By Manuel Dueñas, Senior Fraud Lawyer at Crypto Legal. 

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Cryptocurrency fraud has evolved alongside the rapid growth of digital assets. As cryptocurrencies have become a mainstream component of global finance, fraudsters have increasingly exploited the borderless nature of blockchain technology to move stolen assets across multiple jurisdictions. For several years, victims faced a difficult reality: once digital assets were transferred through international exchanges and wallet networks, legal recovery options were often uncertain.

The legal and regulatory environment in 2026 looks markedly different. Regulatory frameworks, particularly the European Union’s Markets in Crypto‑Assets Regulation (MiCA), together with stronger compliance obligations for cryptocurrency exchanges and the development of blockchain forensic investigation techniques, have begun to reshape how digital asset fraud is investigated and addressed across borders. While challenges remain, the infrastructure supporting cryptocurrency fraud investigations and asset tracing has improved significantly.

Legal Recognition of Cryptoassets and the Foundations of Recovery

One of the most important developments in recent years has been the increasing recognition of cryptoassets as property within several legal systems. Courts in multiple jurisdictions have clarified that cryptocurrencies may constitute property capable of ownership, transfer and legal protection.

This recognition has important consequences for victims of cryptocurrency fraud. Once digital assets are legally recognised as property, traditional legal doctrines such as tracing, misappropriation claims and asset preservation measures can be applied to blockchain‑based transactions. Lawyers are therefore able to rely on established legal principles while adapting them to the technological realities of decentralised networks.

Courts have also become more comfortable accepting blockchain transaction records as evidential material. Public blockchains provide immutable transaction histories that can be analysed by forensic specialists to demonstrate the movement of assets between wallets, exchanges and service providers. This transparency has significantly strengthened the evidential basis for digital asset investigations.

Blockchain Forensics and Cryptocurrency Asset Tracing

The growth of specialised blockchain forensic analysis has been another critical factor in improving the investigation of cryptocurrency fraud. Advanced analytics platforms allow investigators to map transaction flows across thousands of wallet addresses and identify patterns that reveal how funds move through the blockchain ecosystem.

Even when assets are transferred through numerous intermediary wallets, forensic techniques frequently allow investigators to identify clusters of addresses controlled by the same entity. In many cases, funds eventually interact with centralised exchanges or custodial services where compliance obligations require the collection of customer identification information.

This intersection between blockchain transparency and regulatory compliance has become one of the most effective mechanisms for identifying individuals behind fraudulent activity. When assets interact with regulated platforms, lawyers and investigators may be able to engage with those institutions or relevant authorities in order to pursue investigative actions.

MiCA Regulation and the Transformation of the European Crypto Landscape

The implementation of the European Union’s Markets in Crypto‑Assets Regulation represents one of the most significant regulatory milestones in the history of digital assets. MiCA establishes a harmonised framework governing cryptocurrency exchanges, custodial wallet providers and other cryptoasset service providers operating within the European Union.

Under MiCA, regulated firms must obtain authorisation, maintain governance and risk management systems and implement robust anti‑money laundering controls. These requirements include customer due diligence procedures, transaction monitoring systems and reporting obligations designed to detect suspicious activity.

From the perspective of fraud investigations, these regulatory requirements are highly consequential. Exchanges operating under MiCA are expected to maintain compliance infrastructures capable of responding to legitimate investigative requests and cooperating with authorities when financial crime is suspected. This has gradually strengthened the ecosystem in which digital asset investigations occur.

Global Regulation and Cross‑Border Cooperation in Crypto Fraud Cases

Regulatory developments are not limited to the European Union. Several major financial centres, including the United Kingdom, the United States, Singapore and the United Arab Emirates, have introduced licensing regimes and compliance frameworks for virtual asset service providers.

International bodies such as the Financial Action Task Force have also contributed to regulatory convergence by establishing global standards for anti‑money laundering compliance within the digital asset sector. As more jurisdictions adopt these standards, cooperation between regulators, exchanges and investigators has improved.

Many exchanges now maintain specialised compliance teams capable of responding to inquiries relating to fraud investigations and suspicious transactions. This growing cooperation between institutions has strengthened the ability to follow digital assets across jurisdictions.

