Recovery of Encrypted Assets: Challenges, Practices, and Strategies

Key Chapter Title List

1. Introduction
2. Scope, Definitions, Research Methods, and Limitations
3. Background and Challenges
4. Asset Recovery Process
5. Uncertainties in Legislative, Regulatory, and Supervisory Frameworks
6. Limitations of International Coordination
7. Gaps in Education, Training, and Practice for Crypto Asset Tracing and Seizure
8. Observed Practices and Mitigation Strategies
9. Strengthening Education and Training
10. Communication Between Law Enforcement Agencies and Crypto Asset Service Providers
11. Improving Cross-Border Cooperation
12. Restricting Access for Proliferation Countries

Document Introduction

In the global context of combating illicit finance, the recovery of criminal proceeds has become a crucial link in curbing money laundering, proliferation financing, and terrorist financing. Its effectiveness directly reflects the implementation outcomes of national counter-proliferation and anti-money laundering efforts. However, issues such as inadequate international cooperation, insufficient information sharing, lack of legislative tools, and scarcity of resources and training, coupled with the transaction speed, innovative nature, and cross-border characteristics of crypto assets themselves, make this process increasingly complex. The abuse of crypto assets by sanctioned entities further exacerbates this challenge.

This report aims to support jurisdictions with lower maturity in the crypto asset field. It focuses on the core dilemmas faced by Law Enforcement Agencies (LEAs) and Crypto Asset Service Providers (CASPs) throughout the entire lifecycle of crypto asset recovery and systematically reviews existing practices and mitigation strategies. The report does not address specific legal or legislative recommendations but concentrates on practical problem-solving and summarizing experiences.

The research is based on semi-structured interviews conducted between May and July 2024 with 27 experts in crypto asset recovery from the United States, Europe, Africa, and Southeast Asia. The participants include representatives from law enforcement agencies, crypto asset service providers, and blockchain analysis tool companies. The study also incorporates a comprehensive review of policy documents, academic research, and grey literature. The selection of expert samples was based on their firsthand experience in the cryptocurrency and asset recovery fields, and the research process strictly adhered to the principle of anonymity.

The main body of the report is divided into two parts: The first part systematically elaborates on the background environment and core challenges of crypto asset recovery, including uncertainties in legislative and regulatory frameworks, limitations of international coordination, and deficiencies in education, training, and practice related to crypto asset tracing and seizure. It also provides a detailed analysis of the unique differences between traditional asset recovery processes and crypto asset recovery. The second part focuses on presenting observed practical strategies, including strengthening education and training, optimizing communication mechanisms between law enforcement agencies and crypto asset service providers, and improving cross-border cooperation. It also specifically discusses the specific challenges and responses in restricting access to crypto assets for proliferation countries such as North Korea.

The report pays special attention to North Korea's use of crypto assets to evade international sanctions and fund weapons of mass destruction programs. It analyzes their money laundering techniques and cross-border transfer pathways, providing an evidence-based reference for the global fight against such illicit activities. By integrating expert insights and practical cases, this report offers key guidance for low-maturity jurisdictions to build an effective crypto asset recovery framework and enhance their capacity to combat illicit finance.