Crypto assets and cryptocurrency exchanges have provided significant opportunities for investors to make money through decentralised currency over the last ten years, and have grown in prominence thanks to celebrity investors like Elon Musk and Jake Paul. At the same time, they have also taken on a significant role in criminal activities including terrorist financing, because of the lack of regulatory oversight or legal powers that authorities could use to tackle the problem.

The urgent need for regulatory compliance in the crypto space led to the creation of new provisions in the Economic Crime and Corporate Transparency Act 2023 (ECCT), which entered into force in April 2024. The legislation introduces new powers with which UK authorities can monitor crypto transactions, freeze assets, and work with crypto exchanges to recover funds that are proved to have derived from criminal activity.

Here, the expert account freezing order solicitors at JMW explain how authorities and financial institutions freeze assets, how these powers apply to crypto and digital assets, and what you can do if you are subject to a crypto wallet forfeiture order or freezing order.

How do authorities freeze assets?

There are several mechanisms that authorities in the UK can use to freeze assets, the most common of which are account freezing orders (AFOs). AFOs were introduced by the Proceeds of Crime Act 2002 (POCA) and can be used to restrict access to funds in bank and building society accounts in the UK. There are also restraint orders, which are stricter and apply to assets based anywhere around the world. These mechanisms are generally used to hold assets in place and prevent anyone from withdrawing, transferring or spending funds while authorities investigate their provenance. If agencies believe that funds may represent the proceeds of criminal activity, or are intended for use in committing a crime, they may apply for an asset freeze until they can investigate.

To briefly explain how this works, relevant authorities can apply to the Magistrates' Court for an account freezing order if they suspect that funds contained in an account are the proceeds of criminal activity, or are intended for use in committing a crime. If the application is granted, the AFO will enter into force. This may be done without notice to the account holder, meaning that you will not know that an account is frozen until you attempt to access it. Naturally, this can be very inconvenient and leave the subjects of these orders without access to daily living expenses, business operating costs or the funds they need to mount a legal challenge.

It is important to note that these mechanisms apply only to allegedly illicit funds contained in bank or building society accounts, but not to digital assets. AFOs were introduced before crypto wallet freezing orders, and a crypto account cannot be controlled or frozen in the same way as those controlled by financial institutions. For example, some crypto assets may be stored on a hardware wallet (meaning a physical drive), which can make them impossible to freeze using these means. While cryptocurrency exchanges and wallet providers have sometimes been held responsible for securing assets or wallets, legal issues meant that new legislation was needed.

The entry into force of the ECCT in 2024 introduced new powers for authorities to freeze cryptocurrency assets, recover them and, in some cases, destroy them. The powers that can be used to initiate a crypto freeze are relatively comprehensive, and it is vital for investors to understand them in order to protect themselves.

What are the new powers granted by the ECCT?

The ECCT introduced the crypto wallet freezing order into POCA, which has essentially the same function as an AFO but for digital assets rather than cash. Law enforcement agencies can apply to the Magistrates' Court for a crypto wallet freezing order if there are reasonable grounds to suspect that the cryptoassets held in a wallet are either recoverable property or intended for use in unlawful conduct. These orders can be made without prior notice to the subject if giving notice could affect the security of the assets. For example, if there is a risk that the subject would try to withdraw, transfer or otherwise hide their assets, the crypto freezing order may be granted without any prior notice.

Alongside this new power are several others, all designed to address and overcome security measures that crypto wallet holders might use to thwart investigators. For example, officers are now able to seize crypto assets that are stored on hardware wallets or take written records of private keys during searches conducted under warrants. With application to the court, authorities can extend the detention period for up to two years, with the court able to grant a further extension of up to three years.

To mitigate the risks posed by market instability and value volatility, the ECCT allows for agencies to convert detained or frozen cryptoassets to cash before a forfeiture hearing. This preserves the value of the assets during legal proceedings and ensures that funds can be recovered properly. In rare cases, where there is a risk of crypto assets finding their way back to suspected criminal actors, the court may decide it is appropriate to destroy assets rather than recovering them or converting them into cash.

If the court is satisfied that the assets are recoverable property or intended for use in unlawful conduct, it can order the forfeiture of these assets. Unlike in criminal proceedings, the burden of proof is on the balance of probabilities, which is a lower threshold than "beyond reasonable doubt." Under these circumstances, a crypto wallet forfeiture order can be used to permanently confiscate crypto assets when investigations conclude that these assets are the proceeds of crime or intended for criminal use.

The new provisions under the ECCT are not just about crypto. For example, the legislation introduced a new Failure to Prevent Fraud offence, similar to existing anti-corruption and anti-money laundering legislation. However, the new approach to digital assets aligns their treatment with that of traditional physical and liquid assets, and creates a legal framework in which for authorities to act against crypto assets and their use in criminal financing.

At the same time, there is a significant risk to innocent people. Authorities can freeze assets and crypto wallets without warning for up to two years while they investigate the provenance of user funds, which can have significant financial consequences. Thankfully, as with other orders of this nature, there are legal options available to the subjects of an asset freeze, through which you may be able to regain access to your funds.

How can I unfreeze cryptocurrency or access frozen accounts?

You should consult a solicitor at your earliest opportunity if your assets have been frozen, as there may be legal mechanisms through which you can recover your funds. How you can do so will depend on several factors, so our first step will be to identify why the cryptoassets or account was frozen. For example, if the freezing is due to platform-specific issues (e.g., compliance issues or security breaches), it may not be necessary to take legal action on your own behalf. When network security concerns on the part of a cryptocurrency exchange or wallet provider have led to a wallet freeze, you can try to contact the exchange's customer support team to request an explanation for the freeze and the necessary steps to regain access. Make sure you comply with platform policies and follow any instructions. If you contact customer support but find them unable to help, you may be able to pursue a dispute resolution process to restore access to your accounts.

However, as we have discussed, the most common reason is that there is an investigation underway into suspected illegal activity, such as money laundering or fraud, that is related to your crypto assets. In these cases, a crypto wallet freezing order will typically have been used. A legal request may be made by your solicitor to have the order varied or discharged in some cases, which can restore your access.

If a law enforcement agency is responsible for your crypto freeze, request documentation including a copy of the freezing order and any related documents. This can help you to understand the legal basis and scope of the freeze. Look for details on the assets involved, the duration of the freeze, and the conditions under which it was imposed. This can help you to plan your next moves.

As we have noted, you should engage a solicitor specialising in financial crime or crypto-related cases at the earliest opportunity. Our team can review the order, assess whether the freeze was lawfully issued, and advise you on challenging the freeze if there is no clear link to unlawful activity. There are several grounds on which this appeal can be based, including:

• A lack of reasonable grounds for the freeze.
• Procedural errors by law enforcement.
• Evidence demonstrating the assets are not linked to unlawful conduct.

As such, you may need to demonstrate the provenance of your funds or prove their legal origin with transaction records, blockchain analysis reports, or forensic accounting documents. JMW's experts can help you to gather this evidence as part of your bid to appeal the freezing order. As a full-service law firm, JMW can also offer complementary services to help you provide evidence and build your defence while an investigation is underway. 

If the assets have moved from freezing to forfeiture proceedings, there is a serious risk that you will not get them back. Our team can review forfeiture documents to help you understand the evidence law enforcement has presented to justify forfeiture, and support you to file a written objection to the court within the specified timeframe. We can present evidence on your behalf to demonstrate that the forfeiture is unjustified and ensure you meet the relevant deadlines for submission of evidence, appeals or other elements of the process.