The UK has just passed the Economic Crime and Corporate Transparency Act II (ECCTA). The ECCTA introduces a swathe of changes to how the UK fights economic crime. Grabbing the headlines will be the reforms to Companies House (the UK’s corporate registry) and a “failure to prevent fraud offense” but for the crypto asset sector, the biggest news is the significant expansion of powers available to law enforcement to seize and potentially sell, or even destroy, crypto assets tied to illegal behavior. Below we cover the changes to the law, the potential impact and compare the ECCTA to the U.S. asset recovery regime.
What are the new powers?
The ECCTA will expand the asset seizure powers of law enforcement by reforming the UK’s Proceeds of Crime Act creating mechanisms for both civil and criminal crypto asset recovery in the UK. Prior to the Act only criminal powers existed. These reforms allow law enforcement (and supervisors) to now, for the first time, seize assets even without an arrest. Prior to the Act, law enforcement would often have to leave the proceeds of crime with suspects if there was not enough evidence for prosecution allowing criminals to quickly move or dissolve assets.
Other changes include:
Amendments to the criminal regime that allow for:
- The seizure of assets without an arrest;
- Officers to “recreate” crypto asset wallets and transfer assets into a law enforcement-controlled wallet;
- Magistrates to authorize the sale of seized crypto assets;
- The destruction, in exceptional circumstances, of seized crypto assets.
Amendments to the civil regime that allow for:
- Law enforcement agencies to take control of, and recover, crypto assets that are “unhosted” whilst executing a search warrant;
- Law enforcement to recover crypto assets directly from exchanges and “custodian wallet providers;”
- The conversion of crypto assets into cash pending the outcome of a final forfeiture hearing to protect against price volatility;
- The destruction of crypto assets in exceptional circumstances;
- The ability to return fraudulently obtained crypto assets to victims.
The destruction of cryptoassets is another headline grabbing amendment. While the authority will likely rarely be used, it gives law enforcement the option to destroy assets in cases where they might not be able to sell them due to technical or ethical concerns. Monero and other privacy coins are prime examples given that few regulated entities support the sale of these assets.
What will be the impact of these new authorities?
The expected impact of these new powers is that more illicit cryptoassets will be seized and potentially confiscated. This could be hugely beneficial to UK law enforcement as under the Asset Recovery Incentivisation Scheme (ARIS ) law enforcement that successfully realize illicit assets get to keep half of the proceeds to reinvest in the fight against economic crime.
The size of the potential reward here could be significant. It is estimated by the NCA’s National Assessment Centre that illicit cryptoasset transactions linked to the UK in 2021 likely equated to at least £1.24 billion.
What can the UK learn from the U.S. model?
In the United States, all levels of government (local/State/federal) have some form of civil forfeiture, or confiscation, and criminal forfeiture/confiscation authority. The distinctions between these two mechanisms varies by jurisdiction, but generally a civil seizure is an in Rem action against the property itself and a criminal action is against the person associated with the targeted property - the new UK laws will reflect this same difference. A civil action generally requires a lower burden of proof to forfeit the property than a criminal action. Many governments prefer to use civil seizure when the individual(s) engaged in the illicit conduct cannot be apprehended or are unknown.
For example, the US Government used civil forfeiture in order to seize 280 North Korean virtual currency accounts. As the accounts were used by North Korean state sponsored hackers, the U.S. law enforcement knew they would not be able to target these individuals on criminal grounds so instead relied exclusively on civil forfeiture powers.
On the other hand, in 2015 the U.S. government used criminal forfeiture in order to seize and forfeit the virtual currency associated with the Silk Road darknet marketplace and its creator, Ross Ulbrecht. In total, the government obtained a forfeiture order for 9.9 million bitcoin associated with Ulbrecht and Silk Road, even though the government had only identified and restrained a portion of the 9.9 million bitcoin. Because the forfeiture order was obtained against the entity and Ulbrecht, rather than what the government had in its possession in 2015, when the government located an additional 50,000+ bitcoin in 2021 and 2022 it was able to forfeit the 50,000+ previously unidentified bitcoin because it was related to the prior criminal forfeiture order.
What can the U.K. learn from the U.S. regime?
U.S. authorities have demonstrated that having options and fluidity in investigations and prosecutions has been the best way to disrupt illicit use of crypto and protect citizens. With expanded options, the UK government will be able to disrupt obviously illicit movements of funds where it previously could not. Like authorities in the United States, that will enable U.K. law enforcement to see confiscation even where there is no individual to arrest.
What else do you need to know about the ECCT?
For those in the cryptoasset sector there is one other amendment that is worth diving into. Changes will be made to information sharing powers making it easier for entities regulated under the Money Laundering Regulations to share information among themselves “for purposes of preventing, investigating and detecting economic crime.” The amendments will also allow for the sharing of information via a third party between regulated firms..
The powers introduced in the ECCT will be a vital weapon in the UK’s fight against financial crime. By expanding the scenarios when it is possible to seize assets, law enforcement will have a greater chance of identifying the full network of criminal assets.
To ensure that UK law enforcement can make the most of these new powers, tools and training are critical. Supporting law enforcement with training is one essential step for establishing scalable asset recovery practices, as is using a tool like TRM Labs’ Graph Visualizer to identify illicit assets and potentially the controllers of those assets. For a complete guide to establishing best practices in crypto asset recovery - read more here.
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