Money laundering: digital assets.

A new Penal Code Section 186.9 was added providing chapter-wide definitions for terms including 'conducts,' 'financial institution,' 'transaction,' 'monetary instrument,' 'criminal activity,' 'foreign bank draft,' and 'digital asset.' The definition of 'digital asset' is: any digital representation of value recorded on a cryptographically secured distributed ledger or other similar technology. This section sunsets January 1, 2032.

Section 186.10 (money laundering) was amended to explicitly include 'digital assets' as a covered instrument. The crime now applies to transactions involving 'a monetary instrument or instruments or digital assets' and requires the prosecution to show the person knew 'the monetary instrument or digital asset represents the proceeds of' criminal activity. This broadens the money laundering statute to directly cover cryptocurrency and similar digital value.

The bill now includes a structured sunset mechanism: amended sections (186.9 and 186.10 with digital asset language) remain in effect only until January 1, 2032, and replacement sections without the digital asset provisions become operative on that same date. This ensures the digital asset money laundering and forfeiture provisions automatically expire after approximately six years.

The forfeiture provision (Section 186.13) was updated to add 'custodians of digital assets' to the list of entities from which digital financial assets may be seized via search warrant, alongside centralized exchanges and addresses.

The bill's title was expanded to reflect that it now amends, repeals, and adds Sections 186.9 and 186.10 (previously only 186.10), and adds and repeals Section 186.13. Section numbering was reorganized throughout.

A sunset clause was added to Section 186.10: the expanded money laundering provision covering digital financial assets expires on January 1, 2032, at which point a replacement version of the section (without the digital financial asset language) becomes operative.

Unclaimed forfeited digital financial assets are now deposited into the Restitution Fund exclusively for victim services, instead of being distributed to the General Fund of the state or a local governmental entity's general fund.

The bill's appropriation designation was changed from 'no' to 'yes,' reflecting that the Restitution Fund provision constitutes an appropriation.

The final forfeiture judgment is no longer absolutely unappealable; it may now be reviewed by a writ of mandate from the court of appeal, with ownership transferring 30 days after the judgment unless a stay is issued.

The court's authority to adjudicate claims without a hearing was changed from mandatory ('shall') to discretionary ('may'), giving courts more flexibility in how they resolve verified claims.

If no forfeiture proceeding is initiated within 180 days of a seizure, seized digital financial assets 'shall' be returned to the party from whom they were seized (previously permissive language 'may shall be returned').

A new Section 186.10 was added that becomes operative on January 1, 2032, which is essentially the pre-amendment version of the money laundering statute without any reference to digital financial assets, ensuring a clean transition when the sunset expires.

The probable cause standard for seizing digital financial assets was narrowed. Previously, seizure could be based on proceeds of 'a crime' or use to facilitate 'a crime' broadly. Now it is limited to specific enumerated crimes (Penal Code sections 211, 484, 496, 518, 530.5, 532) or crimes listed in subdivision (c) of Section 803, plus a new third category for money laundering under Section 186.10.

Undistributed forfeited digital financial assets are now deposited into the Restitution Fund exclusively for victim services, instead of being distributed to the General Fund of the state or a local governmental entity's general fund. This makes the bill an appropriation and changes the vote requirement from majority to two-thirds.

A new requirement was added that the prosecuting agency must establish by preponderance of the evidence, in a declaration attached to the forfeiture application, that the seized property falls within the statutory criteria. The court must summarily dismiss the application if this showing is not made.

A new requirement was added that the court must make a finding on the record establishing by preponderance of evidence its jurisdiction over the property at issue before proceeding with forfeiture.

The final forfeiture judgment is no longer unappealable. It may now be reviewed by a writ of mandate from the court of appeal, and ownership does not transfer to the prosecuting agency until 30 days after the judgment unless the court of appeal issues a stay.

A new provision allows parties to conduct discovery in accordance with the Code of Civil Procedure when the court sets a hearing on a claim, subject to court permission.

The 30-day claim filing deadline can now be extended if a potential claimant files a request for extension with a declaration showing good cause, rather than being absolutely fixed as before.

If no forfeiture proceeding is initiated within 180 days of seizure, the seized assets must now be returned (changed from 'may be returned' to 'shall be returned'), making return mandatory.

Claim filing requirements were restructured: identity documentation (name, date of birth, nationality, photo of ID) now applies only to natural persons. A new provision allows legal entities recognized by California law to file claims using their registered name, business address, and authorized representative contact information.

A new provision requires the court to seek to protect the legitimately acquired interests of innocent third persons, including family members as defined in Family Code section 6650(c), who were not involved in criminal activity.

The condition for seizing substitute digital financial assets was broadened from 'if the target disposed of' the relevant assets to 'if the target no longer has control of' them, covering more scenarios where assets have moved.

The court's role in adjudicating claims was changed from mandatory ('shall adjudicate') to discretionary ('may adjudicate'), giving courts more flexibility in how they handle claims.

Added language to Section 186.13(j)(4) specifying that after the three-year custody period expires, any remaining undistributed digital financial assets shall be distributed to the General Fund of the state or a general fund of a local governmental entity, whichever prosecuted the case.

Fixed a duplicate word in the bill title: 'Section 186.10 of of' corrected to 'Section 186.10 of.'

Removed a redundant 'SECTION 1.' line that appeared alongside 'SEC. 2.' in the original version, cleaning up section numbering.

New Section 186.13 added to the Penal Code creating a standalone digital financial asset forfeiture procedure that does not require a criminal conviction, unlike existing organized crime forfeiture laws.

Jurisdiction extends to digital financial assets located in any country if traceable to a crime against a California resident or a person defrauded in California, or if the possessor is a member of a money laundering conspiracy connected to such a crime.

Search warrants may authorize seizure of substitute assets if the target disposed of the relevant digital financial assets, and may cover assets related to crimes and victims in other jurisdictions as long as California jurisdiction is established.

Law enforcement may obtain search warrants to seize digital financial assets upon probable cause they contain proceeds of a crime or were used to facilitate a crime. Warrants must specify exchanges, addresses, locations, and amounts to be seized.

Law enforcement may send written requests to freeze digital financial assets for 10 calendar days while pursuing a search warrant. Exchanges and issuers are required to comply with freeze requests.

Prosecuting agencies must initiate forfeiture proceedings within 180 days of seizure or the assets may be returned to the party from whom they were seized.

Claimants have 30 days from notice to file verified claims under penalty of perjury, supported by admissible evidence. The claimant bears the burden of proving by a preponderance of evidence that the assets belong to them and were obtained by legitimate means.

Forfeited digital financial assets are distributed pro rata to victims up to the value of their actual loss. Prosecuting agencies may establish additional claims procedures for victims beyond those used in the underlying action. Undistributed assets are held for a maximum of 3 years.

Service of process may be made via email, mail, text message link, blockchain-based service, or publication, depending on whether assets were seized from a centralized exchange account or a blockchain address.

New Section 1 adds legislative findings and declarations establishing the policy rationale for the bill, including findings about transnational criminal organizations, human trafficking in scam operations, and the inadequacy of existing forfeiture laws.