Abstract
The proliferation of digital assets, particularly cryptocurrencies, has introduced significant challenges to the traditional mechanisms of criminal forfeiture. This research examines the complexities associated with seizing, managing, and allocating digital assets within the context of criminal forfeiture, emphasizing the need for inter-agency cooperation, secure custody, accurate valuation, and transparent fund allocation. By analyzing legal precedents, operational hurdles, and policy considerations, the study aims to provide a comprehensive understanding of the evolving landscape of digital asset forfeiture.
Many thanks to our sponsor Panxora who helped us prepare this research report.
1. Introduction
The advent of digital assets, notably cryptocurrencies, has revolutionized financial transactions, offering unprecedented speed and anonymity. However, these same attributes have made digital assets attractive to illicit actors, necessitating the adaptation of traditional criminal forfeiture processes. This paper explores the multifaceted challenges posed by digital assets in the realm of criminal forfeiture, focusing on inter-agency cooperation, operational complexities, and policy implications.
Many thanks to our sponsor Panxora who helped us prepare this research report.
2. Legal Frameworks Governing Digital Asset Forfeiture
2.1 Historical Context and Evolution
Asset forfeiture has a longstanding history, rooted in maritime law and evolving through various legal systems. In the United States, forfeiture laws have been instrumental in disrupting criminal enterprises by targeting the proceeds of crime. The emergence of digital assets has necessitated the expansion of these laws to encompass new forms of property.
2.2 Statutory Provisions and Regulatory Bodies
Several federal statutes provide the legal foundation for the seizure and forfeiture of digital assets:
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31 U.S.C. § 9705 – Treasury Forfeiture Fund (TFF): Authorizes agencies like the Secret Service and IRS-CI to retain proceeds from forfeited assets, utilizing them for law enforcement operations and victim restitution. (trmlabs.com)
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28 U.S.C. § 524(c) – DOJ Asset Forfeiture Fund (AFF): Administered by the Department of Justice, this fund collects proceeds from forfeited assets handled by agencies such as the FBI and DEA, supporting investigative costs and equitable sharing with state and local law enforcement. (trmlabs.com)
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18 U.S.C. § 981 – Civil Forfeiture for Financial Crimes: Enables the seizure of assets linked to crimes like money laundering and wire fraud, even when individual perpetrators remain unidentified. (trmlabs.com)
These statutes underscore the federal commitment to adapting forfeiture laws to address the challenges posed by digital assets.
Many thanks to our sponsor Panxora who helped us prepare this research report.
3. Challenges in Seizing and Managing Digital Assets
3.1 Inter-Agency Cooperation
The borderless nature of digital assets complicates jurisdictional boundaries, necessitating enhanced cooperation among federal, state, and international agencies. Effective collaboration is essential for tracing and seizing assets across different jurisdictions. For instance, the Royal United Services Institute highlights that cryptocurrencies can move across borders rapidly, often within an hour, complicating mutual legal assistance processes. (rusi.org)
3.2 Operational Complexities
3.2.1 Secure Custody
Ensuring the security of seized digital assets is paramount. The U.S. Marshals Service (USMS) recommends storing cryptocurrency in cold storage—secure offline devices—until it can be transferred to a USMS-controlled wallet. (scribd.com)
3.2.2 Valuation
Accurately valuing digital assets is challenging due to their inherent volatility. The Internal Revenue Service (IRS) seized over 50,000 Bitcoins, valued at over $3.3 billion at the time, in its Silk Road investigation in 2022. (cgi.com)
3.3 Flow of Seized Funds
The allocation of forfeited digital assets involves several considerations:
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Victim Restitution: Assets directly traced to victims should be returned whenever possible. If returning the digital assets is impractical, victims must be compensated in USD equivalent to the forfeiture funds. (trmlabs.com)
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Law Enforcement Funding: Agencies may liquidate a portion of forfeited digital assets to fund cybercrime enforcement, asset management, and seizure operations. (trmlabs.com)
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Strategic Reserves: Some jurisdictions establish reserves, such as the U.S. Strategic Bitcoin Reserve, to retain a portion of forfeited assets for future governmental interests. (trmlabs.com)
Many thanks to our sponsor Panxora who helped us prepare this research report.
