Cryptoassets, wallets and related items
A ‘cryptoasset’ is a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically.
A ‘crypto wallet’ is software, hardware and physical items, individually or collectively, used to store the private key that allows cryptoassets to be accessed.
A “cryptoasset-related item” is an item of property that is, contains or gives access to information that is likely to assist in the seizure of cryptoassets.
Search and Seizure
The search and seizure provisions relating to cryptoassets, wallets and related items closely mirror the search and seizure provisions in Chapter 2 of PoCA 2002.
Enforcement officers may search premises, vehicles and persons if they have reasonable grounds to suspect the presence of cryptoassets, wallets and related items. Thereafter, they can seize any item of property if they have reasonable grounds to suspect the items are recoverable property (i.e. property obtained through unlawful conduct) or intended for use in unlawful conduct.
Notably, enforcement officers can use information obtained from cryptoasset related items to identify or gain access to crypto wallets and facilitate seizure of cryptoassets and courts can grant prior authorisation for detention of cryptoassets that might be seized as a result of information obtained from cryptoasset related items.
Detention and Release
Cryptoassets and related items may be detained to facilitate investigation and/or prosecution. Detention is possible for an initial period of 48 hours. A Magistrates’ Court can order detention beyond 48 hours, in six-monthly periods, subject to an upper limit of 2 years (which can be extended to 3 years if a Court is satisfied that there are outstanding requests for assistance in obtaining evidence in relation to the seized items).
Anyone (including victims and owners) who claims that cryptoassets and/or related items, or any part of it, belongs to them can apply to the Magistrates’ Court for release.
Any cryptoasset related item which has not been claimed within a year of release may be retained, disposed of or destroyed and any proceeds paid into the consolidated fund.
Freezing
Enforcement officers can apply to court for a crypto wallet freezing order in relation to cryptoassets in a wallet administered by a UK-connected cryptoasset provider. Such application will be granted if a court is satisfied there are reasonable grounds to suspect some or all of the cryptoassets in the crypto wallet are recoverable property or intended for use in unlawful conduct.
Freezing orders prohibit the use of crypto wallets for any purpose, including withdrawals and payments.
Applications for a crypto wallet freezing orders can be made without notice if giving notice would prejudice a potential forfeiture and can be combined with applications for account freezing orders, in specified circumstances.
UK-connected
‘UK-connected’ requires the relevant cryptoasset provider to have their registered or head office in the UK and conduct their day-to-day management in the UK, act in the course of business carried out in the UK, have terms and conditions which provide for legal disputes to be litigated in UK courts or hold data in relation to their customers in the UK.
Conversion of Cryptoassets
During the period of detention or freezing enforcement officers or persons from whom cryptoassets have been seized can apply for the court for conversion of the cryptoassets into money. The court will have regard to the likelihood that cryptoassets will suffer significant loss in value during the period of detention including during any appeal and will give the parties and anyone who may be affected an opportunity to be heard.
Following conversion, the cryptoasset provider is required to arrange for the money, less their reasonable expenses, to be transferred into a nominated interest-bearing account to be held there. Accrued interest is added to the value of the cryptoassets at the time of forfeiture or release.
The proceeds of conversion can be detained for the remainder of the period the relevant cryptoassets could, immediately prior to conversion, be detained. The period for detention of the proceeds can be extended by order of the court in line with the upper limits detailed in the ‘Detention and Release’ section above.
Variation and Setting Aside
The Court can at any time vary or set aside a crypto wallet freezing order on application by person(s) affected by the order.
Forfeiture
Applications for forfeiture can be made to the Magistrates’ Court during the period of detention or freezing. The Magistrates’ Court will order forfeiture of cryptoassets, or part thereof, if satisfied that all or part represents recoverable property or is intended for use in unlawful conduct.
If a forfeiture order is granted, the cryptoasset provider responsible for administering the crypto wallet will be required to transfer the cryptoassets into a nominated crypto wallet. Immediately thereafter, the freezing order will cease to have effect.
Exclusions (including legal expenses)
The Court can, to avoid undue prejudice, make exclusions from the prohibition of making withdrawals or payments from the crypto wallet, either at the time the freezing order is made or subsequently. Such exclusions may include reasonable living, business and legal expenses.
Associated and joint property
Specific protections are afforded to third parties (i.e. holders of associated and/or joint property interests).
The Magistrates’ Court can, as an alternative to ordering forfeiture, order payment to be made to third parties and can order vesting, creation, severing and extinguishing of rights to give effect to its order; however, the applicant for forfeiture must agree the value of any payment including any reduction for losses sustained as a result of detention. If the Magistrates’ Court proceeds in this way, the cryptoassets are regarded as having been forfeited. If agreement is not possible the matter will be transferred to the High Court.
Appealing a forfeiture order
There is a right of appeal to the Crown Court. Any appeal must be made within 30 days of the relevant order or decision. If the Court upholds an appeal against a forfeiture order it may order release of all or part of the cryptoassets.
Realisation of cryptoassets
Cryptoassets subject to a forfeiture order must be realised or arrangements made for realisation in order to maximise the value recovered; however, such arrangements must not be made before the end of the 30-day appeal period or determination of any appeal made within the 30-day period.
If it is not reasonably practicable to realise cryptoassets or would be against the public interest to do so, then cryptoassets can be destroyed; however, not before the period for appealing has expired and/or any appeal has been determined.
The application of proceeds varies if conversion has taken place. Absent conversion, the proceeds are first applied to any payment due to third parties in relation to associated and joint property, then to legal expenses, then to reasonable storage and insurance costs, with the balance being paid into the consolidated fund. In conversion cases, the proceeds are first applied to costs of storage, conversion and detention, with the balance being paid into the consolidated fund.
Compensation for losses
If, following an application for forfeiture, cryptoassets are not forfeited, and the circumstances are exceptional, the owner or person from whom the cryptoassets were seized or the administrator or person for whose benefit the crypto wallet is administered can apply to the court for compensation.
How our experts can help
We can deploy a multi-disciplinary team of expert lawyers to seek release of cryptoassets, oppose forfeiture applications, appeal forfeiture orders, protect and advance third party interests and to pursue compensation.
We benefit from a wealth of in-house expertise and experience in civil recovery proceedings and enjoy enduring relationships with leading consultants, including specialist PoCA barristers, forensic accountants and other industry experts.
Free Initial Discussion
If your cryptoassets, wallets and related items have been frozen, are the subject of a forfeiture application or have been forfeited you should contact us as soon as possible.
Contact our lawyers by calling us on 0203 987 0222 or complete our enquiry form and one of our team will call you back. We can assist you wherever you are based.
