HB5427 102ND GENERAL ASSEMBLY

LRB102 25014 BMS 34271 b

102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
HB5427

Introduced 1/31/2022, by Rep. Deanne M. Mazzochi

SYNOPSIS AS INTRODUCED:

205 ILCS 730/2 new
205 ILCS 730/25 new
205 ILCS 730/30 new

Amends the Blockchain Technology Act. Sets forth provisions concerning the purpose and findings of the Blockchain Technology Act. Provides that a court shall permit discovery of electronic records if the existence or ownership of a digital asset secured by a blockchain is factually in dispute. Sets forth provisions concerning permissible discovery of facts and information concerning digital assets and discovery procedures for digital assets. Provides that a court may order that the party with ownership or control over an account generate a test transaction in an amount not to exceed $1 to prove ownership or control over the account. Provides that a party holding a digital asset where the nature and type of the digital asset is at issue in the case may shield the need for disclosure if it posts security with the court for a comparable value for the digital asset in question if the value of the digital asset can be assessed, or for a value that is reasonably correlated to the estimated value of any judgment. Provides that a party seeking to validate or challenge the nature, accuracy, or propriety of a vote taken in connection with a decentralized autonomous organization shall be allowed discovery sufficient to describe the nature and type of vote or votes being taken. Provides that the provisions are repealed 5 years after the effective date of the amendatory Act. Creates the Digital Asset Discovery Task Force to conduct a review of the court-ordered discovery of digital asset procedures. Sets forth provisions concerning the Task Force's members, administrative support, and compensation. Provides that the Task Force shall submit a report containing its findings and any recommendations to the Supreme Court and the General Assembly by January 1, 2023. Provides that the Task Force is dissolved on January 1, 2024. Effective immediately.

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Blockchain Technology Act is amended by adding Sections 2, 25, and 30 as follows:

(205 ILCS 730/2 new)

Sec. 2. Purpose and findings. The purpose of this Act is to create general standards for authenticating, identifying, and validating blockchain-based digital assets.

The General Assembly finds that to encourage innovation and use of digital assets, including cryptocurrency, it is necessary to provide rudimentary protection to consumers who may seek to acquire or use such digital assets, or use them for payment purposes in commercial transactions. The procedures in this Act recognize that the significant intangible nature of digital assets, as well as decentralized decision making, will place burdens on parties seeking discovery and information in association with digital assets. At the same time, courts should not overly burden digital asset holders and individuals or organizations who hold or manage them with production obligations that risk being disproportionate to the needs of a case, or to abusive discovery that may damage the value of the digital asset that may be in dispute.

(205 ILCS 730/25 new)

Sec. 25. Court-ordered discovery of digital assets.

(a) If the existence or ownership of a digital asset secured by a blockchain, whether in the form of a smart contract, record, signature, or cryptocurrency, is factually in dispute, a court shall permit discovery, subject to reasonable time and scope constraints and the relevance to disputed issues and needs in the case pertaining to facts or legal disputes pertaining to the elements of the claim, as follows:

(1) The identity of a person who can authenticate a digital ledger and the process for generating the digital ledger. If no such person can be found within the jurisdiction of the State of Illinois, a party seeking discovery may compel the party holding the digital asset to identify a person who is prepared to authenticate the digital ledger and procedural protocols for assessing the trustworthiness of the digital ledger and who shall be:

(A) a resident of the State of Illinois;

(B) a non-resident who agrees to be subject to the jurisdiction of the court for this limited purpose, and the court may order that appearance for this purpose does not subject the non-resident to Illinois jurisdiction for any other purposes; or

(C) if the asset is held or managed by a third-party provider, whether a financial institution, exchange, brokerage, or other legal entity serving as a repository for blockchain records, smart contracts, digital signatures, private keys, or cryptocurrency, a designee of such a third party who is willing to appear in the court's jurisdiction; the court may order that appearance for this purpose does not subject the non-resident to Illinois jurisdiction for any other purpose.

(2) The identification of an individual who has possession of a private key capable of transferring or otherwise modifying the digital asset.

(3) For cryptocurrency, a general description of the nature and type of private key, including, but not limited to, as the reasonable and proportionate needs of the case may require:

(A) A description of whether the private key has been reduced to a physical embodiment, including a handwritten note, QR code, thumb drive, computer drive, or other storage mechanism, and where this physical medium is located. Such information shall be treated as highly confidential trade secret information, and shall not be publicly disclosed unless a court specifically orders otherwise, unless otherwise agreed to in writing by the parties. A court may order that the physical location of the private key be preserved and not moved absent reasonable advance notice to the court and the parties.

