Seizure of Cryptocurrency for Forfeiture

The U.S. government, through various federal agencies treats cryptocurrency as “property” for the purpose of asset forfeiture. Various federal statutes, such as 18 U.S.C. § 981, allow for the forfeiture of any property involved in or traceable to criminal activity, such as money laundering, drug trafficking, or fraud.

The government can attempt to forfeiture property through criminal forfeiture proceedings, civil forfeiture proceedings, or both. Criminal asset forfeiture occurs as part of a criminal prosecution and requires that the government obtain a conviction against the person accused before it can seek to forfeit property related to the crime.

Civil asset forfeiture is the most common method for seizing crypto. During these “in rem” proceedings, the government files a complaint for forfeiture against the property itself which is listed as the “Defendant Property.” The government does not need to arrest anyone or secure a criminal conviction to proceed with civil asset forfieture. Instead, the government must prove that the property was involved in or derived from criminal activity.

Attorneys for Cryptocurrency Forfeiture Proceedings

At Sammis Law Firm, our attorneys help clients challenge the government’s attempt to seize and forfeiture cryptocurrency for asset forfeiture proceedings. We are uniquely suited for these cases because of our experience in litigating traditional asset forfeiture cases and understanding new blockchain-specific investigative techniques.

We can begin representation when the crypto is frozen or after the seizure. We can reach out to the investigating agency to explain why no nexus exists between our client’s assets and the alleged violations, or why our clients are innocent of wrongdoing and qualify as innocent purchasers for value.

Call 813-250-0500.

Blockchain Analytics to Trace Illicit or Tainted Cryptocurrency

When seizing cryptocurrency for forfeiture proceedings, federal law enforcement officers attempt to analyze blockchain data. Law enforcement can use blockchain explorers as well as commercial services offered by several different blockchain-analysis companies including Chainalysis, Elliptic, TRM Labs. These companies analyze virtual currency blockchains and attempt to identify the individuals or groups involved in transactions.

These tools help law enforcement officers attempt to trace the flow of illicit funds. For example, these tracing platforms help investigators visualize transaction patterns, identify wallets associated with known criminal entities, and follow funds that have moved through mixers or other obfuscation services. Through this “on-chain” tracing, law enforcement officers attempt to gather sufficient evidence to establish the probable cause needed for a seizure warrant.

When illicit funds are traced to centralized exchanges like Binance or Coinbase, law enforcement can do the following:

• request the platform freeze the account holder’s asset to the cryptocurrency in the account or in a specific wallet in the account;
• serve the platform with a subpoena for data files and other records showing who opened the account, all transactions within the account, and the current balance;
• serve the platform with a seizure warrant that requires it to send the cryptocurrency from the account to a wallet controlled by the authorities in the United States.

Exchanges often have know-your-customer (KYC) and anti-money laundering (AML) policies and will comply with court orders to freeze accounts or transfer funds to government-controlled wallets. Centralized stablecoin issuers such as Tether can freeze or “blacklist” tokens associated with criminal activity.

It is virtually impossible to look at a single transaction on a blockchain and immediately ascertain the identity of the individual behind the transaction. Blockchain data generally consist only of alphanumeric strings and timestamps.

By analyzing blockchain data to figure out whether that same individual is connected to other relevant addresses on the blockchain, law enforcement can obtain leads regarding the identity of the owner of an address.

“For example, when an organization creates multiple [BTC] addresses, it will often combine its [BTC] addresses into a separate, central [BTC] address (i.e., a “cluster”). It is possible to identify a ‘cluster’ of [BTC] addresses held by one organization by analyzing the [BTC] blockchain’s transaction history. Open-source tools and private software products can be used to analyze a transaction.” United States v. Gratkowski, 964 F.3d 307, 309 (5th Cir. 2020).

Law enforcement officers claim the information provided by these tools can be relied upon for some purposes.

Obtaining a Seizure Warrant for Cryptocurrency

To legally seize the assets, a federal agency must obtain a seizure warrant from a court. The agency must provide an affidavit with detailed factual allegations and probable cause linking the cryptocurrency identified by its wallet address to a specific crime. The warrant authorizes the platform to send the cryptocurrency to a wallet controled by law enforcement and maintain the digital assets pending further order of the court.

Physical vs. Digital Seizure of Cryptocurrency

The method of seizure used by law enforcement depends on where the crypto is stored. If the cryptocurrency is held on a centralized exchange, the government serves the warrant on the exchange, which then transfers the funds to a government wallet.

If the crypto is in a self-custody “cold” wallet or hardware device or a “hot” wallet on a computer, the law enforcement agent must physically seize the device or obtain the private keys. Law enforcement might use digital forensics to extract the private keys from seized computers or during searches. In some cases, the criminal defendant will agree to voluntarily relinquish the private keys as part of a plea deal.

Asset Forfeiture Proceedings Begin after Seizure of Cryptocurrency

Once seized, the cryptocurrency is transferred to a secure, government-controlled wallet, often managed by the seizing agency or the U.S. Marshals Service.

For assets worth less than $500,000, the government might initiate administrative proceedings by issuing a notice of seizure within 60 days. The Claimant can file a verified claim for court action to terminate the administrative proceedings in favor of court action. The Assistant United States Attorney (AUSA) then has a 90 day deadline to file a complaint for forfeiture.

For asset worth $500,000 or more, the government must file a complaint for forfeiture in the appropriate U.S. District Court.

Either way, the government must provide public notice of the forfeiture action. The notice gives interested parties an opportunity to file a claim to contest the seizure.

The government begins the court action by filing a complaint for forfeiture in the appropriate U.S. District Court. The claimant must then file a judicial claim to join the lawsuit as a “Claimant.” The government must prove in court, by a “preponderance of the evidence,” that the property is subject to forfeiture. Claimants must prove they are “innocent owners” or have a superior claim to the property.

If the government wins the forfeiture case, the assets are officially transferred to its ownership. The U.S. Marshals Service is responsible for the disposition of the assets, which can include selling the cryptocurrency on the open market or through auctions, retaining the cryptocurrency in the strategic reserve, or returing the property to any vicitm through the remission process.

This article was last updated on Friday, September 12, 2025.