Seizure of Cryptocurrency for Forfeiture

What happens when a federal agency obtains a warrant to seize cryptocurrency for forfeiture?

If your account was frozen because of an investigation by law enforcement or your cryptocurrency was seized, seek out the services of an experienced attorney focused on civil asset forfeiture.

Most digital currency exchangers, including Binance, are located outside the boundaries of the United States to avoid regulation and legal requirements. Some exchangers operated inside the jurisdiction of the United States, including Coinbase and Huobi Global.

Regardless of whether the exchanger operates in the United States, it might still cooperate with investigations by law enforcement and freeze accounts upon request.

If the federal agency obtains a warrant, the cryptocurrency is sent to the United States government for forfeiture proceedings.

The Department of Justice just announced a new focus on seizing cryptocurrency for forfeiture. Specially trained agents and attorneys are learning more about how to seize funds in civil asset forfeiture cases involving these emerging technologies.

You also need an experienced attorney to challenge the seizures for the forfeiture of cryptocurrency.

Attorney for Seizures of Cryptocurrencies for Civil Asset Forfeiture

If a federal agency froze your account for a law enforcement investigation or obtained a warrant to seize your cryptocurrency, contact an experienced attorney for asset forfeiture proceedings.

We can help you determine the best way to cooperate with the investigation. If the government executes a warrant to seize your cryptocurrency, we can help to file a claim demanding court action.

Filing the verified claim for court action triggers a 90-day deadline for the government to either return your property or file a complaint in the appropriate United States District Court.

If a complaint for forfeiture is filed, we can help you file a judicial claim, serve interrogatories and a request for documents on the government, and litigate a motion to dismiss or fight the case during a jury trial in federal court.

Other attorneys often contact us to partner with them in these cases. No matter your situation, contact us to discuss your case.

Call 813-250-0500.

Recent Case Result for Cryptocurrency Seizure for Forfeiture

AUSA Returns Cryptocurrency After Complaint Filed

DEA seized over $30,000 worth of U.S. Dollar Tether (USDT) and Bitcoin. After receiving a “notice of seizure,” we filed a verified claim for court action. The AUSA filed a complaint in the U.S. District Court but then agreed to return the property before an answer became due. We entered a memorandum of agreement that ALL of the client’s cryptocurrency would be returned to the client’s wallet within fourteen (14) days. The funds were returned in April of 2023.

AUSA Agrees to Withdraw Seizure Warrant for Bitcoin and USDT in Binance Wallet

Our client’s Binance account was “frozen as it is currently under investigation by law enforcement.” We contacted the Special Agent with the Cyber Group of Homeland Security Investigations (HSI) and the Assistant United States Attorney (AUSA) assigned to the case. The AUSA obtained a seizure warrant but agreed to hold it pending further negotiations. Our client was accused of being an intermediary or a broker of funds stolen from victims of a liquidity mining pool scam in California. We requested a copy of the seizure warrant, supporting affidavit, and account records obtained from Binance. We presented several arguments for why the seizure warrant should be withdrawn, including:

  • the U.S. District Court had no jurisdiction over the cryptocurrency funds seized for civil asset forfeiture;
  • any accusation that Peer to Peer (P2P) trades constitute a “money transmitting business” was unjustified;
  • the fraudulently obtained cryptocurrency was only in our client’s wallet for a short time, so the funds later frozen by Binance were not connected; and
  • our client qualified as a “bona fide purchaser” who had no cause to believe that the property was subject to forfeiture.

Shortly thereafter, the AUSA thanked us for providing additional information. The AUSA indicated that although they believed that fraud proceeds were deposited into our client’s wallet, upon further review of our client’s transaction history and the arguments presented, they agreed to withdraw the seizure warrant by seeking the appropriate order from the issuing magistrate and communicating any withdrawal order to Binance promptly.

How Does the U.S. Government Seize Cryptocurrency?

