What Happens To Crypto Seized In Criminal Investigations?


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Law enforcement, just like every other sort of property, has the right to sell your coins and spend the money.

Prince Charles notified Parliament regarding two bills earlier this year during the annual Queen’s Speech in the United Kingdom.

The Economic Crime and Corporate Transparency Bill, for instance, would provide the government with more authority to confiscate and recover crypto assets.

In the meantime, the Internal Revenue Service (IRS) of the United States confiscated somewhere around $3 billion in cryptocurrency in 2021.

While the monetary stock of digital currencies increases and regulators’ supervision of the growing industry tightens, the amount of seized funds will undoubtedly rise.

But, if the money isn’t handed back to the victims of scams and fraud, where do they go?

Are there auctions for seized properties, as there are for forfeited property?

Or are these coins intended to be deposited in a special wallet that may serve as an ideal investment fund for law enforcement agencies? Cointelegraph attempted to obtain some information.

Civil Forfeiture’s Dark Origins

Cryptocurrency is money for the newbies in the room. As a result, the future of seized cryptocurrency should be similar to that of any confiscated money or property.

Civil forfeiture, or the forcible seizure of assets from individuals and organizations accused of illegal activity, is a controversial law enforcement tactic.

It became a regular practice in the United States in the 1980s as part of the drug war, and it has been the target of outspoken critics ever since.

If a prosecutor will clearly show that the assets are linked to criminal conduct or if no one claims their return in the United States, any confiscated assets become the government’s permanent possession.

As part of a plea settlement with the prosecution, the assets are sometimes handed to their owners. However, other estimates suggest that just 1% of seized assets are ever restored.

So what would law enforcement officials do with the money they don’t have to return?

What Happens To Crypto Seized In Criminal Investigations?

They might end up spending on whatever they want or need, which would include fitness equipment, police cars, prisons, and military equipment.

The St. Louis County Police Department, for example, managed to spend $170,000 in 2001 on a BEAR (Ballistic Engineered Armored Response) tactical vehicle. It paid $400,000 on helicopter equipment in 2011.

The Washington Post studied more than 43,000 forfeiture files and found that the money was spent on a range of things, including an armoured personnel carrier ($227,000), a Sheriff’s Award Banquet ($4,600), and sometimes even hiring a clown ($225) to “enhance community relations.”

Certain states, such as Missouri, mandate that seized funds be transferred to schools, but as the Pulitzer Center points out, law enforcement agencies pocket nearly all of the money by exploiting a loophole in the federal Equitable Sharing Program.

U.S. Attorney General Eric Holder issued an order forbidding federal agency forfeiture in 2015, but it was revoked by his successor, Jeff Sessions, during President Donald Trump’s administration, who called it “a crucial tool that enables law enforcement punish organised crime.”

The destiny of confiscated crypto coins in the United States, the United Kingdom, and the European Union

As none of the specialists who spoke with Cointelegraph could comment on the technicalities of storing seized cryptocurrencies, the rest of the process is very similar to that of non-crypto assets.

The one and only major difference, according to Don Fort, a former chief of the IRS Criminal Investigation Division who heads the investigations unit at law firm Kostelanetz & Fink, is the need to auction off the digital assets:

“At the federal level, seized cryptocurrency is sent to the Department of Justice Forfeiture Fund or the Department of Treasury Forfeiture Fund.” The funds can be used by the respective federal law enforcement agency once the crypto funds are auctioned off by one of the forfeiture funds.”

The agency seeking forfeited funds, like non-crypto funds, should propose a specific strategy or initiative to collect and spend the funds, and the strategy must be approved by the Department of Justice before the funds can be transferred to the agency, according to Fort.

In the United Kingdom, a similar procedure handles the distribution of seized cryptocurrency. The Proceeds of Crime Act of 2002 specifies how seized crypto proceeds of crime should be handled. Tony Dhanjal, Koinly’s head of tax, told Cointelegraph:

“The Home Office obtains 50% of confiscated assets — rather than cash — and the remaining 50% is divided among the Police, Crown Prosecution Services, and Courts.” There is also the possibility that some of the confiscated assets will be handed to crypto crime victims.”

Dhanjal, on the other hand, believes that the legislation should be modified to handle crypto-assets specifically, as they provide a “unique challenge for crime agency as anything that has ever come before it.”

The previously stated declaration of the Economic Crime and Corporate Transparency Bill didn’t provide any precise details aside from the intention to “generate powers to more rapidly and effortlessly confiscate and recover crypto assets,” but an update on the procedure for seized crypto-asset allocation would indeed be welcome.

The European Union, as is usually the case with regulatory frameworks, is more complex.

While the EU has mutual aid procedures and practices for criminal concerns, criminal legislation is the responsibility of the individual member states, and there is no single agency to manage enforcement or inspections.

As a result, seized crypto can be handled in a variety of ways. Thibault Verbiest, a partner at the law firm Metalaw  gave Cointelegraph many cases.

The Agency for Recovery and Management of Seized and Confiscated Assets (AGRASC) in France, for example, is in charge of managing seized property. Verbiest  stated:

“When assets are seized as an outcome of a judiciary’s investigation, they are transferred to the AGRASC by judgement of the public prosecutor, who will decide the outcome of these assets in compliance with Article 41-5 and 99-2 of the Code of Criminal Procedure; they will be sold at public auction or destroyed.”

However, seizing crypto assets may not always be possible.

After seizing the cold storage devices used by prosecuting people who had stored their encryption keys on a USB stick, the AGRASC auctioned 611 Bitcoin (BTC) at a public auction in 2021.

As Verbiest worded it:

“Because the abovementioned articles permit confiscation of movable property, the USB stick (and its data) could be confiscated.”

Because the aforementioned laws do not authorise seizures of intangible property, the case would have been different if the crypto assets had been held on a third-party server via a delegated storage service.”

Property forfeiture is still very much a controversial topic, with some even choosing the title “highway robbery” to describe it.

However, cryptocurrencies usually offer some security to their owners.

Regardless of advanced technologies, both coiners and non-coiners will have to fight the long tradition of law enforcement overreach in the area of policy.

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Mufasa is the lead writer at CryptoMufasa who likes to share all the latest info on the crypto world with you! Mufasa Enjoys enjoys a good read and recommendations so don't forget to comment on the posts and let him know.


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