A life after crime: What happens to crypto seized in criminal investigations?

A life after crime: What happens to crypto seized in criminal investigations?

Two bills were presented to the Parliament earlier this year by Prince Charles during the annual Queen’s Speech. One of these bills, the Economic Crime and Corporate Transparency Bill, would allow the government to expand its powers to seize and retrieve crypto assets.

In 2021, more than $3B worth of crypto was seized by the United States Internal Revenue Service.

The amount of seized money will increase as digital currencies’ monetary stocks grow and enforcers tighten their scrutiny over the mature industry.

If these funds aren’t returned, where will they go? Is there an auction for forfeited property, as there is for other items? Are these coins intended to be kept in a special wallet that can serve as an investment vehicle for law enforcement agencies? Cointelegraph attempted to find answers.

Civil forfeiture: The dark roots

Cryptocurrency is money for the newcomers to the room. The fate of seized cryptocurrency should not differ from any other confiscated property or money. The practice of civil forfeiture, which is the taking of assets from people or companies that are suspected to be involved in illegal activities, is controversial. It was first used in the United States during the war on drugs in the 1980s. Since then, critics have been vocal about it.

The United States makes any assets seized the permanent property the government. If a prosecutor proves that they are linked to criminal activity, or if no one demands their return, Sometimes, assets are returned to the owner in exchange for a plea agreement with the prosecution. However, it is estimated that only 1% of the seized assets are ever recovered.

How does law enforcement use the money that they don’t have? They use it for whatever they need or want, including squad cars, jails, military hardware, and exercise equipment. For example, in 2001, the St. Louis County Police Department spent $170,000 on a BEAR (Ballistic Engineered Armored Response), tactical vehicle. It spent $400,000 in 2011 on helicopter equipment. The Washington Post reviewed more than 43,000 forfeiture records and found that money was used to purchase an armored personnel vehicle ($227,000), a Sheriff’s Award banquet ($4,600), and even hire a clown ($225). This was done in order to improve community relations.

Missouri is one example of a state that legally requires that any seized funds be used to fund schools. However, the Pulitzer Center notes that almost all money seized by law enforcement agencies is kept using the loophole in the federal Equitable Sharing Program. U.S. Attorney General Eric Holder issued a 2015 order prohibiting federal agency forfeiture. However, his successor, President Donald Trump’s Jeff Sessions, rescinded it and called it “a key tool to help law enforcement defund organized criminality.”

The fate of the seized coins in the U.S.A, U.K., and EU

Although none of the Cointelegraph experts could discuss the technical aspects involved in storing seized cryptocurrency assets, the rest tends to be the same as for non-crypto assets.

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Cointelegraph spoke with Don Fort, a former head of the IRS Criminal Investigation Division and now heads the investigations section at Kostelanetz & Fink. He said that the only difference is the need to sell the digital assets off.

“The federal level, the seized cryptocurrency goes either to the Department of Justice (or the Department of Treasury Forfeiture Fund.” The crypto funds will be auctioned by one of these forfeiture funds and can then be used by the federal law enforcement agencies.

Fort explained that, as with non-crypto money, an agency seeking forfeited funds must submit a plan or initiative to acclaim and spend the money. The plan must be approved and approved by the Department of Justice prior to funds being allocated to the agency.

Similar procedures govern the distribution of seized cryptocurrency in the United Kingdom. The Proceeds of Crime Act 2002 describes how to deal with cryptocurrency proceeds of crime once they are seized. Cointelegraph was informed by Tony Dhanjal (head of tax at Koinly).

“When confiscated assets are concerned, as opposed to cash, the Home Office receives 50% and the remaining 50% is divided between the Police and Crown Prosecution Services. Some of the assets that were confiscated can be returned to victims of cryptocrime.

Dhanjal says that the legislation must be updated to specifically deal with crypto assets. The Economic Crime and Corporate Transparency Bill announcement didn’t contain any details beyond the intent to “create powers to faster and more easily seize and retrieve crypto assets,” but it does provide an update on the process of seized crypto allocation.

The European Union, as it is often the case with regulatory policies, is more complex. Although there are systems of mutual aid in criminal matters within EU, the criminal legislation is under the jurisdiction of member states and there is no agency that coordinates enforcement or seizure.

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There are many ways to handle seized crypto. Thibault Verbiest is a Paris-based partner in law firm Metalaw. He cited many cases to Cointelegraph. For example, in France, the Agency for the Recovery and Management of Seized and Confiscated Assets is responsible for managing seized property. Verbiest said:

“When assets are seized as a result of an investigation by the judicial court, they are transferred to the AGRASC. The AGRASC will decide the fate of these assets in accordance with Articles 39-5 and 99-2 of Code of Criminal Procedure. They will either be sold or destroyed.

It is sometimes not possible to seize crypto assets. After seizing the cold storage devices that were used by people in criminal cases, the AGRASC sold 611 Bitcoin (BTC), at a public auction in 2021. The cold storage devices had contained encryption keys and were stored on a USB stick. As Verbiest explained:

The aforementioned articles permit seizures of movable property. This allowed the USB stick and its contents to be taken. It would have been different had the crypto funds been stored on a third party server through a delegated storage provider. The aforementioned texts don’t allow for the seizure of intangible property.

While the practice of forfeiture of property remains controversial, some prefer to call it “highway theft” — cryptocurrency provides at least a degree of protection for their owners. Technology aside, both no-coiners and coiners will need to fight the long history of law enforcement overreach.

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