San Diego Attorney for Cryptocurrency Seizures in San Diego County, California

Just like any other property, Bitcoin and other cryptocurrencies can and will be seized by the government if they are determined to be the proceeds of crime. Counterintuitively, however, seizing cryptocurrency is typically an extremely difficult process, despite the fact that every transaction is a matter of public record.

San Diego Attorney for Cryptocurrency Seizures

Asset seizures are complicated cases that involve multiple government agencies and are nearly impossible to solve on your own. Luckily, the Law Offices of Michael E. Cindrich provide legal representation to those whose cryptocurrency has been seized as a result of a local, state or federal asset seizure. If your assets have been seized your first step should be to contact experienced asset forfeiture attorney Michael Cindrich today.

The Law Offices of Michael E. Cindrich serve San Diego County, including the cities of Chula Vista, Oceanside, Escondido, Carlsbad, El Cajon, Vista, San Marcos, Encinitas, National City and La Mesa, and of course San Diego proper.

Contact Michael Cindrich today for a free consultation at (619) 262-2500.

Overview of Cryptocurrency Asset Seizures

A refresher on Asset Seizures
What a Typical Asset Seizure Case Looks Like
What is Crypto?
Cryptocurrency Asset Seizures
Cracking Wallets
How are Crypto Wallets Used in Criminal Cases?
Pseudonymity
Agencies Responsible for Asset Forfeiture Cases
Additional Resources
Hire a Cryptocurrency Asset Forfeiture Attorney in San Diego

A Refresher on Asset Seizures

Asset seizure is the process by which state or federal agencies freeze and then take control of property owned by a U.S. citizen. The government is allowed to do this so long as:

The asset is related to the proceeds of crime; OR
The asset is associated with a crime, e.g., money laundering; AND
The seizing agency obtains a seizure warrant.

While the U.S. Constitution guarantees protection for the property of all citizens, it makes exceptions for “reasonable search and seizures.” In addition, the seized asset(s) must be held safely by the government – failure to maintain the property, including losing the asset or allowing it to experience more than normal wear and tear, can result in civil suits from the person whose property was seized.

Assets are legally seized under 18 U.S.C. §§ 981(a)(1)(A), 981(a)(1)(C), 981(b), or 21 U.S.C. § 881(a)(6). Cryptocurrency specifically is seized under 18 U.S.C. §§ 981(a)(l)(A) and 981(b), which deals with monetary seizures.

Any property, real or personal, involved in a transaction or attempted transaction in violation of section 1956, 1957 or 1960 of this title, or any property traceable to such property.
Any property, real or personal, within the jurisdiction of the United States, constituting, derived from, or traceable to, any proceeds obtained directly or indirectly from an offense against a foreign nation, or any property used to facilitate such an offense

The government must specify a complaint to the judge in the district of which the asset is being held, or where the offender resides, to obtain a warrant for seizure.

What a Typical Asset Seizure Case Looks Like

Most asset seizure cases follow the same formula:

An investigation leads law enforcement to believe some asset is tied to a crime – this could be because a takeout driver can suddenly afford expensive cars or a restaurant is inexplicably successful despite having no customers.
The authorities receive a warrant from a sitting judge for the exact item(s) that they believe are the proceeds of crime – this could include property that establishes guilt, like a murder weapon or a car that they believe could have the DNA of a victim, a computer that they believe has child pornography on it, or evidence that money, or cryptocurrency was obtained via the sale of some illegal item(s) or favor.
The authorities provide notice of the seizure and seize the asset. What this actual seizure looks like depends on the asset in question. If the asset is monetary, they may contact the offender’s bank to halt any transfers and obtain a search warrant for the offender’s home(s) to collect cash; if the assets are vehicles, yachts, or other property like safes, they will work with the offender to obtain the means to operate or open the property – if the offender does not comply then the authorities utilize professional services to open or operate the property (like a safe cracker).
The property is then held in secure storage, awaiting the conclusion of the investigation
If the property is determined not to be the proceeds of crime before a trial, it is returned to the owner.
If the property is sufficient evidence to warrant a trial, it will be used during the trial.
After the trial, the property will either be returned to the owner or liquidated (sold) to cover the cost of the seizure.

What is Crypto?

Cryptocurrencies, or crypto for short, is a form of fiat, digital currency. Bitcoin is the most recognizable of these currencies, but others include Ethereum, Dogecoin, Litecoin, Solana, XRP, and more recently, USD Coin. The U.S. Government also refers to cryptocurrencies as “virtual currency.” Cryptocurrencies are held and transferred digitally in “wallets.” These wallets are more or less like stuffing one’s currency under the mattress. To access a wallet, one must provide one of two things:

A private key is a long series of letters and numbers. Private keys are 256 bits, or characters long. The time it takes to brute force, or generate a random series of letters and numbers that happen to be the same as the private key, is extremely long.
A seed phrase. The seed phrase is a recovery key that takes the form of 12, 18, or 24 random words that a person could memorize using a mnemonic device.

