With the growing popularity of cryptocurrencies, regulators are paying closer attention to bitcoin exchanges, and the latter are more thoroughly monitoring transfers. Against this backdrop, instances of blocking or freezing transactions and accounts by platforms have become more frequent.
The attorney from Juscutum law firm, Andrey Martsinyak, told ForkLog why crypto platforms block users’ funds and what to do if it happens to you.
Why did the exchange freeze or block the account or a transaction?
The most common reason for asset blocks is “suspicious” transactions. These may include:
- transactions with cryptocurrencies acquired illegally. For example, as a result of fraud or illicit activity (so-called “dirty” crypto assets);
- transactions related to transferring to a crypto wallet a sum in cryptocurrency that is too large for a particular user.
There have been cases where the exchange blocked a client’s access to funds due to a court order from a foreign jurisdiction freezing a crypto account (freezing order) while the case is being considered, noted Martsinyak.
What to do if your account is blocked?
Firstly, you should promptly initiate communication with the support team. The initiative may come from the exchange or from the client themselves.
Sometimes after a block, the trading platform immediately sends a letter with the relevant demand. This may be either a request to explain the purposes of a particular transaction, or an instruction to withdraw your crypto assets in connection with account closure without explaining the reasons.
“At this stage, it is critically important to respond as quickly as possible. Even if you have nothing to answer ‘in substance’, you should nonetheless write a letter,” emphasized Martsinyak.
The content of the reply could be as follows:
“Your letter has been received. Please allow time to collect the information you request and/or engage a lawyer to provide answers to your questions.”
A delay on the part of the client will only fuel the exchange’s suspicions, which may complicate the unlocking procedure.
Secondly, you should try to determine the reason for the freezing of the transaction or the account block.
“Why ‘to try’? Because in some cases the exchange is not entitled to disclose the reasons for blocking the account/transaction,” the lawyer noted.
To a large extent, this is connected with investigations conducted by law enforcement authorities regarding crypto assets held on the client’s account at the exchange.
Here’s how it works: the platform receives a request from law enforcement to freeze a particular transaction/account for a certain period. The reasons for the block are not disclosed in such cases, since the account holder may be suspected of committing the investigated offence.
If the exchange does explain the reasons for the block, it will become clear which documents should be provided to lift the restrictions.
Thirdly, you should be prepared to provide proof of funds. They must be proportional to the blocked amounts. Moreover, the documents should clearly describe the user’s activity.
“If you know that a large amount of funds in cryptocurrency are going to be received, it is better to prepare documents in advance proving the legality of the operation,” noted Martsinyak.
Examples of such documents include, for instance, a contract for the sale of property, funds from which you are transferring into cryptocurrencies, a bank statement, a certificate of income, and the like.
During the communication with the exchange, it is important not to harm yourself, the lawyer emphasized:
“For example, saying that you are using an account created in your grandmother’s name and verified in her name is a bad idea. Practically all exchanges have a rule that crypto assets must belong directly to the person who completed the KYC procedure, i.e., the account holder on the exchange.”
Preliminary collection of documents and their prompt provision to the platform upon request will lead to a faster unfreezing of the account and/or transaction.
“Maximum transparency of operations and preparation can safeguard your crypto assets and save your nerves,” concluded Martsinyak.
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