A Quick Lesson in Asset Forfeiture for Scam Victims
A Commentary on the Process of Recovering Cryptocurrency
Primary Category: Guest Editorial
Author:
• Val Harkless, Senior Fraud Analyst/Investigator
About This Article
Cryptocurrency asset forfeiture for scam victims is a challenging process primarily due to limited resources and complex legal procedures. Investigators and agencies face significant hurdles, including a lack of trained personnel, high prosecution thresholds (typically between $300,000 to $500,000), and minimal experience in handling crypto-related investigations.
Asset forfeiture typically falls under three categories: administrative, criminal, and civil judicial, with most major cryptocurrency forfeitures processed through civil judicial actions.
This method does not require a criminal conviction and allows the government to seize assets more effectively, even from criminals outside the U.S. Despite growing efforts and proposed legislation to streamline the process, such as lifting the $500,000 cap for administrative forfeiture, progress remains slow.
The U.S. Treasury Department and law enforcement agencies continue to strategize on combating crypto fraud, including partnerships with private companies for forensic analysis. Meanwhile, educating the public is critical in preventing future victims .
A Guest Editorial: A Quick Lesson in Cryptocurrency Asset Forfeiture for Scam Victims
A SCARS Institute Guest Editorial by Val Harkless, Senior Fraud Analyst/Investigator
This question was asked last week by a victim at the FINRA conference by victims Brian Glick and Jules Peterson. However, it is a question that has been asked many times by victims of crypto crimes especially when their loss is very significant. The best answer is because of RESOURCES. Previously, I worked as a contractor for the FBI’s Asset Forfeiture program for almost a decade. My experience is that this process can be frustrating for investigators, agents, analysts, and victims.
Below are some key points as to the lack of prosecution:
- Too many victims and not enough staff to conduct crypto investigation searches.
- Federal agencies have greater priorities and can only handle a select few cases.
- Some US Attorney’s Offices have placed a minimum threshold to prosecute (usually starting between $300k to $500K to prosecute)
- Even with the threshold met, they can decline to prosecute in the middle of your case.
- Local/state law enforcement departments have little to no training and experience with crypto assets/investigations, and the cost of training and Block Explorer licenses (Chainalysis, TRM Labs, QLUE, Elliptic, etc.) are cost prohibitive.
- It’s just not a priority because they don’t think it’s a big problem.
There are 3 Types of Asset Forfeiture:
Administrative, Criminal, and Civil Judicial. The majority of the major crypto cases that have been successfully prosecuted have been Civil Judicial.
Administrative Forfeiture: Many federal law enforcement agencies are authorized to seize crypto-assets valued at less than or equal to $500,000 at the time of seizure via an admin forfeiture procedure without judicial approval. This is an action against the asset and not a person. If a claim is filed, then the asset must be disposed via criminal forfeiture or civil judicial action.
Criminal Forfeiture: Criminal forfeiture actions are actions against a defendant where only property in which the defendant has a true interest may be forfeited. Note: some crypto forfeiture actions are filed whereas the true owner cannot be identified. Assets totaling $500k or more must be processed via Criminal or Civil Judicial forfeiture.
Civil Judicial Forfeiture: The reason that cryptocurrency forfeitures are processed via the Civil Judicial process is because a legal action is brought against property that was derived from, or used to commit an offense. No criminal conviction is required, it requires a lower burden of proof and allows the government to reach more property than criminal forfeitures, such as property owned by criminals located outside the U.S. Because Civil judicial forfeiture requires the involvement of the US Attorneys’ Office, it can be difficult to convince them to proceed with prosecution. This is also dependent on the Judicial District and how aggressive they are with prosecuting crypto cases. For example, the District of Massachusetts has been in the news recently with several large-scale disruptions of crypto fraud prosecutions.
Final Thoughts:
In some instances, the investigative agency may be interested in pursuing the case, but may not be able to get a conviction. Need more trained investigators and agencies willing to invest in prioritizing crypto investigations. Future legislation and modification of CAFRA (Civil Asset Forfeiture Reform Act) could make these investigations less complicated to pursue. It’s been suggested previously that law enforcement could contract with private companies that conduct forensic blockchain analysis to support prosecution and to lessen the burden of in-house staff.
Previously, a panelist at The Digital Chamber spoke about how they were brainstorming ways to “enjoin” assets with the cooperation of VASPS [Virtual Asset Service Providers] as part of investigations to aid law enforcement. Additionally, in 2022, the [United States] Attorney General presented a 61-page report citing the intention to lift the $500,000 cap for cryptocurrency and other digital assets to allow them to be processed through Administrative Forfeiture. To date, I do not think this has been implemented. Also, the US Treasury Department submitted a plan to tackle illicit digital currency investigations.
Right now, as investigators we are doing what we can to educate the public to prevent more [scam] victims. I hope this explanation provides insight into the complicated process of recovering [scam] victims’ assets.
References:
(1) The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets, (Pg. 36) https://www.justice.gov/ag/file/1557146/dl?inline
(2) The Digital Chamber https://digitalchamber.org
(3) DOJ Asset Forfeiture Program https://www.justice.gov/afp
(4) Action Plan to Address Illicit Financing Risks of Digital Assets, https://home.treasury.gov/system/files/136/Digital-Asset-Action-Plan.pdf
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