The UK’s Economic Crime and Corporate Transparency Act 2023 (ECCT) came into effect at the start of 2024 and, with it, a variety of new measures that could affect British businesses. The nature of economic crime has changed significantly over the last few years thanks to the rapid rise of new technologies that make it easier to trade across borders, steal identities and launder the proceeds of criminal activity.
The ECCT grants law enforcement agencies and investigators significant new powers to tackle some of the most popular mechanisms now being employed for fraud. Among the most common are cryptocurrencies and cryptoassets, which have been used both to perpetrate fraud and to make the proceeds of crime harder to track. Cryptocurrencies became more widely recognised in 2021 but were in regular use by organised crime gangs for some time before.
With the ECCT, the UK has taken the first steps towards tackling this problem, and specifically the recovery of criminal proceeds in the form of cryptocurrency or assets. The powers that already existed under the Proceeds of Crime Act 2002 (POCA) and allow agencies to control cash and physical assets during investigations and criminal proceedings have essentially been extended to include crypto.
From the perspective of law enforcement, this is undoubtedly a success. However, for investors in the crypto space, there may also be cause for concern. Powers like Account Freezing Orders (AFOs) available under POCA have been applied regularly without resulting in a criminal conviction. This has meant that they are at significant risk of causing serious inconvenience for innocent people. There is a risk that the police and other agencies will use their new powers indiscriminately in much the same way. For that reason, it is vital to understand the new powers that have been introduced under the ECCT and how they could affect your investments.
What are the new crypto powers?
Under the new legislation, UK authorities will have several key powers through which they can tackle the use of cryptocurrency in criminal activity. During investigations, agencies will now have powers to freeze cryptowallets and accounts while they determine where the underlying funds have come from. The same will be true of NFTs and other cryptoassets, as the ECCT makes provisions for a civil recovery regime in relation to cryptoassets. Where assets are kept on physical storage devices (such as hard drives) rather than cloud-hosted platforms, these devices can also be seized for the purpose of recovering assets under the new legislation.
These powers are similar to those relating to bank accounts under POCA, but there are additional steps enabled by the ECCT to account for the nuances of crypto markets. After seizing assets, authorities can seek authorisation from a Magistrate’s court to convert them into cash. This measure is designed to protect seized assets from the fluctuations of the crypto market, which can result in assets losing a significant percentage of their value overnight. The ability to convert assets and currencies into cash will maximise return and prevent further risks.
In rare cases, investigators may also be allowed to destroy cryptoassets or tokens. While selling these assets is an option, the risk of them falling back into the hands of criminals may be significant enough that destroying forfeited assets may be the preferred alternative for law enforcement. This is expected to be primarily used to tackle the funding of terrorism, along with other counterterrorism measures within the ECCT that expand existing definitions of terrorist financing to include cryptocurrencies.
How could this affect investors?
Among the biggest concerns for crypto investors is the expected rise of cryptowallet freezing orders. AFOs have become widespread since their introduction under POCA, in part because they are relatively simple for investigators to secure. An AFO restricts access to a bank account while its contents are investigated and, due to how they are applied, they often leave innocent people without the money they need to pay daily living expenses or operate their businesses.
An AFO restricts access to an account for up to two years. The first order can be obtained without notice to the subject, and without ever charging the person with a crime. If cryptowallet freezing orders are applied in a similar way, this could create serious financial and legal difficulties for investors. Given that investigations into cryptoassets will demand more cross-border collaboration, investigations could become longer and more difficult.
The only thing that will protect investors from unfair treatment during investigations is the competence of UK authorities. However, there are options for the subjects of these orders to challenge them, and potentially have them discharged or varied so that they can access their funds. Working with an expert cryptocurrency solicitor is the best way to protect your investments and ensure that your rights are upheld should you ever be placed under investigation.