The Economic Crime and Corporate Transparency Act 2023 (ECCT) came into force late last year, and provides extensive new powers for the government and law enforcement agencies to wield. Most of the additions to the legislation involve the seizure and recovery of assets, and expand existing powers to offer much more flexibility when it comes to cryptoassets like NFTs or cryptocurrencies.

The seizure and recovery of assets has long been fundamental to the work of the police, the Serious Fraud Office, and other organisations that must investigate the sources of criminal funding. When funds are found to have been related to criminal activity, or are intended for use in perpetrating a crime, they can be frozen or ringfenced while an investigation takes place. However, this has historically been much more difficult when investigations involved cryptoassets.

Cryptoassets are stored on a blockchain, which is a decentralised record of every transaction that takes place. Transactions are unregulated and can take place very quickly, which can obscure the provenance of certain funds, or make it difficult to find where they are stored. Unlike most assets, they do not exist physically, unless they are kept on local hard drives or external digital wallets. This can make them more difficult to recover than if they have been traded through a platform. The new powers will force trading platforms to freeze assets, but this is not always possible or effective.

While the UK Jurisdiction Taskforce suggested cryptoassets are personal property in 2019, subject to a number of conditions - which would make them liable for seizure - and the Law Commission has moved to bring this into law, there were no powers that accounted for these differences with clarity. With many criminal enterprises using cryptoassets for money laundering or to hide their wealth, law enforcement agencies in the UK were struggling to stay ahead of the technological changes powering this trend.

The introduction of sweeping new powers within the ECCT will empower enforcement authorities to tackle cryptoassets linked to criminal activity. At the same time, we must keep an eye on how these powers are used and implemented - any new power available to investigating authorities may also pose a risk to our freedoms. The creation of account freezing orders (AFOs) within the Criminal Finances Act 2017 was welcomed in many corners, but we have seen significant overuse of this tool in the years since - the number of AFOs secured compared with the amount of money recovered as a result tells most of the story.

Here, the expert solicitors at JMW will explain the new powers that may be used in investigations moving forward, how they will affect owners and investors in cryptocurrency, and how you can defend your legal rights if you are made the subject of an investigation.

New powers under the ECCT

There are several new powers that investigating authorities may use to freeze and recover cryptoassets within the ECCT. They are designed to provide comprehensive support for authorities to protect assets from being withdrawn, traded or liquidated while an enquiry or investigation takes place, and to recover funds that are found to be related to criminal activity.

For example, authorities will now be able to seize hard drives or digital wallets that they believe contain cryptoassets during searches, with a view to seizing the assets. This is designed to overcome the technological challenges of finding and securing unregulated and decentralised assets. If funds are stored in an online wallet or crypto trading platform, they can be seized from there, too.

One of the key challenges has been the significant fluctuations in the value of cryptocurrencies and assets - markets are much more volatile than those of regulated currencies. This has meant that even if police were able to recover and return stolen funds, their value might have decreased significantly, leaving the original victims of the theft out of pocket for the difference. In response to this problem, the ECCT will enable magistrates to allow law enforcement agencies to sell cryptoassets or exchange them for cash, in order to ensure that their value does not change significantly during the course of an investigation.

While this is good news for victims of fraud, it fails to account for the opposite problem. If cryptoassets belonging to an innocent person are frozen and exchanged for cash, and their value also skyrockets in the meantime, that person will lose out on the fruits of their investment unfairly. For this reason, we wish to emphasise that it is vital for investigating authorities to use these powers with caution. After all, freezing accounts can do far more than just reputational damage for people affected.

How will this affect cryptoasset owners?

The implications of these powers may be significant for individual owners of cryptocurrency, and for businesses that are involved in trading or investing in these assets. When accounts are frozen, many people find themselves unable to pay for their living expenses, the day-to-day operational costs of their business, or the legal advice and support that they need.

In most cases, investors who are innocent of any wrongdoing will have their wallets unfrozen, but this is unlikely to happen automatically. It is often best to contact a dedicated crypto wallet freezing order solicitor for support in having such an order varied or discharged. This can allow you certain living expenses or the money you need to operate your business, or even result in the order being completely discharged. The outcomes you can expect will depend on your circumstances and the team at JMW can discuss your situation in detail to advise you on what to expect.

If cryptoassets are found to be related to criminal actions, magistrates may order for them to be destroyed. While this is only expected to be used in rare circumstances, it will be vital to ensure that these powers are not employed in a way that harms innocent people.

While the crypto market offers fantastic opportunities for investment, it has always come with significant risks. If the new powers are used effectively, these risks may be reduced. However, if they are used unfairly, it is important to understand your rights and the steps you can take in response. If you are concerned about a legal matter relating to cryptoassets, and how this might change in light of the ECCT coming into force, speak to the team at JMW Solicitors. Call us on 0345 872 6666 or use our online enquiry form to request a call back.