Challenges That Still Exist in Cross‑Border Crypto Asset Recovery

Despite regulatory progress, recovering cryptocurrency from foreign jurisdictions remains legally and technically complex. Digital assets can still move rapidly through decentralised platforms that operate outside traditional regulatory structures. Certain privacy technologies may also complicate transaction analysis.

Jurisdictional boundaries continue to present practical limitations. Legal authority to compel disclosure or freeze assets is typically confined to specific jurisdictions, which means investigators may need to coordinate responses across several countries simultaneously.

Nevertheless, blockchain transparency remains a powerful investigative tool. Even when immediate recovery is not possible, transaction analysis frequently reveals the path taken by misappropriated funds and identifies platforms involved in the movement of assets.

What Victims of Cryptocurrency Fraud Should Know

Individuals affected by cryptocurrency scams often assume that digital assets cannot be traced. In practice, blockchain transactions create permanent records that frequently allow investigators to reconstruct the movement of funds.

Timing is often critical. The earlier a forensic investigation begins, the greater the likelihood of identifying exchange interactions or service providers involved in the transaction flow.

Cryptocurrency investigations require a combination of legal expertise and technical blockchain analysis. Lawyers working in this field typically collaborate with forensic investigators to analyse transaction data, identify responsible parties and assess potential legal strategies.

The Future of Crypto Fraud Prevention and Investor Protection

As the digital asset sector continues to mature, regulatory frameworks are expected to evolve further. Policymakers increasingly recognise that cryptocurrencies are likely to remain a permanent component of global financial infrastructure.

Future regulatory developments may involve deeper cooperation between exchanges, regulators and blockchain analytics providers in order to detect suspicious activity more rapidly. Improvements in transaction monitoring technologies may also allow platforms to identify fraudulent behaviour earlier.

Although digital asset fraud cannot be eliminated entirely, the regulatory and investigative environment surrounding cryptocurrencies is becoming progressively more sophisticated. Stronger compliance frameworks and improved forensic capabilities are gradually enhancing protections for investors and market participants.

About the Author

Manuel Dueñas is a Senior Fraud Lawyer at Crypto Legal, specialising in complex cryptocurrency and blockchain related disputes. He advises clients on fraud, misappropriation of digital assets, investment scams and cross border recovery strategies.

Manuel has extensive experience in fraud investigations, asset tracing, KYC and AML compliance, and works closely with forensic experts to build comprehensive recovery plans. His practice focuses on providing clear legal strategies to individuals, businesses and financial institutions facing fraud or regulatory challenges in the digital asset sector.

The U.S. Justice Department last October announced the largest asset seizure in American history: a cache of bitcoin then valued at $15 billion tied to the Cambodia-based Prince Group that prosecutors alleged oversaw an empire of human trafficking and industrial-scale scamming.

The news offered a rare glimmer of hope for victims of sophisticated cryptocurrency scams. In part due to the ease of laundering cryptocurrencies, these victims have had a notoriously difficult time recovering their lost life savings or even getting law enforcement to begin tracing such funds.

“By dismantling a criminal empire built on forced labor and deception, we are sending a clear message that the United States will use every tool at its disposal to defend victims, recover stolen assets, and bring to justice those who exploit the vulnerable for profit,” U.S. Attorney General Pam Bondi said in a joint statement.

But in the five months since the announcement, questions and frustrations have begun to swirl around the Justice Department’s handling of the historic cache of seized funds. The Justice Department has given little indication of what it plans to do with the 127,271 seized bitcoins, currently worth around $9 billion, as it has swiftly rejected claims on the funds made by attorneys representing hundreds of alleged victims.

Daniel Thornburgh and other attorneys representing hundreds of alleged victims of crypto scams say the government is not providing a viable path for returning seized funds to rightful owners.

Victims’ advocates and attorneys fear the agency may use the funds to capitalize President Trump’s national Strategic Bitcoin Reserve, a government crypto stockpile advocated by the cryptocurrency industry.

“This would lead to victims being revictimized by their own government,” said Thornburgh.

He is part of a growing number of attorneys and victim advocates who are calling for a special victim fund to take over responsibility for the historic sum of seized assets. They argue that this alternative offers a clearer path to victims receiving restitution.

The Department of Justice declined to comment on the case.

