Seizure of Bitcoin for Civil Asset Forfeiture

The U.S. Department of Justice just launched the Digital Asset Coordinators Network, a network of 150 federal law enforcement officials tasked with coordinating crypto-related investigations and prosecutions across the country. The network will also work with Assistant United States Attorneys (AUSAs) to seize cryptocurrencies and other valuable property for civil asset forfeiture actions.

Seizures might occur if an account is linked with funds stolen in a scam. Additionally, a greater focus might be placed on seizing assets from traders of cryptocurrencies under the theory that they are engaged in unlicensed money-transmitting businesses. See United States v. 50.44 Bitcoins, No. CV ELH-15-3692, 2016 WL 3049166, at *1 & n.1 (D. Md. May 31, 2016).

Many of these seizures involve “Binance” is a cryptocurrency exchange and custodian that allows customers to buy, sell, and store virtual assets. Binance Global, the Binance entity relevant to this complaint, is incorporated in the Cayman Islands.

In addition to Bitcoin, other cryptocurrencies include Bitcoin Cash (BCH), Bitcoin Cash ZCash, Bitcoin SV (BSV), Bitcoin Gold (BTG), or other types of cryptocurrencies that might be seized during criminal or civil asset forfeiture proceedings, including Ethereum, Ethereum Classic, Ripple, Monero, Litecoin, or Tezos.

What happens when the government seizes Bitcoin or another cryptocurrency for forfeiture under state or federal law?

After the seizure of funds that belong to you, retain an experienced civil asset forfeiture attorney to file a verified claim for court action. When the verified claim is filed with the agency that seized the cryptocurrencies, the government has a 90-day deadline to either return the cryptocurrency or file a complaint for forfeiture in the appropriate United States District Court.

If an Assistant United States Attorney (AUSA) files a “Complaint for Forfeiture” in the district court, the complaint might allege that the property constitutes or was derived from criminal activity, including wire fraud, cybercrimes, computer hacking, drug trafficking, the sale of narcotics, money laundering, or a conspiracy to commit any of those crimes.

After the complaint for forfeiture is filed, notice is given to all interested parties to appear and show cause why the judgment of forfeiture should not be entered. Your attorney can then file the judicial claim in the district court with an answer, counterclaim, and motion to dismiss the government’s complaint.

If you substantially prevail in court, the CAFRA statute requires the Court to order the government to pay your reasonable attorney fees if the appropriate request is filed.

If you were not properly served with a personal notice, your attorney might file a motion to set aside the forfeiture in district court, showing that you were entitled to a personal notice but were never served. See 18 U.S.C. § 983(e)(1).

Attorneys for the Seizure of Bitcoin for Civil Asset Forfeiture

The attorneys at Sammis Law Firm represent clients in cryptocurrency seizures for civil asset forfeiture, including the seizure of Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Bitcoin Gold (BTG), Ethereum, Ethereum Classic, Litecoin, or Tezos.

Whether the cryptocurrency was seized by federal agents from your computer wallet, mobile wallet, online wallet, or cold storage account, we can help.

If you received a notice of the seizure, then you must act quickly. An experienced asset forfeiture attorney to help you prepare and file a verified claim to contest the seizure for forfeiture. Your attorney can negotiate with the AUSA for the return of the cryptocurrency seized.

Attorney Leslie Sammis is particularly experienced in the seizure for forfeiture of cryptocurrency at binance.com and crypto.com, especially when they tell you the account is frozen or under “routine review.” That sometimes means the government has seized your cryptocurrency using a sealed “Warrant to Seize Property Subject to Forfeiture” using Form AO 109(Rev. 12/09).

We can help you file a judicial claim, answer, motion to suppress, or motion to dismiss the complaint. We can also help you file a motion to set aside the forfeiture if you were not properly given notice.

Call 813-250-0500.

Statutes Authorizing Forfeiture of Cryptocurrencies

If the government believes that your property represents the proceeds traceable to criminal activity, then it might be seized and subject to forfeiture proceedings pursuant to 18 U.S.C. § 981(a)(1)(C) or a related provision.

