As digital assets become more widely adopted, the frequency of their seizure by law enforcement agencies has increased. Cryptocurrencies are now regular targets in criminal investigations and regulatory actions. For law firms representing clients affected by such actions, understanding the process and possible outcomes of cryptoasset seizure is essential.
Seizure process and legal grounds
Cryptocurrencies can be seized during investigations related to criminal activities such as money laundering, fraud or tax evasion. Law enforcement agencies may freeze or confiscate cryptoassets if they suspect these assets are connected to criminal conduct. This typically requires legal authorisation, often through a court order under financial crime legislation.
The seizure process presents technical challenges because cryptocurrencies are stored on decentralised blockchains. This necessitates forensic analysis and secure digital handling to access and control the seized assets.
Key considerations for law firms
Due diligence and ownership verification
Establishing clear ownership of cryptoassets is crucial before any seizure. Cryptocurrencies can be held anonymously in digital wallets, making ownership verification complex. Law firms must assist clients in demonstrating ownership through transaction histories, public records and compliance checks. Understanding how clients’ assets may be connected to broader networks or third parties can impact defence strategies.
Asset tracking and valuation
The value of cryptoassets can fluctuate significantly. During seizure, law enforcement must track these values to ensure they accurately reflect the worth of the assets at the time of confiscation. Valuation disputes may arise, especially if assets were seized during a market downturn. Accurate valuation is critical for fair outcomes, particularly if asset recovery or restitution becomes an option.
Regulatory compliance and recovery options
Once cryptoassets are seized, authorities may hold, liquidate or auction them, depending on jurisdictional policies. Clients seeking to recover their assets need to know which regulatory bodies are involved and the applicable legal frameworks. In some jurisdictions, asset recovery is possible if clients can prove legitimate ownership, or if no criminal wrongdoing is established. Navigating these pathways requires a detailed understanding of local and international cryptocurrency regulations.
Privacy and data security concerns
Seizure of cryptoassets often involves scrutiny of wallet addresses and transaction histories, which may expose sensitive information. Law firms must advise clients on potential privacy risks and work to protect their data throughout legal processes. Balancing the need for disclosure with data protection is especially delicate in complex international cases involving multiple agencies.
Auction and liquidation processes
Governments may liquidate seized cryptoassets through public auctions, converting digital assets into fiat currency. Large-scale liquidation can affect market values, potentially impacting the broader crypto market. Clients interested in reacquiring their assets may require guidance on participating in such auctions. Additionally, understanding how proceeds from these sales are handled—whether used for victim restitution or allocated to public funds—can be important for clients.
Legal and strategic implications
Representing clients with seized cryptoassets involves a blend of technical expertise, regulatory knowledge and strategic counsel. The evolving nature of cryptocurrency regulation demands that law firms stay current on international laws and policies to provide informed guidance. Protecting clients’ interests involves ensuring due process is followed, advocating for fair valuation and privacy, and exploring all possible avenues for asset recovery.
Increased reports of crypto fraud and scams
Reports of crypto frauds and scams continue to rise. According to a recent article by Cyber approximately £1 million worth of cryptocurrency scams are being reported by Santander UK customers each month. The article quotes Thomas Cattee, a Partner and Solicitor in Gherson’s White Collar Crime and Regulatory department.
Our previous publications about these issues include:
- What to Do If You Think That You Have Been Victim to a Crypto Fraud or Scam?
- What Can You Do to Try and Help Avoid a Crypto Fraud or Scam?
- What to Do If Your NFT Has Been Stolen?
How Gherson can assist
Criminal investigations and litigation
Gherson’s White Collar Crime and Regulatory team combines expert knowledge of criminal and regulatory law with a firm understanding of digital assets and blockchain technology. We provide strategic advice to clients seeking to investigate and pursue potential theft of cryptoassets. We also advise those facing investigations related to allegations of criminality involving cryptoassets.
Regulation and compliance
In these constantly changing times, firms dealing with cryptoassets—or those exposed to such firms—must carefully consider their systems and controls to ensure compliance with all relevant AML (Anti-Money Laundering) and sanctions regulations. Gherson’s White Collar Crime and Regulatory team offers advice and assistance with AML and sanctions compliance, including situations involving cryptoassets.
Our team has published a series of blogs on the regulation of cryptocurrency, aiming to advise those working in compliance within this sector. For individuals and companies experiencing issues with the FCA (Financial Conduct Authority) registration process or other regulatory challenges, our specialist regulatory and compliance team can provide guidance.
Contact us
If you would like to discuss any issues raised in this article or need advice regarding your specific circumstances, please do not hesitate to contact us. You can also reach out via email or follow us on X, Facebook or LinkedIn to stay updated.
Updated 22 November 2024
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