How Cryptocurrencies Are Seized A Guide To Police Tactics

Bitcoin seizure is the process by which the government attempts to legally dispossess an owner of bitcoin. However, bitcoin is a uniquely seizure-resistant type of property. There is no amount of physical force or legal coercion that can transfer bitcoin from one party to another without the corresponding private keys. However, if authorities can ascertain the real-world identity of an individual and their bitcoin addresses, they can coerce that individual to divulge the private keys required to move the bitcoin. Bitcoin may be seizure-resistant, but humans are still vulnerable to physical threats, blackmail, and other forms of coercion.

What Is Bitcoin Seizure?

Bitcoin seizure occurs when a law enforcement agency obtains the bitcoin address and private key of an individual or entity which violated the law. Sometimes the agency will target the exchange which hosts the wallet in question to seize a private key. Other times, the agency will attempt to seize the bitcoin by hacking the defendant’s hot wallet and procuring the private keys, or dispossessing the owner of a cold wallet. These warrants are typically sealed, unlike warrants seizing an address, which also disclose the full history of transactions involving the address in question to demonstrate probable cause.

Each U.S. Attorney’s Office establishes procedures that govern asset seizure for virtual currency. Prior to the commencement of legal action or the actual seizure of assets, the Attorney’s Office collaborates with the U.S. Marshals Service to determine the quantity and valuation of the bitcoin that will be seized. To obtain a seizure warrant, the prosecuting agency must file an application and affidavit which purport in sufficient detail the factual allegations and probable cause for the seizure.

Generally, the prosecuting agency is concerned with the logistics of the seizure and the possibility of forfeiture, management or disposition issues, and whether the asset is valuable enough to warrant a seizure at that time. Multiple agencies will collaborate in planning a prosecutorial strategy, but only the U.S. Marshals Service can auction off bitcoin that has been seized by another U.S. government agency. Seizure proceedings must be based on a law enforcement agent’s finding of probable cause that the asset represents the proceeds of, or was used to facilitate criminal activity.