A legal asset after all? Governments are profiting from the seized cryptosystems

It is not uncommon for government officials around the world to profess disdain for crypto-currency on the grounds that it is widely used to facilitate crime and finance terrorism. Although cash (backed by the government) remains the preferred financial instrument of criminals by a wide margin, it is true that nefarious actors also resort to digital assets. When corrupt schemes are diverted, law enforcement and other government agents can find themselves in possession of large amounts of crypto-currency.

Reports of such cases appear to be increasing as the adoption of cryptomonies expands. In August alone, the U.S. Department of Justice announced the „largest ever seizure of accounts in Bitcoin Method of terrorist organizations“ and a Tokyo court ordered Japan’s first ever seizure of digital assets in a precedent-setting ruling. How do officials proceed with the confiscation of crypto-currencies and what are the consequences of their actions on the controversial relationship between government institutions and the world of decentralized finance?

Source of revenue for States

Regardless of the legal definition of crypto-currency made by various states, they still face an economic activity that involves digital money without borders. In the most frequent scenario, crypto-currency is seized along with other assets belonging to the exposed criminals.

Often, government institutions do not have the expertise or the specific rules for crypto currency, so they have to deal with it in an ad hoc manner. For example, when the Latvian tax authority first seized Bitcoin (BTC) from a convict, reports emerged that officials left it in the offender’s wallet even after securing access to the funds.

Recognizing that successful seizures of crypto currencies could mean a steady flow of income, some jurisdictions are changing asset forfeiture rules to accommodate digital assets. In Russia, a somewhat controversial bill is being drafted that would provide law enforcement agencies with a mechanism to seize crypto-currencies. The new rules could come into force as early as 2021.

Other governments are finding creative ways to leverage digital money. A bill currently under consideration in the state of Illinois expands the list of assets that can be considered abandoned property and ultimately be claimed by the state treasury.