Tax Agents ‘Confiscate’ Bitcoin From Criminal but Keep the Coins in His Wallet

The announcement from the tax administration comes after a court in the capital Riga decided in October that the cryptocurrency had been involved in criminal activity and must be confiscated from a convicted person.

Prosecutors alleged that the digital money had been obtained illegally and used for settlements between criminals. “The gathered evidence provided sufficient reason to conclude that this cryptocurrency was obtained in a criminal way and is connected to a criminal act”, Kurzeme District prosecutor Inese Lindberga stated, quoted by the Latvian TV3 channel.

The State Revenue Service of Latvia (SRS) has seized some bitcoins for the first time. The cryptocurrency, allegedly acquired through illegal means, is still being stored in the wallet set up by a criminal. Experts have expressed concerns about the risk of the money disappearing as officials continue to insist only government agencies have access to the wallet.

Latvian Tax Authority Seizes Crypto Months After Court Order

Tax Agents 'Confiscate' Bitcoin From Criminal but Keep the Coins in His Wallet

State Revenue Service of Latvia

Obviously, it’s taken months for the SRS to get hold of the crypto. Initially, the tax agents weren’t ready to disclose too much information about their first attempt at seizing cryptocurrency and refrained from official comments on the case. Now the authority says it has obtained the “access details” to the wallet and fulfilled the court order. It remains unclear, however, if the SRS has the seed phrase or the password, or both. Although they can be held by many people simultaneously, the agency does not think the coins should be transferred somewhere else. So the supposedly confiscated crypto remains in the original wallet used by the criminal.

Quoted by the Jauns.lv news outlet, IT specialist Kirill Solovyov commented that SRS officials were lucky this time because they were able to gain access to the wallet. But it’s strange, Solovyov noted, that the bitcoins are still stored in the same wallet, the password for which its convicted owner should still remember. Despite the obvious risk for the digital cash, an SRS representative insisted:

We have confidence that no one except government agencies will use this wallet.

The Baltic country’s revenue service does not recognize any coins as currencies but classifies decentralized cryptocurrencies as property. The wallet in question contains only around 0.022 BTC, worth €215 at the time of writing, which has been put up for public sale already. Individuals or entities that are interested in buying the crypto can file an application with the SRS to obtain the wallet with the digital cash – that’s if it’s still there.

Even Confiscation of Cryptocurrency Requires Some Qualification

The case in Latvia isn’t the first involving the sale of cryptocurrency seized by a government institution and the amount is quite insignificant. Just recently, U.S. authorities started accepting bids for over 4,000 forfeited bitcoins, worth $37 million at the time of the announcement, which will be auctioned off by the U.S. Marshals Service later this month, as news.Bitcoin.com reported. But the Latvian story shows that officials in many countries may still lack the knowledge or the legal framework to seize, store and sell bitcoin. While locating and restraining traditional assets such as property, cash, deposits, stocks and other valuables is relatively straightforward, finding and taking control of decentralized cryptocurrencies can be challenging for law enforcement agencies, judicial authorities and tax administrations.

A guide on how to do so was issued by the United Nations Office on Drugs and Crime (UNODC) in 2014. The “Basic Manual on the Detection and Investigation of the Laundering of Crime Proceeds Using Virtual Currencies” teaches officials that the best way to confiscate cryptocurrencies is to locate and establish control of the wallet they are stored in. Authorities are advised to take away the hardware device with the software and transfer the balance to a new wallet controlled by the state. Such an approach would allow them to avoid issues related to the borderless nature of the digital assets, the authors note, and the physical location would be considered as the jurisdiction for the purposes of freezing and seizure. In 2017, UNODC also held a “cryptocurrency investigation training course” for law enforcement experts from 22 countries educating them how to “tackle cryptocurrency-enabled crime.”

While in Bitcoin’s early years, tracing crypto transactions was also a major challenge for investigators, since then blockchain forensics have advanced significantly and governments have increasingly sought to acquire software and expertise from organizations specializing in these type of services. Even crypto-friendly nations, such as Ukraine for instance, are now vowing to increase oversight in the crypto space, with the country’s financial watchdog recently stating it has obtained “the latest analytical tool” capable of determining where the money comes from and even what it has been spent on previously. Ukraine, Latvia and many other nations are also introducing stricter crypto regulations to align their legislation with the new FATF standards and EU’s latest anti-money laundering directive, AMLD5.

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