POLICE forces across the UK have seized bitcoin and other cryptocurrencies valued at almost a third of a billion pounds during criminal investigations, 91av can reveal. But this figure may be only a tiny fraction of the illicit funds being used in the UK, because police face significant technological and legislative hurdles when investigating crimes involving cryptocurrencies.
Freedom of information (FOI) requests made by 91av show that 12 of the UK’s 48 police forces have seized cryptocurrency in the past five years, totalling more than £322 million according to their value at the time of seizure. The true amount seized may be far higher because 15 forces didn’t respond to requests or refused the request to provide information.
Bitcoin represented over 99.9 per cent of the value of seized cryptocurrencies in the UK, but small amounts of Ethereum, Dash, Monero and Zcash were also confiscated.
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Cryptocurrencies are decentralised by design, so there is no authority that police can turn to for information when looking for transaction records, nor is there any central authority that can be made to hand over funds at the request of the state.
They also provide seamless transfers almost instantaneously and at very low cost across borders, making them an ideal tool for laundering and transferring the proceeds of crime around the world.
Detective chief inspector Joseph Harrop of the economic crime unit at Greater Manchester Police says that the adoption of cryptocurrencies by criminals was unexpectedly fast, and forces are scrambling to gain new skills to deal with cases and seize funds. His strategy has been to recruit civilian staff with relevant technical experience in cryptocurrencies and train them to work with detectives.
Police face three large problems when dealing with criminals who have stashed money in bitcoin or other networks: discovering whether a person has cryptocurrency in the first place, getting legal permission to take it, and then having the technical ability to actually do so.
“If you’ve got fraudsters with bitcoin, and a load of drug dealers with cash, it’s a perfect storm”
Cryptocurrency funds leave minimal digital fingerprints and can be very difficult to find. Although police can easily search all UK bank accounts for a certain name or address, a cryptocurrency wallet can be a tiny, nondescript file on a computer, or a string of text in an email, written down on a scrap of paper or simply memorised so there is no physical evidence to find. Police investigating a drug, fraud or money laundering case may never find a sign that there are connected cryptocurrency wallets.
Even if wallets are found, there are legal hurdles to acquiring them. The UK’s Proceeds of Crime Act 2002 gives police the ability to seize cash if there is a suspicion that it was gained from criminal activity, even if there has been no conviction. Powers to seize non-cash property, including cryptocurrencies, are narrower in scope and require a conviction, even though cryptocurrency funds are essentially used as cash.
The final, and most significant, problem is that cryptocurrencies are protected by extremely strong encryption, meaning that police might discover a wallet but still find it impenetrable without an encryption key that suspects are unlikely to reveal. “If we recover laptops, USB sticks, they might have a level of encryption on and, yes, there’s a difficulty in getting inside it,” says Harrop – unless suspects have written down their password, which happens more often than you might think. “As daft as it sounds, sometimes people do leave golden nuggets or strong evidence where they might literally have the stuff that we need written down on a piece of paper.”
Harrop says that large police forces like Manchester’s are further along the process than many, but that they are “just getting their heads around” the technology. “It’s an evolving problem,” he says.
Although there are significant hurdles, there is also a large incentive for police forces to crack down on illicit cryptocurrency wallets: they can sell the currency. Half of the proceeds go to the Home Office, and the police force itself keeps the other. Greater Manchester Police has recently spent £1.5 million on staff to bolster its cryptocurrency recovery unit.
The UK’s National Crime Agency wouldn’t say how much cryptocurrency it has seized, and the organisation, like intelligence agencies MI5 and GCHQ, is exempt from FOI legislation. But Gary Cathcart, the NCA’s head of financial investigations, confirmed that it has been involved in investigations in which cryptocurrency was seized.
“We’ve got a mechanism that is like cash but we haven’t got the legislation to seize it”
Cathcart says that crimes such as drug dealing leave people with huge amounts of physical cash, which is hard to launder in the UK. The cash typically used to be carried to less regulated markets on airlines by paid “mules”. Cryptocurrency is making this process much easier, faster and less risky, because funds can simply be transferred digitally.
“If you’ve got a load of fraudsters with a load of bitcoin, and you’ve got a load of drug dealers with a load of cash, then it’s a perfect storm,” he says.
Despite its UK-wide role tackling cybercrime and technical skills, the National Crime Agency has the same problems that regional police forces do when faced with cryptocurrency. Cathcart hopes that new legislation will provide better tools. For example, the Money Laundering, Terrorist Financing and Transfer of Funds Regulations, which cover banks, also now cover, as of January 2020, cryptocurrency exchanges: services that allow people to trade and store cryptocurrencies in a similar way to a bank. This requires exchanges to register with the UK’s Financial Conduct Authority, and carry out checks on their customers and report anything suspicious.
Cracking cases
A published in December 2020 shows that this process can indeed crack cases. It details how an unnamed UK cryptocurrency exchange passed a report of suspicious activity to the National Crime Agency, leading the Police Service of Northern Ireland – which didn’t answer 91av‘s FOI request – to seize an undisclosed amount of bitcoins.
When cryptocurrencies are stored on an exchange, they effectively stop being decentralised. The exchange itself owns the coins, and simply manages them for the customer. So police can ask the companies that run the exchange for information or funds. Of course, criminals don’t always use exchanges, and can hold coins themselves entirely anonymously.
Soon, the Proceeds of Crime Act will also be updated to categorise cryptocurrencies as cash, rather than property, which will give UK police stronger powers. The act was created to bring an end to the situation in which organised criminals could use cash, gold or expensive watches as currency and were safe from prosecution as long as they weren’t caught committing a crime. Cathcart hopes that an update will again enable a crackdown.
“The days of criminals turning up in Lamborghinis, big houses without any sort of backstop around how they gained that money are pretty much gone,” he says. “When [the Proceeds of Crime Act] was written, virtual currency didn’t exist, so what we’ve got now is a mechanism [that is] like cash, like gold, [but] sits outside that legislation. We’re kind of in the same situation with crypto that we were with cash 20 years ago. We haven’t got the legislation to seize it.”
A Home Office spokesperson told 91av that it was working closely with police forces and academia to “crack down on the abuse of crypto assets” and to provide new powers to more quickly and easily seize cryptocurrency assets and the right tools and training for law enforcement.
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