In its 2025 Crypto Crime Report, Chainalysis revealed that illicit activity in the cryptocurrency space remains a significant concern. In 2024 alone, crypto addresses linked to illicit transactions received an estimated $40.9 billion - a figure expected to exceed $51 billion as further addresses are identified. Of the funds stolen, approximately $2.2 billion were taken through hacks and thefts, with over 60% attributed to North Korean state-sponsored actors. Notably, stablecoins have overtaken Bitcoin as the primary vehicle for illicit transactions, accounting for 63% of all such activity.
The Economic Crime and Corporate Transparency Act 2023 has amended the Proceeds of Crime Act 2002 (PoCA) to allow the seizure of crypto assets under Chapter 3C – 3F. This has meant that authorities have now been given the ability to freeze crypto wallets if there is an ongoing investigation and a reasonable suspicion that the crypto funds held might represent the proceeds of crime.
Crypto assets are defined by Section 84A(1) PoCA as “a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology”. Crypto is a fully digitalised asset, meaning that it can be moved in seconds across several different numerical wallets. As a result, in cases of fraud, the ability to quickly trace digital assets becomes the most critical factor in recovering them.
Since April 2024, PoCA’s powers have been extended to the tracing, seizure and freezing of crypto assets. This means that investigators have the ability to exercise their powers under PoCA if there is “reasonable suspicion” that the assets might be linked to criminal activity.
As described by the National Crime Agency, the threshold for “reasonable suspicion” is “generally considered to be low”.
Proceedings under POCA are civil proceedings – this means that the burden of proof will be on the balance of probabilities. This is much easier to satisfy than the burden of proof in criminal proceedings, meaning that finding a defendant guilty and confiscating the crypto assets will be easier to satisfy.
Blockchain technology records all cryptocurrency transactions, making them traceable. However, the challenge lies in identifying the individual behind a specific wallet, as wallet addresses typically use pseudonyms rather than real identities. This is why, in cases of cryptocurrency fraud or scams, it is crucial to trace the movement of assets through the blockchain and notify relevant service providers that the assets in question are suspected as representing the proceeds of crime. Most cryptocurrency exchanges have protocols in place that allow them to initiate a freeze on affected assets and follow steps toward potential recovery. This process is also critical during the disclosure phase, as it can reveal Know Your Customer (KYC) information linked to the wallet that received the illicit funds.
Acting quickly when fraud is suspected is critical – the more time fraudsters are given to transfer the cryptocurrency through numerous wallets, the more difficult freezing and recovery become.
The key difference is who holds the private key to access the various accounts under the wallet.
Custodial wallets are managed by a third party – the third party will hold private keys and will handle transactions on behalf of the account holder. Most often, this will be done through a custodial account at a Virtual Asset Provider (commonly known as centralised crypto exchange). Examples are platforms such as Kraken, Coinbase, Bitget or Gemini. In an asset seizure investigation, tracing assets into Virtual Asset Provider is be possible through the right legal process.
Positives:
Negatives:
Non-custodial wallets provide autonomy for the owner to control their private keys. The owner of a non-custodial wallet will be solely responsible for managing their own security and backups. As there is no central authority to collect data and access, freezing the cryptocurrency is more difficult.
Positives:
Negatives:
If funds are operated through a custodial wallet, this allows investigators to go through the centralised Virtual Asset Providers and track wallet addresses and stolen assets through those centralised crypto exchanges.
Act immediately: Due to the nature and volatility of funds exchange on the crypto market, the conspirators on the fraudulent crypto scheme will move money very quickly after it has been received from the victim. Tracing the assets as soon as possible (ideally within the first day of the fraudulent activity) will provide the best prospect of a successful outcome.
If you have had your crypto wallets frozen or seized, reach out to our experts who will be able to best advise you on your case and advise you on how you can appeal the order.
Similarly, we regularly act on behalf of individuals and corporates who are the victims of cryptocurrency scams. If you believe you may be the victim of a fraud or scam, do not delay in contacting our experienced solicitors.
With the new powers under UK legislation in combatting digitalised financial crime, this can cause a new threat to crypto wallet owners in the UK.
For further insights into frozen or seized crypto assets, or if you’ve been the victim of a cryptocurrency scam, please contact James O’Hara or Paul O’Donnell at info@ilaw.co.uk or call +44 (0)203 987 0222.