Law enforcement might trace the proceeds of criminal activity through blockchain analysis. The analysis might show the movement of illicit transactions through a payment processing service operated by a known cryptocurrency exchange service.

Law enforcement might issue a subpoena to the Exchange to obtain documents revealing the identity of those involved in the transactions.

The court might also issue a search warrant that authorizes the seizure of:

  • unhosted wallets and any information used to access hosted or unhosted cryptocurrency wallets; and
  • cryptocurrency by transferring the full account balance in each wallet to a public cryptocurrency address controlled by the United States.

Criminal Statutes for the Seizure of Cryptocurrency

Suppose a complaint for forfeiture is filed in the U.S. District Court. In that case, the complaint might reference one of several different criminal statutes that are alleged to justify the forfeiture action including:

  • Title 21, United States Code, Section 841(a), prohibits anyone from
    • (i) manufacturing, distributing, or dispensing, or possessing with intent to manufacture, distribute, or dispense, a controlled substance; or
    • (ii) creating, distributing, or dispensing, or possessing with intent to distribute or dispense, a counterfeit substance.
    • A conspiracy to violate the same statute is proscribed by Title 21, United States Code, Section 846.
  • Title 18, United States Code, Section 371, prohibits two or more persons from conspiring either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each person shall be fined or imprisoned not more than five years, or both.
  • Title 18, United States Code, Section 1956(a)(1)(B), prohibits conducting financial transactions knowing that the transaction is designed in whole or in part:
    • (i) to conceal or disguise the nature, location, source, ownership or control of the proceeds of the specified unlawful activity; or
    • (ii) to avoid a transaction reporting requirement under State or Federal law.
  • Title 18, United States Code, Section 1956(h), provides that any person who conspires to commit any offense defined in Title 18, United States Code, Sections 1956 or 1957 shall be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy.
  • Title 18, United States Code, Section 1957, prohibits knowingly engaging or attempting to engage in a monetary transaction in criminally derived property of a value greater than $10,000 that is derived from specified unlawful activity.
  • Title 18, United States Code, Section 1960, makes it unlawful to engage in an unlicensed money transmitting business.
    • An unlicensed money transmitting business is defined as one which affects interstate or foreign commerce in any manner or degree, is operated without an appropriate license in a state, whether or not the transmitter knew that the operation was required to be licensed, is not in compliance with the money transmitting business registration requirements under 31 U.S.C. § 5330.
    • 31 U.S.C. § 5330 requires that money transmitting businesses be registered with the Secretary of the Treasury, or otherwise involves the transportation or transmission of funds that are known by the transmitter to have been derived from a criminal offense, or are intended to be used to promote or support unlawful activity.

The complaint may allege a statutory basis for civil forfeiture based on Title 18, United States Code, Section 981(a)(1)(A).

That section provides for the forfeiture to the United States of any property, real or personal, involved in a transaction or attempted transaction in violation of sections 1956, 1957, or 1960 of Title 18 of the United States Code, or any property traceable to such property.

What is Cryptocurrency?

Fiat currency, such as a dollar of U.S. Currency, is created and regulated by a government. Digital currency, on the other hand, is defined as an electronic-sourced unit of value that can be used as a substitute for fiat currency. The government often uses the term “digital currency,” “cryptocurrency,” or “virtual currency” interchangeably.

Bitcoin is one of the most commonly used and well-known digital currencies. Read more about the seizure of Bitcoin for civil asset forfeiture.

Digital currencies are similar to other currencies but do not have a physical form. Instead, digital currencies exist entirely on the internet. Instead of being issued by any government or bank, digital currency is created and controlled by computer software operating on a decentralized peer-to-peer network.

In the United States, digital currency is accepted for legitimate financial transactions. Nevertheless, the government might seek to seize digital currency for a civil asset forfeiture proceeding if it suspects it is used for conducting illegal transactions or for concealing or disguising the true nature, source, location, ownership, or control of illegally obtained criminal proceeds.