Unlike the United States’ “fiat” currency, which derives its value from the government that backs it, Cryptocurrency itself has no value except by the market from which it is traded. This price is typically derived from the amount of the coin that is easily generated (which, in the case of Bitcoin, is extremely limited making it an almost finite resource), and how much demand there is for the coin. Bitcoin can be traded for real-world money, however, by a “Digital Currency Exchanger” which does exactly what it sounds like.

Blockchains

Cryptocurrency is transferred via a public “ledger,” in a series of publicly accessible transactions known as the “blockchain.” This ledger keeps track of every transaction for that cryptocurrency based on the wallets “public key” or identifier, and is verified using a peer-to-peer network. A peer-to-peer network is a lot like asking your colleagues to come over to check your work.

While this public ledger should, and technically does, mean that cryptocurrency is fully traceable, it is easy to obfuscate the origin and destination of bitcoin transfers by “washing” it. This type of money laundering is also called “tumbling,” where the Bitcoin or other currency is traded in for multiple different kinds of currencies that are held across multiple accounts to confuse law enforcement. This obfuscation can be exceptionally difficult to root out; for example, It took a dedicated team the UK more than 6 years to finally trace and seize the assets of the previously mentioned food delivery worker.

Cryptocurrency Asset Seizures

In general, there are three ways that access to a cryptocurrency wallet is obtained once a warrant is issued:

From the individual, via a physical key such as a USB device
From a national cryptocurrency exchange, such as Binance – Just like a bank, governments can order the freezing of any account from a U.S. hosted cryptocurrency exchange and transfer that account to one held by the U.S. Asset Forfeiture Division
From an international company after consulting with the office of international affairs.

If the authorities are able to ascertain that a wallet with a public key has been transferred money after multiple drug deals, either directly or indirectly, on a public exchange then their job is relatively simple. However, if the currency is transferred off of an exchange, or via an international exchange, then the process of obtaining the cryptocurrency and halting its transfer is extremely difficult as it requires the private key to access and control the wallet.

The seizing agency must be able to determine that the transactions relate to a public account which is held by the alleged offender.

Cracking Wallets

Generally, the seizing agency tries to open, or “Crack” the private wallet held by the alleged offender. While it could be possible to brute force the 256 bit private key, the agency typically attempts to force the “seed phrase” that is used as the backup access to the wallet. This is accomplished by:

Searching the offenders home and belongings to see if they wrote the phrase down or screenshotted it
Asking the offender to provide the seed phrase in exchange for some favor, such as reduced sentencing or charges
The last resort is brute forcing the seed phrase. This means that the agency will use computers to guess the 12, 18, or 24 word phrase to access the wallet. This could take days, months or years, even with parallel processing.

How are Crypto Wallets Used in Criminal Cases?

Seized wallets containing cryptocurrency can be used in a criminal case to:

Prove that the offender was provided payment for an illegal good or service (e.g., paid for drugs, smuggling, or for killing another person as a hitman). This is accomplished by tracing the transaction of a known illegal activity, like an undercover agent buying drugs from the offender, to the public key of the offender’s wallet.
Prove that the offender was laundering money; this can include the offense of obstructing justice and specifically laundering money.
Prove that the offender committed fraud. Many cryptocurrency cases involve stealing Bitcoin from another person by “phishing” or setting up a fake website where they put in their seed phrase. By tracing that transaction to the offender, law enforcement can use this evidence to prove illegality.

Pseudonymity

Cryptocurrencies are what are known as “pseudo anonymous” or “pseudonymous”. This is because, while the transactions between public keys are freely available to access, you do not need to provide an SSN or other identifying information if you simply hold the currency. And while exchanges like Coinbase and Binance require Social Security Numbers and other information, others like Bitcoin ATM, Purse and other exchanges do not require anything other than an ID or SMS verification, both of which are easily faked using a fake ID or burner phone, providing plausible deniability.

Agencies Responsible for Crypto Currency Seizures

At the city level, the San Diego Police Department (SDPD)’s Financial Crimes Division (FCD) is responsible for investigating crimes committed using cryptocurrencies. While some assets may be seized after a relatively short period of time, financial crimes usually require months of lead-out to establish probable cause.

Federal seizures, conducted in partnership with the U.S. Attorney’s Office, must be conducted in consultation with the U.S. Marshals Service. Once the U.S. Attorney’s office or other seizing agency has seized the currency, it must be transferred to the U.S. Marshal’s wallet, where it will be held until further action. The government is under no obligation to liquidate the asset immediately, and has the authority to allow its value to appreciate before it is sold.

Additional Resources

U.S. Asset Seizure Manual – Read the United States manual on asset forfeiture. The manual, which covers more than 200 pages, includes information on when, how, and who can proceed with asset forfeitures.

Hire an Attorney for Crypto Seizures in San Diego California

If you or someone you know has been subjected to having their assets seized, you need to contact the Law Offices of Michael E. Cindrich today. Asset seizures take a long time to plan, so you can be sure that government officials won’t take you at your word. It takes a strong, experienced defense attorney to prove that your assets were not the proceeds of crime.

Contact Michael Cindrich today for a free consultation at (619) 262-2500.