The seizure of assets through the Proceeds of Crime Act (POCA)

The rising usage of cryptocurrency represents an almost unprecedented change in the way that assets are viewed under the law. Digital currencies work through transactions that are recorded and maintained by a decentralised system, differentiating them almost entirely from traditional currency forms. 

The cryptocurrency market has seen rapid growth since its inception with the total cryptocurrency currency market having a value estimated at over $15 trillion. As one would expect, when the Proceeds of Crime Act (2002), or POCA, was originally enacted, it did not contain any powers to allow law enforcement agencies the ability to seize cryptoassets as the technology simply did not exist at that time. 

This was of major concern to the government as the lack of regulation in this area has meant that cryptocurrency has become a haven in which money can be moved without the usual level of scrutiny. The use of crypto assets allows money to be laundered quickly and anonymously under the noses of law enforcement. 

The anonymous nature of cryptocurrency, coupled with the lack of regulation and the law enforcement agencies inability to act against crypto assets under POCA has meant that for people under investigation, cryptocurrency became a way in which assets could be hidden. As a result of this, law enforcement and the government in the UK has looked to amend the POCA to be able to seize cryptoassets during investigations.  

Changes to the law

The government wanted to update the POCA legislation and create cryptoasset-specific civil forfeiture powers to better recover and control cryptoassets connected to investigations or proceedings. A significant chance came following the Economic Crime and Corporate Transparency Act 2023, received royal assent in October last year. That act aimed at combating economic crime by enhancing transparency in corporate ownership and improving the integrity of business practices. The proposed aim of this is to mitigate the risk posed by parties that cannot be prosecuted. It would ensure that they cannot use their funds for any further criminal or terrorist purposes by holding them as cryptoassets.

There are two main categories of asset recovery powers, which relate to criminal and civil matters respectively. Criminal powers, or ‘in personam’ powers, are used to impose an order against a person convicted of a crime, who is found to have benefited from that crime. Civil powers, or ‘in rem’ powers, order the seizure of assets that have been deemed to have been obtained through unlawful conduct or are intended for use in unlawful conduct. The reforms made to POCA to include cryptoassets pertained to both the criminal and civil powers.

Criminal regime changes

There are four key changes to POCA in relation to criminal proceedings and cryptoassets. The first allows law enforcement agencies to take control of and recover cryptoassets discovered when executing a search warrant. This means that even where cryptoassets are “unhosted” and placed in the owner’s personal wallet, they can be accessed by law enforcement agencies. The second change means that cryptoassets can also be recovered from cryptoasset wallet providers. The third change means that the assets can be converted to cash in order to safeguard against significant fluctuations in market value. 

The changes made to the POCA also mean that cryptoassets can, in exceptional circumstances, be destroyed by law enforcement agencies. This, however, only applies where there is significant risk of negative outcomes from the funds being in circulation, such as the potential threat of terrorism.

The final change in relation to criminal matters and cryptocurrency in POCA allows for cryptoassets to be given back to victims in order to pay back the loss of funds due to activities such as fraud. 

Civil regime reforms

The changes to POCA were also extended to relate to civil matters. First, POCA legislation was changed so that in certain circumstances, the requirement for someone to have been arrested before seizure processes can take place was removed. These powers were extended to cover all assets but were specifically designed with cryptoassets in mind. The second change was to make it explicit that law enforcement officers had the power to seize cryptoassets in the same way as other assets. Likewise the magistrates’ court has been granted powers to authorise the sale of any cryptoassets. Finally, such as with the criminal element of POCA, a change was made to allow the destruction of cryptoassets in exceptional circumstances where the circulation of funds could be used in potentially criminal ways.

The changes to the law mean that, under the eyes of the law, cryptoassets are now viewed as assets in the same way that currency and physical assets are. This means that despite the anonymity and encryption characteristics used by parties under investigation or subject to criminal proceedings, it is becoming easier for law enforcement agencies to ascertain the value of cryptoassets and seize them as part of their investigation.

It is hoped that with these new changes to the law that it will allow enforcement agencies to gain control of crypto assets at an earlier stage and remove the incentive of those wishing to utilise crypto assets simply due to the fact they can remain anonymous or not declare the assets.  The regulation and monitoring of cryptoassets will eventually become no different to other assets both in the eyes of the law and in practice as law enforcement agencies become better equipped to find and value these assets.