How to Properly Seize Bitcoins
As an investigator or the seizing agent, it is essential to know the types of wallets encountered. The type of wallet will dictate how to proceed with seizing the contents of that wallet.
Most US-based coin exchanges must comply with US regulations concerning anti-money laundering and comply with the legal process. Therefore, if the exchange will comply, serve the exchange with an Order of Seizure signed by a court of record. This will allow the seizing agency to transfer the cryptocurrency from a hot wallet to an agency-controlled wallet.
What to do when the cryptocurrency is in a hot wallet and the exchange cannot be compelled with legal process or when exigent circumstances exist, and service of an order is impractical?
The following process should be followed in the presence of a witness.
Create a cold wallet using an agency-maintained computer by visiting bitaddress.org
Utilizing a screen capturing solution, or screenshot the final result, document the information concerning the cryptocurrency to be seized.
A test transfer of a small amount of the cryptocurrency to be seized must be completed while documenting that the transfer from the target wallet to the seizing agency’s wallet occurred and that it was successful. Use the private key for the target wallet to make the transfer.
Once the test transfer is documented as successful, again, while using a screen capturing solution, initiate a transfer for the remaining cryptocurrency to be seized to the seizing agency’s wallet. If there is more than one private key for the same target wallet, transfer the cryptocurrency to the same agency-controlled wallet.
A good practice is to keep the funds separated by case and wallet. Create a new wallet for each wallet that is the target of seizure per case. Do not co-mingle funds.
The transfer from the target wallet to the agency-controlled wallet can then be verified via the blockchain while utilizing a screen recording solution.
Make a backup of the agency-controlled cold storage wallet onto removable media such as CDs, DVDs, or flash drives. *One removable per wallet. *
Make a hard copy (offline) of the agency-controlled cold storage wallet to accompany the removable media. The hard copy will be on paper media. One sheet of paper per wallet per case.
Tag the items, removable media, and hard copy, per your agency’s policy, with the seizing agent and witness agent signatures.
You SHALL NOT convert the cryptocurrency into USD or other fiat currency until AFTER a court issues a forfeiture order.