Customers trade digital currencies for other digital or fiat currencies by using a business known as a digital currency exchanger (a “DCE” or “exchanger”). The DCE might be a brick-and-mortar business, but most operate entirely online.

Both brick-and-mortar and online exchangers accept digital currencies and exchange them for fiat and traditional payment methods, other digital currencies, or transfers between digital currency owners.

The DCE might operate outside the boundaries of the United States to avoid regulation and legal requirements. Some DCEs, including Coinbase and Huobi Global, operate within the jurisdiction of the United States.

What is a Blockchain?

A blockchain is an ever-expanding list of records called blocks. These blocks are linked together using cryptography.

The blockchain is a public, distributed, and decentralized digital ledger. The ledger records transactions across different computers. Without the consent of the network and the changing of all successive blocks, the records may not be altered retroactively.

Blockchain is a method to record transactions that provide high security by design. In other words, the transactions are verified with advanced cryptography and spread across many computers in a peer-to-peer network or distributed ledger.

Since transactions are verified with advanced cryptography and spread across many computers in a distributed ledger or peer-to-peer network, blockchain is designed to provide the highest level of security.

What are Tokens?

Created by an issuing company, tokens are a form of digital assets. A company often uses this asset to launch a new digital product or service.

Since the token remains the property of issuing company, tokens are used for a more limited form of payment. Tokens are different from other blockchain-based cryptocurrencies, such as Bitcoin.

The issuing company maintains technical restrictions that prevent the tokens from being used for unauthorized purposes. The token acts like a paper I-O-U or voucher since it represents a certain value and may be exchanged at that value under certain conditions.

Many types of exchangers, including Coinbase or Huobi, allow tokens to be bought and transferred by participants.

Investors purchase tokens for fiat currency with the expectation that the token will become more valuable at some point in the future.

What is a Wallet?

Unique electronic addresses identify a wallet. The wallet stores an access code allowing individuals to conduct transactions on the public ledger.

To access a wallet on the public ledger, an individual must use a public address (or “public key”) and a private address (or “private key”).

The public address acts like an account number. The private address acts like a password used to access that account. Although the public address of those engaging in digital currency transactions is recorded on the public ledger, the true identities of the individuals or entities behind the public address are not recorded.

If a real individual or entity is linked to a public address, it may be possible to determine what transactions were conducted by that individual or entity. For this reason, digital transactions are sometimes called “pseudonymous” because they are somewhat anonymous.

Participants might be identified when they use a digital currency exchanger to transact between digital currency and fiat. Alternatively, the participant might be identified if the digital currency exchanger voluntarily cooperates with law enforcement.

What is Tether?

“Tether” is a commonly used token. Issued by Tether Limited, Tether is a decentralized, peer-to-peer form of digital currency with no association with banks or governments. Participants buy Tether tokens stored in a participant’s digital or cryptocurrency wallet.

Tether is generally considered a “stablecoin” because its intended value is tied to the value of the U.S. Dollar. Cryptocurrency traders convert other digital currencies into Tether for temporary or long-term storage.

One benefit of holding Tether is avoiding the dramatic swings in value often experienced by other digital currencies.

What is Bitcoin?

Bitcoin is the most commonly used cryptocurrency in market capitalization.

Bitcoin is acquired through cryptocurrency exchanges, cryptocurrency ATMs, or directly from other people.

What is Ethereum?

A token issued by the Ethereum network called “Ethereum” is the second most commonly used cryptocurrency in market capitalization. Ethereum is different from Bitcoin because the scripting language in Ethereum provides additional functionalities, including the creation of nonfungible tokens (NFTs), DeFi platforms, and smart contracts.

As a decentralized, peer-to-peer form of digital currency, Ethereum has no association with banks or governments. Participants buy Ethereum tokens. The tokens are stored in a participant’s digital wallet.

Like Bitcoin, Ethereum is a cryptocurrency that has a public blockchain to store transactions. A private key of an address is needed to spend funds because it relies on cryptography for security.

This article was last updated on Thursday, March 9, 2023.