Crypto-Asset Recovery: Challenges, Observed Practices and Strategies

The international community continues to face challenges in recovering criminal proceeds. Financial crime risk practitioners recognise the recovery of criminal proceeds as a crucial component in combating illicit finance, as it reduces the profitability of crime and deters potential offenders. It also serves as a primary indicator for the effectiveness of countries’ counter-proliferation and anti-money-laundering efforts.

Yet problems persist with international cooperation, information sharing and a lack of appropriate legislative tools, resources and training. The nature of crypto assets also introduces an additional layer of complexity to an already difficult process. Furthermore, sanctioned actors exploiting crypto assets for obfuscation and sanctions evasion exacerbate the issue.

In this context, jurisdictions seeking to combat proliferation finance and money laundering must prioritise the development of effective and robust crypto-asset recovery frameworks.

This guide aims to support less crypto-mature jurisdictions by highlighting the challenges that law enforcement and crypto-asset service providers (CASPs) face throughout the crypto-asset recovery lifecycle. It also documents existing practices and mitigating strategies to tackle such challenges. This guide does not provide recommendations on legal and legislative matters, as those are beyond its scope and purpose.

Informed by expert interviews and a review of grey and academic literature, the guide identifies three key challenges to effective crypto-asset recovery:

1. Uncertain legislative, regulatory and supervisory frameworks.
    
2. Limited international coordination.
    
3. Limited education, training and practice of crypto-asset tracing and confiscation.

The guide also provides an overview of observed practices and strategies identified and discussed in interviews. These strategies target specific issues facing practitioners and tackle a wide range of approaches adopted by subject matter experts (SMEs) across the end-to-end crypto-asset recovery lifecycle. These can be categorised under the following headings:

• Clarifying communication formats between law enforcement agencies and CASPs.
   
• Improving cross-border cooperation.
   
• Enhancing education and training on asset tracing, pre-seizure planning, storage and volatility management (including guidance to navigate uncertain legislative, regulatory and supervisory frameworks).

Finally, the guide explores the challenges associated with tracing and seizing North Korean crypto assets as reported by SMEs. The crypto community is aware of North Korea’s exploitation of crypto assets to generate revenue and evade international sanctions. It seeks to support global efforts to restrict North Korea’s access to this significant revenue source, which could be used to acquire goods or services that advance its WMD programmes, posing a serious threat to global security.