In civil asset forfeiture cases under 21 U.S.C. § 881(a)(6), the government alleges the cryptocurrency is connected to cybercrimes, cyber-scams, drug trafficking, or money laundering.

Even if the funds did not start out as the proceeds of any illegal activity, they might be considered to be involved in money laundering activities in violation of 18 U.S.C. § 1956 if the property is commingled with or used to conceal and disguise the nature, location, source, ownership, or control of the criminal proceeds, or were involved in a conspiracy to launder such proceeds.

Cryptocurrency seizures are subject to civil asset forfeiture pursuant to 18 U.S.C. §§ 981(a)(l)(A) and 981(b). Therefore, the judicial forfeiture action might be authorized by 18 U.S.C. §§ 981(a)(1)(A), 981(a)(1)(C), 981(b), or 21 U.S.C. § 881(a)(6).

• 18 USC §981(a)(1)(A) provides for civil and criminal forfeiture of any property, real or personal, involved in a transaction or attempted transaction in violation of Title 18, United States Code, Sections 1956, 1957, or 1960, and any property traceable to such property.
• 18 USC §981(a)(1)(C) provides for the civil forfeiture of any property, real or personal, which constitutes or is derived from proceeds traceable to any offense constituting a “specified unlawful activity” or a conspiracy to commit such an offense.
• 18 USC §881(a)(6) provides for the forfeiture of all money, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance or listed chemical, all proceeds traceable to such an exchange and all money used or intended to be used to facilitate any violation of Subchapter I, Chapter 13, Subchapter I of Title 21 United States Code.
• 18 USC §1030 related to fraud and related activity in connection with computers.
• 18 USC §1343 related to wire fraud.

The government might also allege that the cryptocurrency is subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(A) because it constitutes property involved in multiple transactions or attempted transactions in violation of 18 U.S.C. §§ 1956 & 1957 (relating to money laundering), or property traceable to such property, with the specified unlawful activity being violations of 18 U.S.C. §§ 1030 and 1343.

Along with the term “cryptocurrencies,” the courts also use the terms “virtual currencies,”  “convertible virtual currencies (CVCs),” “virtual assets,” “virtual asset service providers VASPs,” or “digital assets.”

Read more about the seizure of cryptocurrency for civil asset forfeiture.

Procedures for Cryptocurrency Forfeiture

As a general rule, a cryptocurrency exchange will comply with an order of seizure issued by the court when the seizing agency serves such an order on the cryptocurrency exchange.

The government might allege that tumblers were used to launder criminal proceeds. By using tumblers, Cryptocurrency or Bitcoin owners can process transactions in a manner designed to frustrate the tracking of individual transactions through the Blockchain.

The types of cryptocurrency exchanges that will comply with such an order include Binance, Gemini, Coinbase, and Crypto.com. After the seizure, the authorities often transfer the cryptocurrency to an IPD-controlled wallet. The procedures for seizing cryptocurrency vary depending on whether the cryptocurrency is held in a hot storage wallet or a cold storage warrant.

For cold storage, the seizing officer will move the cryptocurrency from the wallet subject to seizure to the wallet controlled by the seizing agency. Then, the seizing officer will use the blockchain to confirm that the exchange was successful. The authorities will then preserve the evidence from the blockchain and the seized cryptocurrency on the agency-controlled wallet.

Even though cryptocurrency’s value can fluctuate wildly over time, the authorities typically do not convert seized cryptocurrency into United States Currency until after a forfeiture order is issued. Nothing prevents the government from continuing to hold the asset as cryptocurrency instead of converting it into U.S. Currency.

Example of Seizures of Cryptocurrency for Forfeiture

Federal agencies have begun seizing more cryptocurrency in civil asset forfeiture cases. Many of these cases involve the mixing and co-mingling of BTC or other cryptocurrencies. The government argues fraudsters commonly use this tactic to obscure the movement of stolen cryptocurrency intentionally.

For example, in United States Of America v. Approximately 10.19321397 Bitcoin, 2:21cv2353, US District Court for the Eastern District of California (December 17, 2021), an Assistant United States Attorney filed a complaint for forfeiture.

