How will measures in the Economic Crime and Corporate Transparency Act 2023 assist law enforcement in seizing and recovering crypto assets?

26 Apr 2024, 03 mins ago

We have previously written about the introduction of the Economic Crime and Corporate Transparency Act 2023 (the “ECCTA”). 

This includes blogs on:

What is the Economic Crime and Corporate Transparency Bill

On 26 October 2023, the Economic Crime and Corporate Transparency Act received Royal Assent 

One of the features of the ECCTA that we focused on was the amendments to the Proceeds of Crime Act 2002, aimed at practically assisting UK law enforcement with seizing and recovering cryptoassets.

On 26 April 2024, the revised codes of practice for extending powers under the Proceeds of Crime Act 2002 (“POCA”) to seize and detain property (including cryptoassets) will come into force.

We now take a more detailed look at some of these amendments.  We will also examine these more specifically in further blogs.

Amendments to search and seizure powers

The amendments to the POCA search and seizure powers ultimately broaden these powers to address novel features of the technology underlying cryptoassets.

Therefore, the new powers specifically permit the seizure of not just cryptoassets themselves, but also items of free property that officers believe may hold information which may lead to the seizure of cryptoassets.

In summary, the amendments will permit:

The powers of seizure to be used in some circumstances before an individual has been arrested, therefore assisting in preventing the chances of dissipation of cryptoassets.

An enforcement officer to search premises, vehicles and persons for a cryptoasset-related item.

An enforcement officer to search for and seize any free property if an officer has reasonable grounds for suspecting that it is a cryptoasset-related item (this is defined as an item which contains or gives access to information that is likely to assist in the seizure of a cryptoasset).

An officer to order the production of any electronically stored information on the premises in a visible and legible format, either which can be taken away from the premises, or not. (However, this does not apply if legal professional privilege (“LPP”) can be relied upon).

An appropriate officer who has seized a cryptoasset-related item to use the information from that item to identify and gain access to a crypto wallet and seize any cryptoassets.

An enforcement officer to search for and seize any cryptoasset.

The seizure of a cryptoasset by transferring it into a crypto wallet controlled by the appropriate officer.

The appropriate officer to detain any cryptoasset-related item or any cryptoasset for 48 hours.

By Court order, the continued detention of a cryptoasset-related item or any cryptoasset for up to a maximum of two years (which can be extended to three years where there is an outstanding request for evidence from overseas); and

The destruction of cryptoassets in circumstances where their recirculation would facilitate criminal conduct by any person.

Building on the above, for circumstances where an officer has information that enables them to trace cryptoassets to a centralised service provider, the officers can now apply to freeze the cryptoassets stored on a centralised exchange.

Additional powers against centralised service providers, such as crypto-exchanges and custodian wallet providers

A key to equipping law enforcement with the tools to seize and recover cryptoassets is to provide powers to take actions against centralised intermediaries (such as exchanges and custodians) where cryptoassets are exchanged and/or stored in a centralised entity.

The ECCTA will provide the authorities with the ability to apply for a number of crypto-related Court powers:

Court Powers to recover cryptoassets directly from centralised service providers

In circumstances where a confiscation order is made, the ECCTA permits the Court to make an order against a UK-connected cryptoasset service provider to realise cryptoassets under an order.  The ECCTA also permits the imposition a financial penalty against the UK-connected cryptoasset service provider for failing to comply.

Court Powers to freeze and forfeit cryptoassets from centralised service providers – Crypto Wallet Freezing Order and Crypto Wallet Forfeiture Orders

Essentially, a Crypto Wallet Freezing Order (“CWFrO”) and a Crypto Wallet Forfeiture Order (“CWFO”) work like an Account Freezing Order (“AFrO”) and an Account Forfeiture Order (“AFO”), but instead of freezing (and potentially forfeiting) funds in a bank account, these orders freeze (and potentially forfeit) some or all cryptoassets held in a crypto wallet administered by a UK-connected cryptoasset service provider. 

In addition, it is worth noting that:

The threshold for freezing the cryptoassets for a CWFrO is the same as for an AFrO.

A CWFrO can also be granted at the same time as an AFrO.

A CWFrO may be granted for up to three years (as opposed to two years for an AFrO) to give the opportunity for evidence to be obtained from abroad.

The threshold for forfeiting the cryptoassets is the same as for an AFO.

Various individuals who are affected by the CWFrO can apply for cryptoassets to be released; and

There are powers to convert frozen cryptoassets to cash (to protect their value, for example) and in these circumstances the CWFrO also has to be imposed against the converted cryptoassets.

In our next blog entitled – What is a Crypto Wallet Account Freezing Order? – we will provide more details of a CWFrO. 

We will also address how various parties can respond to the imposition of a CWFrO.

Increased reports of crypto fraud and scams – More from Gherson

The team have previously written a blog entitled What to do if you think that you have been victim to a crypto fraud or scam. This followed an earlier blog entitled What can you do to try and help avoid a crypto fraud of scam and a blog entitled What to do if your NFT has been stolen.

Reports of crypto frauds and scams remain on the increase. A recent article by Cyber reports how around £1 million-worth of cryptocurrency scams are being reported by Santander UK customers each month. This article quoted Thomas Cattee, Partner in Gherson’s criminal litigation, investigations and regulatory department.

Criminal investigations and litigation

Gherson Solicitors criminal litigation, regulatory and investigatory team combines an expert knowledge of criminal and regulatory law, underpinned with a firm understanding of digital assets and blockchain technology.  As such, the team is able to provide expert strategic advice to anyone wanting to investigate and pursue a potential theft of crypto assets.

The team is also able to provide advice to anyone facing investigation in relation to any allegation of criminality involving cryptoassets.

Regulation and compliance

In these constantly changing times, firms that deal with cryptoassets, and additionally have exposure to firms that do, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulationsGherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets

Additionally, the team has recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector.  Furthermore, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.

Please do not hesitate to contact us for further advice, send us an e-mail, or alternatively, follow us on Twitter or LinkedIn to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2024