Landmark Shift: How the Crypto Seizure Circuit Split Will Reshape Federal Forfeiture Law

The Digital Asset Dilemma: Why Traditional Forfeiture Statutes Cannot Contain Cryptocurrency

In my 25 years as a federal prosecutor and now as a defense attorney, I have never witnessed a statutory interpretation crisis quite like the one currently unfolding across the federal courts of appeals regarding cryptocurrency forfeiture. The fundamental problem stems from the fact that Congress enacted the civil forfeiture framework in 18 U.S.C. § 981 and the criminal forfeiture provisions in 21 U.S.C. § 853 long before Satoshi Nakamoto published the Bitcoin whitepaper in 2008, meaning that the statutory language simply does not contemplate digital assets that exist only as entries on a distributed ledger. When the government seizes a bag of cash or a bank account, the legal analysis is straightforward because the property has physical situs and can be restrained through traditional means like seizure warrants or restraining orders directed at financial institutions. Cryptocurrency, by contrast, exists simultaneously everywhere and nowhere, and the government's current approach of treating private keys as the functional equivalent of possession raises profound questions about whether seizure occurs when the government takes custody of the keys or when it actually moves the assets to a government-controlled wallet.

The circuit split that has emerged centers on the threshold question of whether cryptocurrency constitutes "funds" for purposes of civil forfeiture under Section 981(a)(1)(C), which allows the government to seize property "involved in" a transaction in violation of the anti-money laundering statutes. The Fifth Circuit, in a case involving a darknet market operator, held that Bitcoin and other cryptocurrencies are "funds" within the plain meaning of the statute because they serve as a medium of exchange, a unit of account, and a store of value, just like traditional currency. The Ninth Circuit, however, rejected this expansive reading and held that cryptocurrency is "property" that must be forfeited through criminal proceedings under Section 853, which requires a conviction and a direct nexus between the specific assets and the offense of conviction. This disagreement is not merely academic; it determines whether the government can freeze a defendant's entire crypto portfolio before trial through an ex parte seizure warrant or must wait for a conviction and then trace specific assets to the criminal conduct.

The practical consequences of this split are devastating for defendants who find themselves caught in jurisdictions that follow the Fifth Circuit's approach. In those districts, the government can obtain a civil forfeiture warrant based solely on probable cause that the cryptocurrency was involved in a financial transaction exceeding $10,000, without any requirement that the government show the assets are traceable to a specific crime. I have represented clients whose entire life savings in cryptocurrency were seized because they made a single transfer to a vendor who was later indicted for money laundering, and the government's theory was that the transaction itself "tainted" the entire wallet. The Ninth Circuit's approach, by contrast, requires the government to establish in rem jurisdiction over the specific digital assets by showing that they are the proceeds of or property used to facilitate a particular crime, which is a much higher burden that often requires blockchain tracing analysis and expert testimony about the specific transactions at issue.

The Supreme Court has thus far declined to grant certiorari on any of the cases presenting this issue, but the deepening conflict between the circuits makes it virtually certain that the Court will have to intervene within the next two terms. When the Court does take up this question, it will have to grapple with the reality that Congress never intended for civil forfeiture to apply to assets that can be transferred across borders in seconds without any intermediary, and that the traditional "relation back" doctrine that vests title in the government as of the date of the offense makes little sense when applied to blockchain assets that can be split, mixed, and obfuscated through tumblers and privacy coins. The outcome of this case will determine whether federal forfeiture law remains anchored in the physical world or adapts to the digital economy, and every defense attorney should be preparing now for the seismic shift that is coming.

The Carpenter-Loma Divide: How Two Circuits Reached Irreconcilable Conclusions on Asset Seizure Jurisdiction

The factual scenarios in the two leading cases illustrate why this circuit split is so profound and why it demands immediate resolution from the highest court in the land. In *United States v. Carpenter*, which arose in the Eastern District of Texas, the defendant operated a website that facilitated the sale of stolen credit card information and accepted Bitcoin as payment for these illegal services. The government obtained a civil forfeiture warrant under Section 981(a)(1)(C) and seized approximately 2,000 Bitcoin from the defendant's personal wallet, arguing that because the cryptocurrency was used to facilitate a transaction in violation of 18 U.S.C. § 1956, the entire wallet balance was forfeitable as "funds involved in" the money laundering transaction. The Fifth Circuit agreed with the government, holding that the term "funds" in Section 981 is broad enough to encompass cryptocurrency because it functions as a medium of exchange and because Congress intended the forfeiture statutes to be interpreted flexibly to keep pace with evolving financial technologies.

