Thought Leadership

New Approach to Digital Asset Seizures Proposed in the UK

Author
Lo Furneaux
Digital Content & Operations Coordinator

In 2023, the UK is set to introduce a groundbreaking crime bill aimed at revolutionising law enforcement’s approach to handling digital assets involved in criminal investigations. 

The Economic Crime and Corporate Transparency Bill has the potential to act as a powerful deterrent against the illicit movement of tainted assets in criminal cases and, in the process, could generate a substantial boost to public funding. 

The proposed amendments to the Proceeds of Crime Act 2002 (POCA) will provide local courts and law enforcement agencies with enhanced capabilities for investigating, freezing, seizing, and recovering cryptocurrencies, non-fungible tokens (NFTs), and other digital assets connected to criminal activity by removing the legislative hurdles that previously impeded the process.

In the past year, this bill has navigated its way through the House of Commons to the House of Lords, and it now stands on the brink of final approval, awaiting the royal assent to become law.

Thanks to the unique technology behind cryptoassets, they can be transferred anywhere in the world instantly with a single click. 

Since these assets can only be seized after an arrest or conviction has been made, criminals will exploit this ability to move their ill-gotten gains away from prying eyes before law enforcement can attempt to obtain a freezing order from the courts or prosecute those involved.

The new civil forfeiture powers suggested under this bill promise to level the playing field by allowing more law enforcement agencies to freeze and seize cryptoassets in a broader range of circumstances, preventing these quick transfers from being made and ensuring that no one can exploit the speed of digital transactions for unlawful gains. 

These powers are derived from the account freezing and forfeiture provisions that were implemented for traditional finance under the Criminal Finances Act of 2017, marking the most recent alterations made to POCA.

Unfortunately, critics of this bill believe that the proposed changes would have little impact, suggesting that strengthening these powers would only incentivise suspected criminals to move their assets to less regulated jurisdictions overseas.

They often point to well-publicised cases like Culley v. Marshall, where innocent individuals were deprived of their personal property, to argue for the complete abolition of civil forfeiture as they contend that such practices incentivise law enforcement to prioritize profit over justice.

Instead of focusing on the specific local issues around forfeiture, opponents have decided all civil forfeiture must go without consideration for the benefits it provides to victims of fraud and wider society. 

According to data from the National Crime Agency, illicit crypto transactions associated with the U.K. were estimated at more than £1.24 billion in 2021. Recovering any of these funds is essential for supporting the fight against economic crimes such as money laundering and terrorist financing, as well as supporting various law enforcement initiatives and community development projects aimed at reducing crime and compensating victims.

When questioned about the bill, our senior vice president Joanna Summers expressed a positive interest in the potential impacts of the bill:

“The passage of this Bill is a significant step in the U.K.’s approach to digital asset recovery and combating financial crimes involving cryptocurrency. Utilizing civil forfeiture powers to freeze crypto linked to crime allows the country to remove the delays associated with arrest, and quickly freeze crypto before a third party attempts to move it. While suspected criminals will think twice about leaving their crypto in the U.K. after the passing of the bill, it will send a clear message that the U.K. will not tolerate crypto being used to facilitate money laundering, drug trafficking, and organized crime.” 
“It will be interesting to see the increase in crypto asset recovery a year after the passing of the Bill, and encouraging to watch as those recovered funds are used to support law enforcement initiatives, community projects, crime reduction projects, and provide victim compensation.”

Our Chief Strategy Officer Hugo Hoyland shared a similar optimism:

"Speed is truly of the essence with digital asset recovery. Criminals are all too aware of the seizure risks that come with leaving stolen funds with third-party services, but they also know that they have the advantage: while they can withdraw funds at the click of a button, it takes time for law enforcement to build the necessary evidence to formally freeze and subsequently seize assets.”

He went on to explain that these amendments should be seen in the broader context of the UK's fight against financial crime:

“We have to be honest that the UK is a weak jurisdiction from a legislative, regulatory, and enforcement perspective; not because of a lack of will from law enforcement but because years of underfunding and delays to much-needed reform from successive governments that have left the UK population more vulnerable than ever."
“There is a careful balance to be struck between doing everything possible to return stolen funds to victims and ensuring innocent third parties are not unnecessarily targeted with these measures. However, in the absence of absolute compliance with existing KYC and AML regulations which prevent virtual asset service providers from receiving stolen funds in the first place, or at least to report those once received and prevent their onward dissipation, we welcome these new developments and call upon our broader sector to work closely with law enforcement in the fight against financial crime involving digital assets.”

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