\n<\/p>\n
Illicit, sanctioned, or stolen cryptocurrency has been making headlines, with <\/span>Bitfinex-related charges against Heather Morgan<\/a> and her husband, Ilya Lichtenstein, and the anti-vaccine protests<\/a> in Canada serving as two recent examples.<\/span><\/p>\n But with so many Bitcoin proponents describing the flagship cryptocurrency as \u201cresistance money\u201d\u2014a form of currency that can’t be censored by governments or law enforcement\u2014it begs the question: How is ill-gotten Bitcoin actually recovered?<\/span><\/p>\n The short answer is, there really isn’t a short answer. There’s no simple strategy or process governments can use, and most evidence so far suggests that governments are reacting on a case-by-case basis.<\/span><\/p>\n \u201cBecause cryptocurrency has become such an integral component of cybercrime today, especially when it comes to ransomware, the U.S. government has recently focused on finding ways it can recover elicit funds in digital wallets. A great example of this is the FBI\u2019s announcement of the launch of the Virtual Asset Exploration Unit last week,\u201d former FBI analyst Crane Hassold<\/a> told <\/span>Decrypt<\/span><\/i>.\u00a0<\/span><\/p>\n Crane added that the precise methods of how the U.S. government recovers such funds haven’t been revealed, and that he \u201cwouldn\u2019t expect the U.S. government to make those tactics public.\u201d<\/span><\/p>\n So what can we determine from recent examples in the public domain?<\/span><\/p>\n <\/p>\n The most recent\u2014and arguably most high-profile\u2014example of a government seizing Bitcoin happened last month in the United States.<\/span><\/p>\n On February 8, Morgan and Lichtenstein <\/span>were arrested<\/span><\/a> and charged with conspiring to launder Bitcoin tied to the 2016 Bitfinex hack. The Department of Justice seized $3.6 billion worth of the flagship cryptocurrency.<\/span><\/p>\n The seizure, according to Deputy Attorney General Lisa O. Monaco, represented the DOJ\u2019s “largest financial seizure ever,” which showed that “cryptocurrency is not a safe haven for criminals.”<\/span><\/p>\n According to the criminal complaint that accompanied both parties\u2019 arrests, the funds seized by law enforcement remain \u201csecured in the U.S. Government\u2019s possession.\u201d<\/span><\/p>\n So how did the DOJ do it?<\/p>\n In this instance, the seizure was relatively straightforward. <\/span>Lichtenstein stored his crypto keys\u2014essentially access codes to cryptocurrency wallets\u2014on the cloud. Once search warrants were obtained, law enforcement officers <\/span>were able to <\/span>access a file<\/span><\/a> that contained 2,000 virtual currency addresses and the corresponding private keys.<\/span><\/p>\n \u201cI think the entire case was cracked primarily because of poor infosec on behalf of the alleged criminals,\u201d computer programmer and crypto critic Stephen Diehl recently told <\/span>Decrypt<\/span><\/i>.<\/span><\/p>\n <\/p>\n U.K. police have seized millions in cryptocurrency\u2014just last week <\/span>the Greater Manchester Police <\/span>returned over $5 million<\/span><\/a> to victims of an international scam, after recovering a USB stick that contained almost $10 million in stolen Ethereum.<\/span><\/p>\n An additional $12.7 million was found in what was described as a \u201ccryptograph safety deposit box.\u201d<\/span><\/p>\n Per <\/span>numerous freedom of information requests<\/span><\/a>, British police have seized a total of $435 million in illicit Bitcoin as of January 2022.\u00a0<\/span><\/p>\n While that may sound high, the U.K. and U.S. have different rules when it comes to such seizures.\u00a0<\/span>According to the U.K.’s Proceeds of Crime Act, cryptocurrency is classified as property, not cash, which means <\/span>law enforcement must wait until a suspect is convicted before recovering crypto. If it were considered cash, it could be seized simply on suspicion of it being linked to criminal activity.<\/span><\/p>\n On other occasions, governments simply can’t access cryptocurrency they’re pursuing\u2014for example, if those funds exist in non-custodial crypto wallets where no third party can be targeted\u2014and in such cases <\/span>simply freeze the funds instead.<\/span><\/p>\n <\/p>\n On February 15, the Canadian government <\/span>invoked the Emergencies Act<\/span><\/a> with the intention of restricting the flow of funds to truck drivers\u2014collectively dubbed the \u201cFreedom Convoy\u201d\u2014from protesting the nation’s COVID-19 policy.\u00a0<\/span><\/p>\n This allowed the government to freeze bank accounts without a court order. The government also issued a <\/span>Mareva injunction<\/span><\/a>, which came on February 17 as part of a wider lawsuit against the protestors.\u00a0<\/span><\/p>\n This, according to Paul Champ, a lawyer for the residents of Ottawa (the plaintiffs), is the \u201cfirst successful Mareva order in Canada targeting Bitcoin and cryptocurrency exchanges.\u201d<\/span><\/p>\n <\/p>\n As part of the order, convoy protestors are restrained from selling, removing, dissipating, alienating, or transferring any assets, including crypto, that have been raised directly to support the protests. An additional 150 crypto wallets have been targeted by the injunction.<\/span><\/p>\n Those hit by the injunction now have to provide a \u201csworn statement\u201d that describes the nature, location, and value of their holdings\u2014or risk being found to be in contempt of court.\u00a0<\/span><\/p>\n Of course, these developments should be seen in the <\/span>broader context<\/span><\/a> of hosted vs. unhosted wallets, or custodial vs. non-custodial wallets.<\/span><\/p>\n The CEOs of Coinbase and Kraken<\/a> each have commented on the convoy protests, arguing for the importance of unhosted, or non-custodial, wallets.<\/span><\/p>\n <\/p>\n Not only has this raised the ire of Canadian regulators, it’s highlighted an important nuance in any discussion about how governments can seize cryptocurrency.<\/span><\/p>\n “The problem with an unhosted wallet is, what is your pain point?” Amanda Wick, chief of legal affairs at Chainalysis, told The Associated Press<\/a>. \u201cThe only thing we have is civil contempt or criminal conviction. If someone is willing to sit in jail and the money is theirs on the other side because no one can access it, that\u2019s a problem.\u201d<\/p>\nBitfinex and the DOJ<\/span><\/h2>\n
$435 million<\/span><\/h2>\n
Canada’s convoy<\/span><\/h2>\n