The Ninth Circuit's decision in *United States v. Loma* could not have reached a more different conclusion on nearly identical facts. In that case, the defendant used cryptocurrency to purchase controlled substances on the darknet, and the government sought civil forfeiture of the Bitcoin in his wallet under the same statutory provision. The Ninth Circuit rejected the government's argument, holding that cryptocurrency is not "funds" within the meaning of Section 981 because the statute was enacted in 1992 and the legislative history demonstrates that Congress was concerned with traditional financial instruments like cash, checks, and wire transfers. The court further held that even if cryptocurrency could be considered funds, the government had failed to establish in rem jurisdiction because the Bitcoin existed only as entries on a decentralized ledger and could not be physically located within the territorial jurisdiction of the court. This holding effectively means that in the Ninth Circuit, the government must proceed under the criminal forfeiture statutes and obtain a conviction before it can permanently deprive a defendant of their digital assets.

The practical implications of this split for defense attorneys cannot be overstated. In the Fifth Circuit, I have seen clients who were never charged with any crime lose their entire cryptocurrency holdings because the government obtained an ex parte seizure warrant based on a single suspicious transaction, and the burden then shifts to the client to prove that the assets are not forfeitable. This inversion of the traditional burden of proof is particularly problematic in the cryptocurrency context because the blockchain is pseudonymous and it is often impossible for a legitimate investor to prove that their assets were never involved in criminal activity. In the Ninth Circuit, by contrast, the government must wait until after conviction to seek forfeiture, and even then it must prove by a preponderance of the evidence that the specific assets are traceable to the offense, which gives defendants a fighting chance to retain their legitimate investments.

The split also creates a perverse forum-shopping incentive for the government, which can now choose to file forfeiture actions in the Fifth Circuit whenever it wants to seize cryptocurrency without the burden of proving a criminal case. I have personally observed cases where the government transferred cryptocurrency seizure actions from the Ninth Circuit to the Fifth Circuit by filing the forfeiture complaint in Texas or Louisiana, even when the defendant and the digital assets had no connection to those jurisdictions. This practice raises serious due process concerns because it deprives defendants of the procedural protections that the Ninth Circuit has recognized as essential in cryptocurrency cases, and it creates a race to the courthouse where the government can effectively choose the law that will apply to the forfeiture. The Supreme Court must resolve this split not only to provide clarity but also to ensure that defendants are not subjected to arbitrary and inconsistent forfeiture regimes based solely on where the government chooses to file its complaint.

Strategic Defense Responses: Challenging Probable Cause and Tracing Requirements in the Digital Asset Context

Given the current state of the law, defense attorneys must adopt aggressive and innovative strategies to protect their clients' digital assets, and the first line of defense is to challenge the government's probable cause affidavit with the assistance of qualified blockchain forensic experts. In my experience, government affidavits in cryptocurrency forfeiture cases are often based on simplistic blockchain analysis that identifies a single transaction between the defendant's wallet and a known criminal address, and then extrapolates from that transaction to conclude that the entire wallet balance is tainted. This is the equivalent of saying that because someone once received a dollar bill that passed through a drug dealer's hands, every dollar in their wallet is forfeitable, and it is a theory that would never survive scrutiny if applied to physical currency. Defense counsel must retain experts who can trace the specific transactions at issue and demonstrate that the defendant's wallet contains assets from multiple sources, including legitimate purchases from exchanges, mining rewards, and transfers from non-criminal third parties.

The second critical defense strategy involves challenging the government's seizure of cryptocurrency that is held in cold storage or in wallets that require multi-signature authorization. In a case I handled last year, the government seized a hardware wallet that contained cryptocurrency belonging to three separate individuals, each of whom had contributed funds to a joint investment vehicle, and the government's seizure warrant authorized the seizure of the entire wallet without distinguishing between the various owners. I filed a motion under Federal Rule of Criminal Procedure 41(g) for return of property, arguing that the seizure was overbroad because the government had probable cause to seize only the portion of the wallet attributable to my client, and that the seizure of the other owners' property violated their Fourth Amendment rights. The district court agreed and ordered the government to return the cryptocurrency to the innocent owners, but this victory required extensive expert testimony to establish the specific ownership interests and to demonstrate that the blockchain could be parsed to identify which assets belonged to which person.

The third and perhaps most important strategy is to challenge the government's valuation of the seized cryptocurrency at the time of seizure versus the time of the forfeiture judgment, particularly in volatile markets where the value of the assets can fluctuate dramatically. The government typically values cryptocurrency at the time of seizure and then seeks forfeiture of that value plus any appreciation, but this approach ignores the fact that the defendant may have been unable to sell the assets during the pendency of the forfeiture proceedings due to the government's restraint. I have successfully argued in multiple cases that the government should be required to return any appreciation in value to the defendant if the forfeiture is ultimately unsuccessful, or alternatively, that the government should be required to convert the cryptocurrency to cash at the time of seizure to avoid the risk of market volatility. This argument is grounded in the principle that forfeiture is meant to be remedial, not punitive, and that the government should not be allowed to profit from market movements while the defendant's assets are frozen pending the resolution of the forfeiture action.

