Confiscation and Seizure of Cryptocurrency. An article by Quentin Hunt and Rhys Rosser.

Introduction

The Economic Crime and Corporate Transparency Act 2023 created new provisions to deal with the seizure and confiscation of suspected criminal Cryptoassets. There have been further developments which have led to the creation of new Magistrates Court Rules in respect of civil proceedings relating to Cryptoassets.

The Cryptoasset provisions in the Act came into force on 26 April 2024. The Magistrates’ Courts Rules take effect on 7^th November and the Crown Court Rules (which regulate processes on appeal) take effect from 4th December 2024.

Whilst these are new provisions, they very closely reflect the existing procedural rules which have governed applications for Cash Forfeiture and Account Freezing Orders. Quentin and Rhys have regularly appeared to represent both Respondents and Interested Parties in respect of these applications.

The Definition of Crypto and Related Assets

Cryptoassets are defined as “a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology” as per Section 84A(1) Proceeds of Crime Act 2002. The provisions of seizure and confiscation will extend to Cryptoasset-related items which are defined in Section 47C(5B) Proceeds of Crime Act 2002. These related items are a new class of recoverable property and will include electronic hardware which provide access to crypto-wallets or currencies.

Schedule 8 of Economic Crime and Corporate Transparency Act 2023 amends Part 2 of the Proceeds of Crime Act 2002 to allow search and seizure powers for Cryptoassets and Cryptoasset-related items. These provisions are contained in Section 47A onwards. There are also further powers introduced in respect of enforcement proceedings contained in Section 67ZA onwards.

Searches

Section 303Z23 of the Proceeds of Crime Act 2002 allows for an application to be made to the Magistrates Court for a search to be carried out for Cryptoassets pursuant to Section 303Z21. These Cryptoassets must meet the definition for POCA, namely that the assets must be likely to assist in the seizure of criminal property (i.e. recoverable property or intended for use in unlawful conduct).

Seizure

Once those carrying out a search have seized (theoretically by transferring Cryptoassets into an enforcement controlled crypto wallet) an application must be made to hold the items. Detention is permitted for a period of 48 hours (as with existing cash seizure legislation) but thereafter an application must be made to the Magistrates Court for a longer period.

Detention

For Cryptoasset-related items which have been seized, a further period of detention can be authorised pursuant to Section 303Z28 POCA. This can be for a maximum period of 6 months on each application up to a total of 2 years beginning with the date of the first order. These time periods reflect the pre-existing legislation for cash seizure and account freezing orders. The sole exception is that the period may be extended up to 3 years from the first application, but only if there is a request for assistance from a jurisdiction outside England and Wales.

The Court hearing the application may make an order if satisfied, in relation to the item, that there are reasonable grounds for suspecting that it is a Cryptoasset-related item, and its continued detention is justified. This follows the same definition for search namely that the Cryptoasset-related item is likely to assist in the seizure of criminal property. By definition, this will extend to the seizure of crypto-assets or cryptocurrency.

It remains a requirement that the person from whom the asset was seized is notified of the hearing, unless the item was not seized from a person. The application must be made in writing and in the correct form.

There are very similar provisions for the Cryptoassets themselves which are governed by Section 303Z32 of POCA. The Court may make an order for the detention of Cryptoassets there are reasonable grounds for suspecting that the assets are recoverable property or intended by any person for use in unlawful conduct.

There must be a hearing that is not earlier than 7 days after the notification of the date of the hearing to the Applicant.

Applying to Release Cryptoassets and Related Items

The person from whom the property was seized may apply to a magistrates’ court for release of Cryptoassets and related items under section 303Z34 POCA. The court may order the release of the assets if satisfied that the conditions for the detention of the property are no longer met in relation to the property to be released.

Freezing Order Applications

A Freezing Order Application arise where it has been possible to identify the holder or administrator of the asset, for example the firmware provider for the Crypto-Wallet. Section 303Z3711 allows for an order to be made where the Court satisfied that there are reasonable grounds for suspecting that some or all of the Cryptoassets held in the crypto wallet are recoverable property, or are intended by any person for use in unlawful conduct.

An application for a crypto wallet freezing order may be made without notice if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Part to forfeit Cryptoassets that are recoverable property or intended by any person for use in unlawful conduct.

The same time limit for a Freezing Order applies as to applications for detention of assets.

Forfeiture Provisions

Once an application has been made for a Freezing Order or for Seizure, an application can be made for a Forfeiture Order. Sections 303Z41 to 303Z53 set out the relevant forfeiture provisions.

Upon the application being made, a copy of the forfeiture application must be served on every person to whom a copy of a previous order has been provided and to any other person identified as being affected by the application. The Court must then fix a directions hearing and give directions at such a hearing for the exchange of evidence in the event the application is contested.

In order to serve an application, the Applicant must do one of the following:

• Posting to the registered or last known address of the Respondent or Interested Party;
• If a Party has confirmed they are willing to accept electronic service, then service can be effected by email;
• Where there is a good reason to authorise the giving of a document by a method or at a place not otherwise permitted by the Rules, the court may make an order permitting the giving of a document by an alternative method or at an alternative place.

In the event no party attends to oppose the forfeiture, the Court may make a determination in respect of the application at the directions hearing. At a final hearing, the Court will order forfeiture if they are satisfied on the balance of probabilities that the Cryptoassets are recoverable property or intended for use in unlawful conduct.

Where Cryptoassets are ordered to be forfeited, the service provider that administers the Crypto Wallet must transfer the Cryptoassets into a crypto wallet nominated by an enforcement officer, and immediately after the transfer has been made, the freezing order ceases to have effect. Cryptoassets that have been detained may not be released until any appeal is concluded.

Appeals

The provisions which govern appeal mean that the route of appeal is to the Crown Court. The application must be made in writing and within 21 days of the date of the order. The hearing in the Crown Court is de novo, this means it is a re-hearing and will require fresh directions.

Where the court makes a forfeiture order and an appeal is lodged against it, the applicant in the forfeiture proceedings may make an application to a magistrates’ court for the freezing order to continue.

Quentin Hunt and Rhys Rosser specialise in POCA and asset forfeiture matters and accept instructions both through solicitors and directly from members of the public under the Direct Access scheme.