Recovering Cryptoasset Proceeds Of Crime - Law Commission Recommendations

• Published date: 24 November 2022
• Subject Matter: Finance and Banking, Criminal Law, Technology, Financial Services, Crime, Fin Tech
• Law Firm: Astraea Group
• Author: Lisa McCreath and Harmish Mehta

In the UK Law Commission's words, there is "strong consensus" that the UK's regime for recovering the proceeds of crime is "inefficient, complex and ineffective".

The Law Commission has published the Final Report in its project for reform which includes policy and related recommendations regarding the preservation of the value of assets in confiscation proceedings, including digital and crypto assets. The recommendations, particularly on restraint and effective asset management, would be a welcome strengthening of the regime if implemented.

Restraint orders

The purpose of restraint orders is to prevent "realisable property" from being dissipated or put beyond the reach of a Court before a confiscation order can be made or enforced. It works by prohibiting any person from dealing with any realisable property specified in the order. "Realisable property" is defined within the Proceeds of Crime Act 2002 ("POCA") and means any "free property held" by a defendant or the recipient of a "tainted gift".

In order for the Crown Court to exercise its powers to make a restraint order it must be satisfied that one of five statutory conditions set out in s.40 of POCA is met. In practice, the two most used conditions are:

1. A criminal investigation has been started for an offence and there are reasonable grounds to suspect that the defendant has benefited from their criminal conduct.
2. Criminal proceedings for an offence have been started and there is reasonable cause to believe that the defendant has benefited from their criminal conduct.

"The Dissipation Test"

The Courts have introduced an additional test to the exercise of restraint orders, namely that the prosecution must "establish that there is a real risk that assets will be dissipated which might otherwise meet a confiscation order" (the "Dissipation Test"). The purpose of the test is to balance the defendant's right to liberty and enjoyment of property with the need to preserve the value of assets which may be subject to a confiscation order.

The National Crime Agency and Serious Fraud Office have both raised cryptoassets and the criminal law as a potential project for the Law Commission's 14th programme of law reform. The restraint of cryptoassets is challenging for various reasons. They can be dissipated quickly and held anonymously or pseudonymously, making them difficult to trace. Where there are regulatory gaps, they can also be traded on platforms without the need to present proof of identification.

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