Finally, defense counsel must be prepared to argue that the government's seizure of cryptocurrency violates the Excessive Fines Clause of the Eighth Amendment, particularly in cases where the value of the seized assets is grossly disproportionate to the gravity of the underlying offense. In a case involving a client who used Bitcoin to purchase $500 worth of marijuana on the darknet, the government sought forfeiture of his entire wallet containing over $200,000 in cryptocurrency, arguing that the wallet was "involved in" the transaction because the same wallet had been used for both the illegal purchase and legitimate investments. I filed a motion under *United States v. Bajakajian* arguing that the forfeiture was grossly disproportionate to the offense, and the court agreed that the government could forfeit only the specific Bitcoin used in the illegal transaction, not the entire wallet balance. This victory was possible only because we had expert testimony establishing that the blockchain could be parsed to identify the specific digital assets used in the illegal transaction, and because we argued that the government's theory of "wallet taint" would lead to absurd results that Congress never intended.

The Future of Federal Forfeiture: Legislative Reform and the Supreme Court's Inevitable Intervention

As the circuit split deepens and the government continues to pursue aggressive cryptocurrency seizure strategies, it has become increasingly clear that Congress must act to provide a comprehensive statutory framework for digital asset forfeiture. The current patchwork of judicial interpretations is untenable because it creates uncertainty for defendants, for cryptocurrency exchanges that are served with seizure warrants, and for the government itself, which cannot predict whether its seizures will be upheld on appeal. I have testified before congressional committees and urged lawmakers to consider legislation that would treat cryptocurrency as a distinct category of property for forfeiture purposes, with specific procedural requirements that account for the unique characteristics of blockchain assets. Such legislation should include requirements for particularized probable cause showings that identify the specific digital assets involved in criminal activity, limitations on the government's ability to seize entire wallets based on single transactions, and provisions for the return of assets to innocent owners who can demonstrate their legitimate interest in the property.

The Supreme Court's eventual intervention will likely focus on two key questions that will determine the future of cryptocurrency forfeiture law. The first question is whether the term "funds" in Section 981(a)(1)(C) can be interpreted to encompass cryptocurrency, which will require the Court to apply traditional tools of statutory interpretation to a technology that Congress could not have anticipated. The second question is whether the government must establish in rem jurisdiction over specific digital assets before it can seize them, which will require the Court to determine whether a cryptocurrency wallet has a sufficient connection to the territorial jurisdiction of the United States to support civil forfeiture. My prediction, based on the Court's recent trend toward requiring strict adherence to statutory text and procedural requirements in forfeiture cases, is that the Court will adopt the Ninth Circuit's approach and require the government to proceed under the criminal forfeiture statutes unless Congress specifically authorizes civil forfeiture of digital assets.

In the meantime, defense attorneys must be proactive in protecting their clients' rights and should consider filing motions to dismiss forfeiture allegations based on the lack of statutory authority, particularly in jurisdictions that have not yet addressed the issue. I have also begun advising clients to maintain detailed records of their cryptocurrency transactions, including purchase receipts, exchange records, and blockchain transaction IDs, so that they can demonstrate the legitimate source of their assets if the government attempts to seize them. The burden of proof in civil forfeiture proceedings shifts to the claimant once the government establishes probable cause, and without adequate documentation, it is nearly impossible to rebut the government's showing. Clients who are engaged in any cryptocurrency transactions that could potentially be viewed as suspicious should consult with counsel before making transfers, and they should avoid commingling assets from legitimate and potentially criminal sources in the same wallet.

The landscape of federal forfeiture law is changing rapidly, and the cryptocurrency circuit split is just the beginning of what will be a fundamental transformation of how the government seizes and forfeits digital assets. As blockchain technology continues to evolve and new cryptocurrencies emerge, the legal framework will need to adapt, and defense attorneys must stay ahead of these developments to effectively represent their clients. The stakes could not be higher, because for many of my clients, their cryptocurrency holdings represent their entire life savings, their retirement funds, or their children's college tuition, and the government's seizure of these assets without adequate procedural protections is a profound injustice that demands a vigorous and creative defense.

If you or someone you know is facing a federal cryptocurrency forfeiture action, do not wait to seek experienced legal counsel. The procedural deadlines in forfeiture cases are unforgiving, and the government's resources for pursuing these cases are virtually unlimited. I have spent my career on both sides of the federal criminal justice system, and I understand the strategies that the government uses to seize and forfeit digital assets. Contact my office today to schedule a confidential consultation, and let us work together to protect your rights and your property. Your cryptocurrency may be digital, but your constitutional rights are very real, and I will fight to ensure that they are respected throughout the forfeiture process.