In November, the International Consortium of Investigative Journalists and 36 partner publications released The Coin Laundry investigation that showed how cryptocurrency scam victims face immense difficulty recovering funds due to the rapidly expanding illicit crypto economy. In interviews, dozens of victims told ICIJ and its media partners that they faced financial ruin as criminals rapidly laundered their stolen funds through secretive crypto wallets. In many cases, reports to law enforcement yielded no response at all.

The U.S. seizure of billions in bitcoin from the Prince Group’s founder Chen Zhi stemmed from allegations that he operated a transnational criminal organization that used forced labor in scam compounds to defraud victims worldwide. After the group was hit with U.S. and U.K. sanctions, Chen was taken into custody in Cambodia and sent to China in January 2026.

Even as victim attorneys strategize how to get their clients’ money back, fundamental questions hang over the case, including how and when U.S. authorities obtained the funds in the first place. Attorneys say that more information could help victims make stronger claims on the assets, while the Prince Group argues the lack of detail points to a flimsy case for the government holding the crypto at all. Although the Justice Department declined to comment on how it obtained the Bitcoin, the Chinese government recently accused the U.S. of stealing it through sophisticated hacking.

The government’s indictment of Chen contains apparent irregularities that are especially striking given the case’s significance. Prosecutors’ evidence against Chen relied in part on photographs alleged to illustrate the Prince Group’s violent methods.

ICIJ confirmed that one disturbing photo included in the indictment showing a man bound to an overturned chair appears to have nothing to do with the Prince Group. The exact photo was part of a light-hearted post published on a Mongolian-language website in April of 2020, describing an unusual medical incident. In another case, a man portrayed in the indictment as a victim of the Prince Group told ICIJ in an interview he had never been the victim of organized crime.

Victim claims have been swiftly rejected

When government authorities seize assets, they can keep those assets for public sector use, distribute the assets to victims who lost money to the crime in question, or do a combination of both. The process of determining if and how assets should be returned to victims is complicated and can take years.

In the wake of the Prince Group seizure, one U.S. senator said the assets could be used in part to strengthen Donald Trump’s national strategic bitcoin reserve, a U.S. government stockpile of cryptocurrency that industry proponents say will help boost the prominence of bitcoin. At the same time an array of alleged scam victims and their lawyers flooded the Justice Department with claims on the seized assets.

The department rapidly rejected many of them, asserting a wide variety of reasons why the victims had no legitimate claims, including that victims had not put forth specific evidence linking their cases to the seized funds and that they had no legal basis to credibly claim the funds in the first place.

Victims and their attorneys told ICIJ that a troubling picture is emerging of a Justice Department that appears set on rejecting claims.

Without more information about the seizure, scam victims are at a disadvantage because the alleged laundering was highly complex, making it difficult to directly link any specific scam to the cache of digital currency, according to lawyers.

“What’s happening here is not normal at all,” said Marc Fitapelli, a New York-based attorney who represents victims of cryptocurrency scams. “There should be an independent person appointed by the court to have control over these assets.”

Thornburgh told ICIJ that recent conversations with Justice Department lawyers convinced him that the government was committed to denying victim claims, so he booked a trip to Cambodia on a long-shot mission to collect additional evidence linking his cases to the Prince Group. Thornburg said he spent a grueling week in early March interviewing dozens of former workers at the country’s notorious scam compounds, but had little luck finding the documentation to connect his client’s cases to the DOJ’s seized funds.

“It was an incredible amount of work to demonstrate what I probably already knew, which was: this was going to be impossible,” Thornburgh said. “Even if I was successful, victims or their lawyers should not have to travel all the way across the world to recover their assets.”

Thornburgh expressed concern about the Justice Department’s tactics in a separate high-profile crypto forfeiture action announced in June. Last month, government attorneys argued that victims did not deserve to recover funds from this seizure because the victims had freely given it away to scammers. “Although their voluntary transfers may have been induced through misrepresentations, those transfers were made voluntarily nonetheless,” the Justice Department said in a filing.

Several experts pointed to legislation as the most promising path to recovering victim funds. Erin West, the founder of Operation Shamrock, an advocacy group for victims of cyber scams, told ICIJ the organization would be working with partners to push for legislation that allocates the seized funds to victims. “We have an amazing opportunity to put found assets back into the hands of those who deserve it most,” West said.

