The rise of cryptocurrencies has brought both opportunities and challenges for individuals and the legal system worldwide. One of those challenges is crypto wallet freezing orders – a legal tool being used to combat crypto crime. Here’s everything you need to know about these orders, the implications and how to prepare.

What are Crypto Wallet Freezing Orders?

Crypto wallet freezing orders are legal powers that allow law enforcement agencies (LEAs) to freeze and seize cryptocurrency assets if they suspect they are linked to criminal activity. These are an extension of the UK’s Proceeds of Crime Act 2002 (POCA) which already allows for assets like cash and bank accounts to be frozen and forfeited if suspected of being connected to criminal activity. Since April 2024 these powers have extended to crypto assets.

How do these Orders work?

LEAs can search for, seize and freeze crypto wallets if there is “reasonable suspicion” that the assets are linked to criminal activity. Reasonable suspicion is a low threshold, similar to the level required for an arrest. Once seized the assets can be frozen for up to 3 years while investigations are conducted.

During this time the frozen assets can be forfeited if a court decides it is more likely than not that they are derived from or intended for criminal activity. Importantly these are civil proceedings so the standard of proof required is the balance of probabilities and not the criminal standard of beyond a reasonable doubt. Courts can use intelligence, open-source information and even hearsay evidence to make their decisions.

Jurisdiction

Previously, cases involving crypto asset seizure were heard in the High Court which provides a higher level of judicial scrutiny. Under the new provisions, these can now be brought before the Magistrates’ Court with appeals to the Crown Court. While this speeds up the process it raises concerns about the level of judicial oversight given the Magistrates’ Courts already have a heavy workload.

High Net Worth Individuals

High net worth individuals with significant crypto holdings are most at risk under these new powers. LEAs will likely target individuals with substantial assets in the UK especially given the financial incentive for successful asset seizure. Therefore, it’s critical for individuals to maintain clear audit trails of their cryptocurrency transactions so they can respond quickly to any investigations.

Victims’ Rights and Litigation

The new provisions also allow victims of crime to apply for the return of seized assets. This provides an avenue for individuals or entities to litigate ownership of crypto assets in a potentially more cost effective way. However, this will increase the number of cases in the courts which will only add to the delays.

Challenges with Resources and Expertise

While the legislation gives LEAs significant powers there are still several challenges. Firstly, the UK’s Magistrates’ Courts are already suffering from a heavy workload. This will hinder the processing of crypto related applications. Secondly, there is a lack of specialist training and technological resources to trace and manage crypto assets. The shortage of qualified experts in the UK also means international assistance will often be required.

How far do these powers go?

UK courts only have jurisdiction over assets and wallet providers in the UK. If you are concerned about these powers, you may consider transferring your assets to a wallet provider outside the UK. However, this raises additional legal and ethical considerations.

Crypto Wallet Freezing Orders

If you have crypto assets or do business with crypto assets, consider the following:

• Audit Your Crypto Assets: Do regular audits to ensure you have a clear and verifiable record of all transactions.
• Test Your Defences: Simulate an investigation to see where your records are weak.
• Get Expert Advice: Work with solicitors who specialise in crypto related disputes to prepare for the legal battle.

Crypto wallet freezing orders are a major development

Crypto wallet freezing orders are a major development in the UK’s regulation of cryptocurrency and the fight against financial crime. While these powers give LEAs the tools they need, they also present challenges for high net worth individuals and businesses in the crypto space. Transparency, accurate records and expert advice will be key to navigating this new legal landscape.

Specialist Crypto Asset Solicitors

For expert legal advice on crypto wallet freezing orders or other issues related to cryptocurrency, engage a solicitor with a track record of success in this area of law.

The cryptoasset solicitors at Lewis Nedas Law are experts in their field. We can advise on and guide you through all elements involved in the tracing and recovery of crypto assets and the removal of seizure and freezing orders. If you need advice or assistance on any aspect of crypto assets, please take expert legal advice from Lewis Nedas Law’s crypto asset solicitors.