Since Satoshi Nakamoto introduced us to the first crypto, Bitcoin, it has been a bumpy ride with good times and bad. On the positive side, crypto has played a tremendous role in shaping industries like finance and banking, through innovative DeFi platforms.
Retail and e-commerce have greatly benefited from the low transaction fees and instant payouts that crypto offers. When it comes to gaming, crypto has made a name for itself. Whether it’s supporting “play-to-earn” games or providing provably fair casino games, we can’t downplay its impact.
For the casino space, the best online casinos now support popular tokens like BTC, ETH, and USDT. Some sites have even gone fully crypto and only support cryptocurrencies. These are just a few examples of how crypto can be a force of good in our world.
On the flip side, cryptocurrencies have been associated with notorious criminal activities like money laundering, tax evasion, drug trafficking, and fraud. Because of this, authorities in different parts of the world have decided to try to regulate this “anonymous” sector and bring bad players to book. One of those ways is by seizing and forfeiting crypto assets which are proceeds of crime.
How Are Cryptocurrencies Seized?
Even though the seizing process may vary from one jurisdiction to another, this is a blueprint of how it mostly happens. Seizing of crypto refers to the confiscation of cryptocurrency by authorities as part of a legal investigation.
Unlike cars, property, or jewelry, which are physical items and can easily be confiscated by taking them away, cryptocurrencies are a bit different. These are digital assets and have an “anonymous” operation model, which makes them harder to find.
The first step is authorities to get a seizure warrant after presenting their case of potential fraud, money laundering, or any criminal activity to a judge. The seizure warrant is then presented to the crypto custodian, mostly exchanges, for access to the private keys of the account holder. To avoid liabilities or consequences, exchanges usually collaborate with the authority for any information.
If it’s a software wallet or hot wallet that operates online, the private keys are enough to grant access. However, if the individual has the crypto assets stored in a hardware wallet or cold wallet, which are offline and private, the agency may be forced to hack into the device.
Once the digital assets are accessed, they are frozen or stored by the investigating authority or a trusted third party until the investigation is completed and a verdict is given.
What Happens to the Seized Crypto Assets
As the investigation continues, the crypto assets are secured and stored safely until the case is closed. If the individual is found not guilty, they are given back all their crypto assets, and any other damages are paid.
If found guilty, the digital assets will no longer belong to them and will become the property of the government through the relevant authority. How the crypto assets will be used also depends on the laws of a country.
In New Zealand, seized cryptocurrency assets are liquidated through public auction or sold to crypto exchanges, and the acquired amount goes to state funds or crime prevention programs. A similar approach is used by most countries in Europe after local authorities or Europol confiscate stolen crypto assets.
In the UK, the Proceeds of Crime Act 2002 outlines what happens to seized assets whether physical or digital. 50% of the value goes to the Home Office, while the other 50% is shared among the police, courts, and crown protection services.
The US has been consistent in fighting against crypto fraud and has a process on how seized cryptocurrency assets should be used. Whenever such an investigation is completed, the federal agency must submit a plan to the Department of Justice (DOJ) on how the funds will be spent.
There’s a federal Equitable Sharing program that dictates who gets what, but most of the funds go to law enforcement agencies. In 2011, about $400,000 was spent on helicopter equipment by the St-Louis County Police. States like Missouri have pushed for seized funds to be allocated to schools and not just law enforcement bodies.
Still, many people continue to push for reforms to ensure that seizure and forfeiture of digital assets are done fairly and transparently, to protect those facing allegations.
