The increasing use of crypto assets over the last ten years or so has presented a serious challenge to agencies charged with disrupting money laundering networks and recovering the proceeds of crime.
By their very nature, the framework that allows for crypto asset transactions is global and anonymous. Add to this the fact that crypto assets and transactions have, until recently, been entirely unregulated, the chances of applying a Freezing Order on a crypto wallet and recovering the sums contained was extremely slim.
But that has changed.
Amendments made by section 179 and Schedule 8, and section 180 and Schedule 9 to the Economic Crime and Corporate Transparency Act 2023 and to Part 2 and Part 5 of the Proceeds of Crime Act 2002 (POCA) have provided Prosecutors and enforcement authorities with the powers and clarity to freeze, confiscate, and recover crypto assets, whilst the Civil Courts, via decisions in cases such as Jones v Persons Unknown [2022] EWHC 2543 (Comm) and LMN v Bitflyer Holdings Inc [2022] EWHC 2954 (Comm) have given people subject to crypto asset fraud legal remedies, even in cases where the perpetrators are unknown.
With regards to POCA proceedings, crypto wallet holders and operators need to understand the powers Prosecutors and enforcement authorities now have and how to challenge a Crypto Wallet Freezing Order (CWFO) if one is granted by the Court.
What is a crypto wallet?
Crypto wallets do not store physical currency. Instead, it contains the digital passkeys you use when signing for crypto transactions and provides an interface that allows you to access your crypto assets. A crypto wallet also makes blockchain accessible, by entering in long keys which previously, you would have had to do yourself.
A straightforward way to think of a crypto wallet is to imagine a piece of software that finds all your bits of crypto asset data scattered across a database by using your public address. Once it’s collected all the assets that belong to you, it totals up the amount and presents it on an app interface.
How does a Crypto Wallet Freezing Order work?
The Economic Crime and Corporate Transparency Act 2023 introduced CWFOs and Crypto Wallet Forfeiture Orders CWForOs. CWFOs closely model Account Freezing Orders (AFOs) which was introduced by the Criminal Finances Act 2017.
As of 24 April 2024, Prosecutors and enforcement authorities in England and Wales can apply to a Magistrates’ Court for a CWFO where they have reasonable grounds to suspect cryptoassets held in a crypto wallet administered by a UK-connected crypto service provider represent the proceeds of unlawful conduct or are intended for use in unlawful conduct.
A subsequent CWForO can be made if the Court is satisfied, on the balance of probabilities, that the crypto assets connected with the wallet are the proceeds of criminal conduct or intended to be used for criminal purposes.
As is the case with AFOs, it is likely that most applications for CWFOs will be granted at the first hearing. This is because:
- Magistrates seldom question an enforcement agency’s assessment regarding whether the Respondent’s assets relate to criminal conduct, and
- In the case of crypto wallets, Magistrates are unlikely to have the technical knowledge to challenge the enforcement agency’s conclusions.
Can CWFOs be granted without notice?
Yes, they can be granted without notice to the owner of the wallet or any other affected party.
How can a Solicitor help?
If the CWFO has been granted without notice, it is unlikely you will be aware of its existence until it is served on you. At this point, you need to contact an experienced Corporate Crime Solicitor immediately. They will work swiftly to gather the relevant evidence regarding the use and origin of the crypto assets. In addition, your Solicitor will collate and present this evidence in a way that can be understood by a Magistrates’ bench which may comprise of mostly lay people.
Although the standard of proof a CWFO application (reasonable grounds to suspect) is incredibly low and therefore likely to lead to a without notice application succeeding, obtaining a CWForO requires a higher standard of proof (balance of probabilities). Your Solicitor will contact and build a relationship with the enforcement agency or Prosecutor so they can develop an understanding as to why they suspect your crypto assets have been used for or gained through criminal activity and the actions they plan to take to continue their investigations.
If the CWFO remains in force whilst the investigation takes place, your Solicitor will focus on building a robust case aimed at convincing the investigator or the Court that the suspicion upon which the CWFO was granted is unsustainable.
Final words
Lack of judicial knowledge and confidence is the greatest challenge facing clients and legal professionals alike when it comes to successfully challenging an application for a CWFO. Therefore, you, as the client need to instruct a Solicitor who understands the new and specialist area of crypto assets to ensure legal arguments and evidence supporting a challenge is presented in plain English and an understandable format, thus giving it the best chance of success.
To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.
Note: The points in this article reflect the law in place at the time of writing, 21 December 2024. This article does not constitute legal advice. For further information, please contact our London office.
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