The UK government’s Economic Crime and Corporate Transparency Act 2023 (ECCT) came into force in early 2024 and has introduced a range of new measures that businesses need to understand. The new legislation aims to address concerns about the changing nature of fraud and financial crime. It gives law enforcement bodies several new powers with which to investigate cases.

One of the key areas is the legal standing of cryptocurrency and cryptoassets. Despite entering into the popular consciousness in 2021, crypto technologies have been difficult to account for under existing laws. For this reason, they have been regularly exploited by organised crime groups and agencies in the UK have struggled to adapt.

The ECCT aims to give UK authorities similar powers over cryptoassets that they currently have over cash assets. If investigations into financial crime discover cryptocurrencies or digital assets that may be the proceeds of a crime, authorities have more power to freeze these accounts and recover the assets.

While these new powers have been welcomed by many, there are also concerns about how they might be used. Existing powers like account freezing orders (AFOs) have entered into widespread use but are often disruptively deployed against innocent people. By freezing someone’s access to their personal or business funds, authorities can make lives very difficult. In many cases, AFOs are eventually dropped without any charges being brought and opportunities to claim compensation are limited. This is especially the case where lawyers are not involved in challenging the conduct of the applicant authority.
Here, the expert business crime team at JMW Solicitors explains the new powers, how they may be used, and what businesses will be able to do in response if access to their funds is frozen or restricted.

What new crypto powers have been introduced under the ECCT?

The ECCT has introduced a series of new powers for law enforcement agencies to use in the investigation of fraud and financial crime. Since they are largely unregulated, crypto-assets have been linked to organised crime and the funding of terrorism. To address these related concerns, the ECCT’s provisions aim to support a comprehensive approach to the seizure and forfeiture of assets.

Under the new legislation, specified agencies can freeze cryptowallets and accounts while they investigate their provenance. They can seize non-fungible tokens (“NFTs”) or other cryptoassets with a view to forfeiture applications. These powers function in much the same way as AFOs and other powers that currently allow law enforcement to control bank accounts or physical assets. If these assets are not hosted on an online wallet or exchange platform, agencies will be empowered to seize hard drives or other storage devices where they suspect assets are being kept.

Once assets have been seized, enforcement agencies have several options. If they obtain authorisation from a Magistrates’ court, the agency can sell cryptoassets to convert them into cash. Unregulated currencies within the crypto market are often subject to dramatic changes in value, and converting them to cash will help to preserve their value at the time of seizure. If the assets are subsequently forfeited, the proceeds are used to support other enforcement efforts.

If cryptoassets are intended for use in financing terrorism and selling them on might pose further challenges, investigators may be allowed to destroy them under the new ECCT rules. Additionally, the legislation expands existing counter-terrorism laws to include cryptoassets within their frameworks. With this approach, the government aims to unify anti-terrorism efforts.

Clearly, there are a lot of benefits for law enforcement agencies with these new powers. How they will be used and for what purpose remains to be seen, but we can look at the implementation of the Proceeds of Crime Act 2002 (POCA) for examples. POCA introduced several new powers to enable the investigation and seizure of criminal proceeds, but their success and effectiveness in the years since have been the subject of fierce debate.

What do investors need to know about the ECCT?

When POCA came into force, it introduced the AFO, which freezes access to a personal or business bank or building society account. Investigators can secure an AFO with relative ease, which has led to their widespread use in investigations into fraud. Unfortunately, this has negatively affected large numbers of innocent people, who are targeted by investigations that are later dropped. An AFO is often granted without notice at the Magistrates court, which means the subject does not know that access to their funds has been restricted until they try to withdraw or transfer money in the relevant account.

Naturally, obtaining an AFO without notice makes it complicated for subjects to challenge these orders in the short term. It is often possible to work with a solicitor to have the order varied or discharged, but this can be more complicated if you cannot afford to pay legal fees. Legal Aid is not available, but the legislation permits the withdrawal of some funds from the frozen amount to pay legal fees. Strict conditions apply and a specialist lawyer can provide guidance on how to meet the conditions. Given that the ECCT introduced similar powers that freeze crypto wallets rather than bank accounts, we expect to see more widespread use of this approach in future investigations.

Investigations could also take longer, especially if the enforcement agency needs to commission expert forensic assistance to produce audit trails and assess provenance. This can increase personal and commercial inconvenience for innocent parties. Enforcement agencies investigating cryptoassets will likely need to make more cross-jurisdictional requests about transactions and transfers of funds. As such, it may be more important than ever for the owners of assets to instruct solicitors for support. Making early legal and factual submissions about the provenance of the funds can shorten an investigation by weeks or months.

Unfortunately, the competence of UK enforcement authorities is currently the main protection from unfair treatment and investigations for innocent investors. We are concerned that there will not be enough oversight of law enforcement agencies using these powers to ensure that they are applied reasonably and fairly.

Contacting a lawyer upon discovering an AFO can make a very real difference when it comes to securing the discharge or variation of the restriction. The business crime team at JMW has a wealth of experience in this area and have successfully represented in cryptoasset cases where the sums involved have been tens of millions of pounds. 
Contact the expert Business Crime team at JMW Solicitors today by calling 0345 872 6666, or use our online enquiry form to arrange for a call back.