Fitapelli said that a call with Justice Department lawyers last month yielded little in direct answers. “I was told that victims will be contacted by the government if/when the DOJ determines it is appropriate,” he said. “So victims should hope that some lawyer at the Justice department stumbles on their file and contacts them? This is so unfair.”

Deeper questions about the money

Scam victims aren’t the only ones seeking more information from the Justice Department about the case.

Almost immediately after the government’s announcement of the historic seizure, cryptocurrency experts began to ask basic questions about the origin of the enormous pile of bitcoin. According to the U.S. officials, the Prince Group’s alleged laundering methods diverted proceeds of fraud to fund a bitcoin mining company called LuBian that created new, “clean” bitcoins. Attorneys representing thousands of alleged victims of Iranian terrorism say that this bitcoin mining operation had extensive ties to Iran and are also making claims on the seized bitcoin.

But there is a twist in the history of these coins: On the blockchain, the publicly available ledger of most cryptocurrency transactions, experts could see that the huge sum of seized bitcoin, which was reportedly stolen by an unknown hacker in 2020 and then sat dormant in crypto wallets of unknown ownership for years. This crypto remained untouched between late 2020 and mid-2024, when the cache of bitcoin moved to a new set of wallets where it has remained since, crypto analyst Yury Serov told ICIJ.

The U.S. government filings that ICIJ reviewed do not provide details on how it came into possession of the bitcoin. This lack of an official explanation has created an opening for speculation among experts, interested parties and a rival superpower. A Chinese cybercrimes agency recently suggested that the U.S. government originally stole the bitcoin through sophisticated hacking in 2020.

Last week, lawyers representing Chen demanded that the Justice Department explain how it seized the funds.

The Justice Department’s asset forfeiture filing, which describes the government’s rationale for taking the $15 billion, has also created some confusion about which victims may be entitled to the funds.

After the government announced its seizure in 2025, analysts quickly pointed out that the $15 billion in bitcoin had sat dormant in crypto wallets for years after their reported theft in 2020. Chen’s defense attorneys have argued these dormant assets have had no opportunity to commingle with any money taken from scam victims after 2020. But, in its asset forfeiture filing, some of the government’s most specific descriptions of the Prince Group’s alleged scams involve frauds that took place in 2021 and 2022 — after the seized bitcoin went dormant.

Attorneys for Chen last week criticized the asset forfeiture complaint’s use of these alleged crimes to justify seizing money that had been out of circulation since 2020.

The Prince Group argues that the U.S. government somehow took the coins and then created a story to justify keeping them. “This indictment is simply air cover for a giant cash grab — one that both does a disservice to the victims of these crypto scams and injustice to an innocent man,” a spokesperson for the Prince Group told ICIJ in a statement.

“Prosecutors used exaggerations, deceit, and outright impossibilities to convince a court to retroactively approve their theft of Bitcoin and to convince a grand jury of everyday Americans to indict an innocent man, Chen Zhi,” the spokesperson said. “Not only did prosecutors use salacious rumors and innuendo to make wild accusations completely unconnected to Chen, they made serious errors, generated falsehoods out of whole cloth, and acted with egregious negligence all in an effort to justify their desperate, unfounded allegations.”

In court filings last week, Prince Group lawyers highlighted another possibly problematic part of U.S. authorities’ case against Chen. Several photos that the indictment claimed as evidence of wrongdoing appear to have no ostensible relationship to the Prince Group or its alleged crimes.

One of these photos, offered up by U.S. prosecutors as an example of the Prince Group’s violence, shows a man bound to an overturned plastic lawnchair. But ICIJ was able to confirm that the same photo was featured on a Mongolian-language website six years ago in a post about a man whose testicles became stuck in a lawn chair and had to be extricated from the chair by medical workers. This article contains no mention of the Prince Group or any wrongdoing.

Another photo in the indictment shows a purported victim of the Prince Group with blood flowing from a head wound. However, on a Zoom call arranged by representatives for the Prince Group, the man, who requested anonymity, told ICIJ that the photo depicted injuries he sustained in a drunken fight in 2015, and that he has never been the victim of violence by an organized crime group.

Hany Farid, a visual forensics expert at the University of California at Berkeley, confirmed that the man ICIJ spoke with via Zoom is the same person pictured in the indictment.

The Department of Justice declined to comment on the photographs.