(B) If the private key is not embodied in a physical form, but only committed to human memory, a court may order that the party holding the private key generate a physical embodiment to secure the asset, post a bond to secure the asset, or place the digital asset in the management of an independent third party qualified to handle digital assets who agrees to be subject to the jurisdiction of the court and to not materially alter the digital asset.

(C) An estimated value of the digital asset, if the digital asset may be used to secure a judgment in the case or if the ownership or value of the digital asset itself is in dispute in the case.

(4) For cryptocurrency, a court may order that the party with ownership or control over an account generate a test transaction in an amount not to exceed $1 to prove ownership or control over the account. A court may order that the party with ownership or control over the account not modify or transfer the digital asset if the digital asset may be used to satisfy a claim or judgment in the case, or take other reasonable precautions to preserve the value of the digital asset while a case is pending. A court may draw an adverse interest against a party for failure to comply with this paragraph.

(5) Whether the digital asset is maintained on a database or cloud service, if known and reasonably accessible based on the needs of the case.

(6) The number of persons or parties who have access to the digital asset, if known and reasonably accessible based on the needs of the case, and the nature of that access; and whether the data access requires private permission, is invite only, or has been publicly accessed or trust-tested.

(7) The general nature of the validation process for the digital asset, if knowable and reasonably accessible based on the needs of the case, including the criteria for trusted persons, proxies, voting, or other relationships used to secure the integrity of the blockchain.

(8) For a digital asset, accounting records or the identification of a person who can describe the nature and contents of the account, if knowable and reasonably accessible based on the needs of the case.

(9) A party holding a digital asset where the nature and type of the digital asset is at issue in the case may shield the need for disclosure, notwithstanding the procedures set forth in this subsection, if it posts security with the court for a comparable value for the digital asset in question if the value of the digital asset can be assessed, or for a value that is reasonably correlated to the estimated value of any judgment. The fact that security was posted shall not be admissible before a jury and no inference shall be made against the party merely for posting security in connection with this paragraph.

(10) A party seeking to validate or challenge the nature, accuracy, or propriety of a vote taken in connection with a decentralized autonomous organization shall be allowed discovery sufficient to describe the nature and type of vote or votes being taken; the pre-approved protocol to be used for casting a vote in connection with a vote that is reasonably in dispute based on the factual needs and claims in the case; and the identity of an individual within the organization with knowledge, or who can be prepared with the applicable knowledge by those with operational control for the organization, as to the vote protocols and outcomes. The pre-approved written protocol in place at the time of the vote shall be presumed to be the governing protocol, and the burden shall be on the decentralized autonomous organization to demonstrate compliance with the voting protocol, including that the vote, including any vote involving a proxy or a vote through artificial intelligence or machine learning, was valid, accurate, and true under the protocol at the time of the vote.

(b) This Section is repealed 5 years after the effective date of this amendatory Act of the 102nd General Assembly.

(205 ILCS 730/30 new)

Sec. 30. Digital Asset Discovery Task Force.

(a) The Digital Asset Discovery Task Force is created. The purpose of the Task Force is to conduct a review of the court-ordered discovery of digital asset procedures under Section 25.

(b) The Task Force shall consist of 15 members as follows:

(1) one member appointed by the Speaker of the House of Representatives;

(2) one member appointed by the Minority Leader of the House of Representatives;

(3) one member appointed by the President of the Senate;

(4) one member appointed by the Minority Leader of the Senate;

(5) 2 members appointed by the Governor;

(6) 2 members appointed by Secretary of Financial and Professional Regulation representing companies in the business of blockchain-based assets; and

(7) 7 members appointed by the Justices of the Supreme Court.

(c) At the direction of the Supreme Court, the Administrative Office of the Illinois Courts shall provide administrative support to the Task Force.

(d) The Task Force shall submit a report containing its findings and any recommendations to the Supreme Court and the General Assembly by January 1, 2023.

(e) The Task Force shall meet as it deems appropriate.

(f) Members of the Task Force shall serve without compensation.

(g) The Task Force is dissolved on January 1, 2024.

(h) The Supreme Court may establish procedural rules encouraging fairness and access for blockchain-based digital assets.

Section 99. Effective date. This Act takes effect upon becoming law.