The complaint for forfeiture was a civil action in rem to forfeit to the United States Approximately 10.19321397 Bitcoin allegedly involved in wire fraud. In that case, the cryptocurrency was seized by the U.S. Secret Service (“USSS”) in late 2021, under a Federal seizure warrant.

Federal agents began investigating a fraud scheme that took place in early 2021. The scheme targeted a California victim who had been defrauded out of approximately 12.51 Bitcoin (“BTC”). The fraud involved using a fake cryptocurrency wallet site on a fake Trezor that mirrored the legitimate one to defraud unassuming individuals.

The victim accessed the fake site and provided the fraudster with their “mnemonic key.” The fraudster used that information to create the fake website to re-create the victim’s wallet and drain approximately 12.51 BTC from it.

How did the fraud occur? The fraud started when the victim searched Bing and accessed a site titled “Trezor Hardware Wallet (official) | The original and most secure hardware wallet.”

Trezor is a company that makes “wallets” that store cryptocurrency. Other such companies include:

• Ledger
• Coinbase Wallet
• Arculus
• Trust Wallet
• Huobi Pro
• Luno Wallet
• Exodus

By clicking on the fake ad, the victim was redirected to the URL of the fake Trezor site, where they entered their “mnemonic key.” Doing so gave the fraudster access to all cryptocurrency in the victim’s wallet. Shortly after accessing the fake Trezor site, the BTC was removed from the victim’s Trezor wallet.

The fraudster then sent the BTC to another wallet, co-mingled it with other funds of unknown origin, used at least one intermediary address, and later deposited it into another account at the Binance cryptocurrency exchange.

The USSS agent investigating the case through blockchain tracing analysis believed he had located the victim’s BTC in the Binance account.

The agent notified Binance by email to the following email address: case@binance.com. Binance responded to the inquiry by providing information on the Binance Case unit and an attached document setting forth the current balance for the account, as well as information specific to Binance concerning account freezes, seizures, and transferring of funds.

The USSS agent later received the “Know Your Customer (KYC)” information that had been provided from Arora to Binance, which included a picture, a copy of a passport with a matching photo, and an email address.

The agent contacted the suspected fraudster at that email address. The suspected fraudster then contacted the agent, requesting that his Binance account be unlocked, and agreed to speak with law enforcement about the matter without an attorney.

The agent later obtained a Federal seizure warrant executed on virtual currency exchange Binance to seize the virtual currencies currently held in that specific account.

The complaint alleged the “defendant cryptocurrency” was derived from proceeds traceable to an offense constituting a “specified unlawful activity” as defined in 18 U.S.C. § 1956(c)(7), which incorporates the definition of “specified unlawful activity” found in 18 U.S.C. § 1961(1) and is, therefore, subject to forfeiture to the United States pursuant to 18 U.S.C. § 981(a)(1)(C). The unlawful activity alleged in that case was wire fraud under 18 U.S.C. § 1343.

The government then issued a notice of the seizure and forfeiture action to all persons having an interest in the “defendant cryptocurrency” that had been seized. When none of those interested parties filed a claim within the deadline, the court entered a default judgment that transferred the title of the seized asset to the U.S. Government.

Any interested party with a legitimate interest in the seized asset could have entered the case and challenged the forfeiture by filing a verified judicial claim and answer.

Additional Resources

Cryptocurrency in a Money Transmitting Business – Learn more about how one court determined that a cryptocurrency, specifically bitcoin, met the definition of money for property forfeiture relating to a money-transmitting business. United States v. 50.44 Bitcoins, No. CV ELH-15-3692, 2016 WL 3049166, at *1 & n.1 (D. Md. May 31, 2016). Learn why FinCEN found that an administrator or exchanger of a virtual currency like Bitcoin must register as a Money Service Business (“MSB”) with FinCEN. See Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G001, Department of the Treasury, Financial Crimes Enforcement Network, March 18, 2013.

This article was last updated on Wednesday, October 30, 2024.