The artificial intelligence and cryptocurrency industries spent big and lost often in this week’s Illinois primaries, an early setback for technology firms that are trying to reshape the midterm elections and establish themselves as power players in American politics.

The companies flooded the state’s Democratic primaries with millions of dollars to promote candidates they believed would have a light touch when it came to regulating technologies that have begun to upend how people do their jobs and manage their finances.

Using super PACs that are allowed to spend unlimited sums of money, they ran television advertising and distributed campaign fliers that only occasionally alluded to their industries. Instead, the messaging focused on promises to combat President Donald Trump’s administration and support liberal policies, a strategy used by other organizations like the American Israel Public Affairs Committee.

But the coy strategy did not stop the AI and crypto industries’ interventions from becoming a lightning rod in the rowdy primaries in Illinois, where there was a rare glut of open seats that led to competitive races.

The crypto-backed political action committee Fairshake spent more than $10 million against Illinois Lt. Gov. Juliana Stratton, who ultimately won the Democratic nomination to succeed Sen. Dick Durbin, D-Ill.

Fairshake and Protect Progress, which is also tied to the crypto industry, spent millions more to unsuccessfully support Stratton’s main rivals, U.S. Reps. Raja Krishnamoorthi and Robin Kelly, according to filings with the Federal Election Commission.

In Illinois’ U.S. House primaries, the tech-backed groups’ campaign spending had mixed results.

State Rep. La Shawn Ford, who had supported state legislation regulating the AI and crypto industries, won the Democratic primary to succeed U.S. Rep. Danny Davis. Fairshake spent nearly $2.5 million opposing Ford’s candidacy in a race that featured at least four other political groups spending against the progressive lawmaker or for his opponents.

Meanwhile, Cook County Commissioner Donna Miller prevailed in the Democratic primary to succeed Kelly after Fairshake spent more than $800,000 against state Sen. Robert Peters, another progressive who supported legislation to regulate the crypto industry.

That race also saw the AI-backed spending at loggerheads.

The AI-backed Think Big PAC invested more than $1 million to boost the candidacy of Jesse Jackson Jr., a former congressman who pleaded guilty in a fraud scandal in 2013. But Jobs and Democracy PAC, another AI-backed group, also mounted about $1 million in negative campaign spending against Jackson during the race.

Think Big is a subsidiary of Leading the Future, a political group that is funded by major Silicon Valley executives, including the venture capitalist Marc Andreessen. Andreessen opposes federal regulations for AI and has been a staunch backer of the Republican president’s AI policies.

Jobs and Democracy PAC, by contrast, is funded by the AI company Anthropic, which favors some safety regulations on AI as the technology develops. Both PACs opposed progressive candidates who called for relatively heavy regulations on the technologies and higher taxes on wealthy Americans.

In a bright spot for the AI industry, former congresswoman Melissa Bean won the nomination to reclaim her old seat after a crowded and intense primary. Bean was supported by about $1 million in funding from AI-backed groups.

“She recognizes that the United States must work toward a national regulatory framework on AI that creates jobs, helps us stay ahead of China, and protects the safety of kids, users, and the community,” said Josh Vlasto, a political strategist for Leading the Future, an umbrella organization for AI political groups. “Leading the Future was proud to support her campaign and looks forward to working with leaders who will prioritize innovation over doomerism.”

The late-stage infusions of cash into the Illinois races totaled almost $20 million across races and served as a declaration of both industries’ political ambitions, raising the stakes in primaries that were already hotly contested.

“Corporate money is being used to paint corporate-backed candidates as fearless progressives,” said Adam Green, co-founder of the Progressive Change Campaign Committee, a political group that works to elect anti-corporate progressives.

“The question for the Democratic Party is whether we elect people who actually believe in these positions or will we elect milquetoast candidates who give lip service to these values but don’t back them in actual policy,” Green said.

Campaign finance experts and rank-and-file voters alike are still struggling with what to make of the technology industry’s political influence.

“They’re so new to the game that public opinion isn’t very well formed about them,” said Brian Gaines, a political science professor at the University of Illinois Urbana-Champaign. “You don’t get a clear signal for who is the progressive and who is the moderate on AI and crypto policies.”

“People are wary of the technology,” Gaines said, “but they don’t know what to think yet.”

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Maya Sweedler contributed to this report.