any potential challenge by A’s biological female spouse and others related to him by consanguinity. The complexities of the deceased’s dual citizenship highlight interesting conflict of laws questions for his personal representatives too.
In conclusion, digital assets fall within the legal definitions of “property” and “security”. There is a moral imperative for political and corporate leaders, and senior policy makers to address pressing ethical concerns around civil liberties regarding the uses to which digital assets are put. These should always be proportionate. Equally, there is no automatic right to a person’s digital assets upon their demise. And it is advisable to make a will, whilst compos mentis, to ensure that one’s express intentions are fully executed upon demise.
Why leave it to the extremely uncertain discretion of third parties completely unknown to the deceased in his lifetime?! The case for reviewing the scope of the Hague Convention on the Law Applicable to Succession to the Estates of Deceased Persons is robust, given the dynamic pace of change concerning the use of digital assets and the need for some degree of international uniformity subject to local adaptations.
Ojumu is the Principal Partner at Balliol Myers LP, a firm of legal practitioners and strategy consultants in Lagos, Nigeria.
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