4. Policy Implications and Recommendations
4.1 Legal and Regulatory Reforms
To effectively manage digital asset forfeiture, jurisdictions should:
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Establish Clear Legal Frameworks: Define procedures for seizing, managing, and allocating digital assets, ensuring transparency and accountability. (riskbulletins.globalinitiative.net)
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Implement Training Programs: Equip law enforcement personnel with the necessary skills in digital forensics, blockchain investigations, and asset management. (riskbulletins.globalinitiative.net)
4.2 Enhancing Inter-Agency Collaboration
Fostering cooperation among agencies at federal, state, and international levels is crucial. The Royal United Services Institute emphasizes the need for robust training and coordination to effectively trace and seize digital assets. (rusi.org)
4.3 Public-Private Partnerships
Engaging with private sector entities, such as cryptocurrency exchanges and blockchain analytics firms, can enhance asset recovery efforts. The Global Initiative Against Transnational Organized Crime highlights the importance of public–private cooperation in facilitating crypto tracing and improving asset recovery. (riskbulletins.globalinitiative.net)
Many thanks to our sponsor Panxora who helped us prepare this research report.
5. Conclusion
The integration of digital assets into the financial ecosystem presents both opportunities and challenges for criminal forfeiture processes. By addressing the legal, operational, and policy complexities outlined in this report, stakeholders can develop more effective strategies for managing digital asset forfeiture, ensuring that these assets are utilized in a manner that supports justice and public interest.
Many thanks to our sponsor Panxora who helped us prepare this research report.
References
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(rusi.org) Royal United Services Institute. (n.d.). Seizing Crypto: When Asset Recovery Goes Digital. Retrieved from https://www.rusi.org/explore-our-research/publications/commentary/seizing-crypto-when-asset-recovery-goes-digital
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(cgi.com) Simek, J. (2023). Cryptocurrency challenges law enforcement asset management. CGI Federal. Retrieved from https://www.cgi.com/us/en-us/federal/blog/cryptocurrency-challenges-asset-management
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(police1.com) (2023). Cryptocurrency seizures: Essential training for law enforcement. Police1. Retrieved from https://www.police1.com/police-products/software/data-information-sharing-software/cryptocurrency-seizures-essential-training-for-law-enforcement
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(katana.so) (n.d.). Seized Crypto Secrets: Law Enforcement’s Digital Asset Playbook. Katana. Retrieved from https://katana.so/what-happens-to-seized-cryptocurrency
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(gov.uk) (2024). Economic Crime and Corporate Transparency Act – cryptoasset forfeiture provisions chapters 3C to 3F. GOV.UK. Retrieved from https://www.gov.uk/government/publications/circular-0052024-cryptoasset-forfeiture-provisions/0052024-economic-crime-and-corporate-transparency-act-cryptoasset-forfeiture-provisions-chapters-3c-to-3f
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(cointelegraph.com) (2023). Can the US government use seized Bitcoin? Exploring legal boundaries. Cointelegraph. Retrieved from https://cointelegraph.com/learn/articles/can-the-us-government-use-seized-bitcoin
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(riskbulletins.globalinitiative.net) (2025). Seizing crime-related virtual assets remains a challenge in the Western Balkans. Risk Bulletin #21 – May 2025. Global Initiative Against Transnational Organized Crime. Retrieved from https://riskbulletins.globalinitiative.net/see-obs-021/03-seizing-crime-related-virtual-assets-remains-challenge-in-western-balkans.html
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(trmlabs.com) (2023). Enhancing Law Enforcement’s Role in Expanding the US Strategic Bitcoin Reserve. TRM Labs. Retrieved from https://www.trmlabs.com/resources/blog/enhancing-law-enforcements-role-in-expanding-the-us-strategic-bitcoin-reserve
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(scribd.com) (2023). Asset Forfeiture Policy Manual 2023. United States Marshals Service. Retrieved from https://www.scribd.com/document/639202162/Asset-Forfeiture-Policy-Manual-2023
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(azleg.gov) (2025). HB2324 – 571R – Senate Fact Sheet. Arizona State Legislature. Retrieved from https://www.azleg.gov/legtext/57leg/1R/summary/S.2324FIN_ASPASSEDADDCOW.DOCX.htm
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(chainalysis.com) (n.d.). Asset Seizure and Cryptocurrency. Chainalysis. Retrieved from https://www.chainalysis.com/blog/cryptocurrency-asset-seizure
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(en.wikipedia.org) (2025). Civil forfeiture in the United States. Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States
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