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The legislative tortoise chases the cryptoasset hare – UK Economic Crime Regulatory Reform | Perspectives & Events

October 13, 2022
in Regulations
Reading Time: 3 mins read
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The legislative tortoise chases the cryptoasset hare – UK Economic Crime Regulatory Reform | Perspectives & Events
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The UK government introduced a draft Economic Crime and Corporate Transparency Bill 2022-23 (the “Bill“) in the House of Commons on 22 September 2022. The second reading is scheduled for Thursday 13 October.

In contrast to the fast paced, evolving technology landscape, the legislative wheels of government turn slowly. The government has stated that the Proceeds of Crime Act 2002 (“POCA“) which regulates the recovery and confiscation of proceeds from criminal activities and money laundering (a) has not kept pace with the development of cryptoassets and related technology and (b) that reform of the confiscation powers is required to enable law enforcement to recover cryptoassets in more circumstances. By way of example, custodian wallet providers/crypto-asset exchanges are not currently in scope of existing account forfeiture powers.

Criminals are constantly changing the way they operate. Proceeds of crime are increasingly held in the form of cryptoassets, digital forms of assets, which cannot currently be recovered on terms equivalent or relative to criminal funds (cash, securities, etc.) held in banks or other financial institution accounts.

News powers with respect to crypto assets

The aim of Part 4 of the new Bill is to amend POCA such that it applies expressly to criminal and civil asset recovery powers as they relate to cryptoassets.  

Cryptoassets are to be defined by a new clause 84A of POCA as follows: “… a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically.”

The act of seizing a cryptoasset would include transferring it to a crypto wallet controlled by an appropriate law enforcement agency. A “Crypto wallet” is defined as “(a) software (b) hardware (c) a physical item or (d) any combination of these items – which is used to store the cryptographic private key that allows cryptoassets to be accessed“.

Amongst other things, in relation to criminal recovery, Part 4 would:

  • remove the requirement in certain circumstances that a person must have been arrested before cryptoassets can be seized;
  • make changes to the search, seizure and detention powers to make clear how they apply to crypto wallets;
  • provide magistrate courts with powers to deal with cryptoassets; and
  • provide for the destruction of cryptoassets in certain circumstances.

In relation to civil recovery, Part 4 would:

  • give law enforcement search and seizure powers in relation to cryptoassets;
  • Grant law enforcement agencies power to recover cryptoassets from third party holders;
  • provide for the freezing of crypto wallets. A “crypto wallet freezing order” may be sought if there are reasonable grounds to suspect that the crypto wallet administered by the “UK- connected cryptoasset service provider” contains recoverable property, or property that is intended for use in unlawful conduct.; and
  • enable cryptoassets to be converted into cash or destroyed in certain circumstances.

The impact assessment (“IA“) carried out by the government on the Bill states that the National Crime Agency noted an acceleration in the criminal use of cryptoassets during the pandemic.  The IA further explains that existing counter terrorism legislation does not provide for the seizure or forfeiture of cryptoassets prior to conviction, meaning that law enforcement agencies are having to rely on other, less suitable, legislative measures in order to recover, seize and preserve cryptoassets from being used for terrorist purposes.

The principal impact of the Bill will fall on law enforcement agencies. However, in the private sector, cryptoasset exchanges and custodian wallet providers will need to build operational and compliance procedures to manage the exercise of these new powers on cryptoassets they hold on behalf of retail and institutional clients.

For further high level information on the government policy position on cryptoassets see the UK Government’s Factsheet: Cryptoassets legislation.

Credit: Source link

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