Crypto wallet freezing orders: Why freezing your crypto is only the beginning

A crypto wallet freezing order (CWFO) is a legal measure that compels a cryptocurrency exchange (or other custodian of particular cryptoassets) to lock a particular account. This is done in order to prevent its owner from making withdrawals, payments or transfers from it. 

Having your cryptoassets frozen can be both alarming and unexpected. More often than not, the first time you will know about it is when your exchange informs you that it has frozen your assets following an order obtained by a law enforcement agency. No prior warning. No opportunity to respond at the outset. In many cases, the wallet holder has not been arrested or charged with a criminal offence, yet their cryptoassets become immediately inaccessible. 

This is becoming an increasingly common feature of financial crime investigations. In April 2024, the Economic Crime and Corporate Transparency Act 2023 introduced a new suite of powers to freeze assets or force UK-connected crypto providers to restrict access to a specific wallet if there is a reasonable suspicion that it contains the proceeds of crime; by amending Part 5 of the Proceeds of Crime Act 2002 (“POCA”). These include the power to obtain a CWFO, allowing law enforcement to freeze cryptoassets while an investigation continues. 

If you find yourself subject to a crypto wallet freezing order, there are three key questions you should ask immediately: 

1. Why has the order been made?
2. Can it be challenged? 
3. What should I do next?

What is a CWFO? 

A CWFO is a civil recovery power. That distinction is important. Unlike criminal proceedings, the National Crime Agency (NCA) does not need to prove that a criminal offence has been committed before seeking a freezing order. Nor does it need to secure a conviction. Instead, an officer may apply to the Magistrates’ Court where there are reasonable grounds to suspect that a crypto wallet contains recoverable property, or property intended for use in unlawful conduct. The application can even be made without notice, if giving advance warning would prejudice the investigation. 

For law enforcement, these are powerful tools. They preserve assets that might otherwise be transferred or dissipated across jurisdictions. 

For a wallet holder, however, the consequences can be immediate and severe. Individuals may lose access to substantial personal investments, and businesses can find themselves unable to continue trading if working capital is held in digital assets. 

A low threshold does not mean automatic recovery

One of the features of the legislation is that there is a low threshold required to obtain a CWFO. The court is deciding whether there is reasonable grounds to suspect that the crypto assets are recoverable property. It is also important to note that the civil standard of proof applies in such cases, meaning that investigators only need to show that on the balance of probabilities the assets are tainted.

But that does not mean that applications should simply be accepted. Many applications are ordinarily reliant on blockchain tracing, wallet attribution, exchange KYC information and financial intelligence. Whilst blockchain analytics have developed considerably in recent years, they remain an investigative tool rather than a source of evidence. Even government guidance acknowledges that these powers are intended to preserve assets while investigations continue, rather than determine ownership or criminal liability. 

From a defence perspective, it is often the assumptions underpinning the investigation that deserve the closest scrutiny. 

What should you do if your cryptoassets are frozen?

A CWFO is often the beginning, not the end of the legal process.

The first step should be obtaining specialist legal advice. These cases frequently involve an unusual combination of civil recovery law, financial investigations and technical blockchain evidence. Decisions taken during the early stages of the investigations may have a significant impact on the eventual outcome. 

Secondly, preserve your evidence. Key documentation will become important. This will include (but will not be limited to):

• Exchange records
• Wallet histories
• Transaction data
• Tax returns
• OTC agreements 
• Source of wealth information 
• Any correspondence with counterparties 

The ability to explain the source of cryptoassets is frequently one of the central issues in such cases. 

Finally, understand precisely what is alleged. Different allegations will require very different responses.

Can a CWFO be challenged?

Yes. One of the most common misconceptions is that once a CWFO is granted there is little that can be done until forfeiture proceedings commence. This is incorrect. 

POCA expressly permits the court to vary, set aside or recall a CWFO. More fundamentally, every application should be carefully scrutinised. 

Questions frequently arise regarding the reliability of intelligence gathering, wallet attribution, and whether innocent explanations have been properly explored. There may also be technical legal arguments about whether the available evidence genuinely satisfies the statutory test. 

Freezing does not mean forfeiture 

Perhaps the most important point for individuals and businesses to understand is that a freezing order is not a forfeiture order.

Law enforcement agencies such as the NCA will need to satisfy the Court that the statutory requirement for forfeiture is met before the cryptoassets can ultimately be recovered. The wallet holder will have a further opportunity to challenge the evidence and oppose the application. 

In other words, a CWFO preserves the status quo whilst investigations continue. It should not be mistaken for a judicial finding that the assets are criminal property.

Conclusion 

CWFO’s represent one of the most significant developments in the UK’s civil recovery regime since the introduction of account freezing orders. As law enforcement agencies continue to develop their cryptoassets capabilities, these powers are likely to be used with increasing frequency in investigations involving fraud, money laundering and ransomware-related matters. 

That makes early legal advice more important than ever. Those affected do not only need to understand what a CWFO is. They need to understand why it has been made and how they should protect their position before matters progress to forfeiture proceedings .