Crypto Wallet Freezing Orders
In previous articles, we have referred to the enforcement powers provided by the Proceeds of Crime Act 2002 (POCA), which enable authorised enforcement agencies such as the police, the Serious Fraud Office (SFO) and HM Revenue & Customs (HMRC), to obtain Account Freezing Orders.
These Orders authorise the freezing of assets, such as cash and funds held in bank accounts, when there exist reasonable grounds to suspect that the identified funds either represent the proceeds of criminal conduct or are intended for use in criminal activity.
Account Freezing Orders prevent the disposal or any dissipation of assets whilst further investigations are undertaken.
POCA has been extended to address the substantial increase in the use of cryptocurrencies by organised crime groups involved in money laundering activity which includes the disguising, converting or transferring of assets derived from criminal conduct.
Enforcement authorities now have the benefit of powers to freeze and restrict access to cryptocurrency held in digital wallets suspected of being linked with criminal activity.
As part of its drive against organised crime, the Government introduced the Economic Crime and Corporate Transparency Act 2023 (‘the Act’), which includes provisions extending POCA ‘to make provision in connection with cryptoassets and confiscation orders’ and ‘to make provision for a civil recovery regime in relation to cryptoassets.’
The Act enables enforcement authorities to apply to a Magistrates' Court for a Crypto Wallet Freezing Order (CWFO).
Nazaqat Maqsoom of KANGS comments upon various aspects of CWFOs.
Important Aspects of a Crypto Wallet Freezing Order
Reasonable suspicion is sufficient.
Even though an application for a CWFO is made to a Magistrates’ Court, it a civil procedure and the evidential threshold required to be met is relatively low.
An enforcement officer only has to show to the court ‘reasonable grounds’ for suspicion that cryptoassets held in a crypto wallet ‘are recoverable property’ or ‘are intended by any person for use in unlawful conduct.’
There is no need to prove criminality, only a reasonable suspicion linking the assets with criminal conduct.
One essential element is that the assets must be held in a crypto wallet administered by a UK-connected crypto asset service provider.
Duration of a CWFO
A CWFO may freeze assets for a period of up to two years, but this may be extended for a period of up to three years, beginning with the day on which it was granted.
Once granted, a CWFO prohibits the owner or operator from making withdrawals or payments or using the crypto wallet in any other way.
Crypto Wallet Forfeiture Order
If, as the result of further investigation the authorities believe the cryptoassets arise from criminal activity or are intended for future criminal activity, an application may be made for a Crypto Wallet Forfeiture Order.
If granted, such an Order would permanently deprive the owner of the cryptoassets and transfer ownership to the State.
Opposing a CWFO
Those who are made subject to a CWFO may well be anxious to seek its removal as soon as possible, given that they will be deprived of access to their cryptoassets whilst it is in place.
Seeking the removal of a CWFO is likely to be a lengthy process and those doing so will be required to provide convincing evidence detailing the provenance and legitimacy of the cryptocurrency in dispute.
If the Application proceeds to a contested Hearing, it is not mandatory that a crypto wallet holder gives evidence but it is highly desirable in order to present the strongest and most convincing challenge. However, given the underlying suspicion of criminal activity which may exist, extreme care is essential, as any such evidence tendered may, in certain circumstances, be used in other proceedings, including a criminal financial investigation.
How Can We Help?
Applications for Crypto Wallet Freezing Orders are normally pursued on an ‘ex parte’ basis, i.e. without any advance notice of the Hearing being given to the account holder.
Accordingly, the first indication you are likely to receive is after the Freezing Order has been made and you discover that your access to your crypto wallet has already been frozen.
Obtaining immediate legal advice is absolutely essential to enable your position to be carefully considered, and under no circumstances should any communication be conducted with any other party until such advice and guidance has been received.
Our team of solicitors has extensive experience gained over many years, assisting clients who have been subjected to Suspicious Activity Reports, Account Freezing Orders and all other form of financial restriction, injunction or proceedings available to the enforcing authorities under the Proceeds of Crime Act 2002.
KANGS have an established and respected reputation nationwide for their expertise in financial investigations, and top-ranked by leading directories Chambers UK and the Legal 500 for our work in fraud, financial crime and POCA.
If you are subject to a Crypto Wallet Freezing Order or Forfeiture Order, or any other type of financial crime investigation, please do not hesitate to contact our team on the details below. We would be delighted to hear from you.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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