A recent Israeli decision is a reminder that however borderless crypto may seem, jurisdiction, process, and legal limits still matter.
As a commercial lawyer, I do not spend much of my time reading fresh case law. One of the perks of working in the business of law rather than the litigation of it is that somebody else is usually fighting the procedural wars for you. Fortunately, my colleague and good friend Amit Levin, a former prosecutor with far better instincts for what is worth reading, makes sure I do not miss the important ones.
This one – Ndorenko v. State of Israel (ע”ח 54295-12-25 נדורנקו נ’ מדינת ישראל) – was worth reading.
A recent Israeli court decision raises a question that is going to matter more and more as crypto enforcement becomes more aggressive and more global: can Israeli law enforcement freeze a crypto wallet controlled by a foreign company sitting outside Israel?
For context, these process happen all over the world, on a daily basis – my assumption was, yes, of course.
The court’s answer however was a definite ‘no’. At least not this way, and not under the law as it currently stands.
That may sound technical, but it’s not. It goes to the heart of a much bigger tension that keeps coming up in digital asset regulation: technology moves globally, instantly, and often without obvious borders. Law does not. Law is still built around jurisdiction, authority, process, and sovereignty. And every time enforcement authorities try to skip over those constraints because the technology is new, courts eventually have to decide whether the old legal limits still matter.
In this case, the court said they do.
The facts are fairly straightforward. Israeli authorities were investigating what they said was a large-scale international fraud involving crypto. They identified a wallet allegedly connected to illicit proceeds and wanted the funds frozen before they could disappear. So they approached Tether, the foreign issuer of USDT, and asked it to freeze the wallet.
This is not uncommon. Tether holds a centralized “kill switch” in its smart contracts that allows it to freeze USDT tokens on any blockchain, rendering them unusable, usually in response to law enforcement requests. The company has frozen over $3 billion in assets from over 7,000 addresses between 2023 and 2025.
But back to our story. After reaching out to Tether, kindly ‘asking’ it to freeze the assets, the authorities obtained a court order instructing Tether to do so. Tether complied, and more than 10 million USDT was frozen. The wallet holder, who was not Israeli, challenged the move and argued that whatever suspicions existed, the freeze itself had no proper legal basis.
And that is where things got interesting.
Because the real issue was never whether the state suspected wrongdoing. The real issue was whether Israeli authorities actually had the power to do what they did. Not whether it was efficient. Not whether it was understandable. Not whether it would have been useful from an investigative standpoint. Whether they had the legal authority.
The court held that they did not.
The reasoning is important, and in truth, not especially radical. It rests on one of the most basic ideas in public law: state power is territorial unless legislation clearly says otherwise. Israeli criminal procedure law governs what Israeli authorities can do in Israel, under Israeli law, through Israeli courts. It does not automatically empower them to compel a foreign company operating abroad to seize or freeze property outside the state. In other words, an Israeli court order is not some magical global instrument just because the asset in question happens to live on a blockchain. If the entity with actual control is a foreign company outside Israel, jurisdiction is still a real problem.
That point matters because crypto often encourages people to ask the wrong jurisdictional question. They ask: where is the asset? But for enforcement purposes, that is often not the most useful question. The better question is: who can actually control it? Here, the answer was Tether. And Tether is not Israeli. So whatever one thinks about the abstract “location” of USDT on a blockchain, the act of freezing it was still an extraterritorial act aimed at a foreign actor. The technology did not make the jurisdiction problem disappear. It just dressed it up differently.
The state tried to get around this by arguing that Tether acted voluntarily. The court was not impressed.
And rightly so.
There is something slightly too convenient about calling a foreign company’s compliance “voluntary” when the sequence is: police request, then court order, then compliance. At some point, the law has to look at substance rather than labels. If state authorities trigger a process designed to produce a coercive outcome, they do not get to avoid scrutiny by saying the final actor technically had a choice. The court saw that clearly. What happened here was not ordinary commercial discretion by a private company. It was state-driven interference with a person’s property rights without a proper legal basis. Calling it voluntary did not change that.
That part of the judgment is especially important, because there is a growing temptation in digital enforcement to rely on “informal cooperation” with centralized intermediaries. Stablecoin issuers, exchanges, custodians, front-end operators, infrastructure providers – all of them are increasingly treated as points of leverage. And sometimes they are. But that does not mean the state can use them as an off-the-books enforcement arm whenever formal legal channels are slow or inconvenient.
Which brings us to what the court said the authorities should have done instead: use mutual legal assistance.
That may sound boring. It is supposed to sound boring. Most lawful enforcement is boring. That is part of the point.
Mutual legal assistance frameworks exist precisely for cases like this – where one state wants action taken in another state or against a foreign actor. They are slower, yes. They are more cumbersome, yes. But they also preserve something important: process. They route requests through the proper channels, allow the relevant jurisdiction to control enforcement within its own territory, and provide procedural safeguards for the affected party. You can criticize those systems for being inefficient, but you cannot simply pretend they are optional because blockchain moves quickly. The court’s message was simple and correct: efficiency does not justify bypassing legal structure.
The property-rights point is equally important. Freezing a wallet is not some light-touch administrative act. It is not content moderation. It is direct interference with identifiable property. That matters because once you are talking about depriving someone of access to property, the legal threshold has to be higher. You need clear statutory authority. General policing powers are not enough. That is especially true in crypto, where the technical ease of intervention can create the illusion that the legal consequences are somehow lighter. They are not. A wallet freeze can affect a person’s assets, business, liquidity, and reputation in very immediate ways. The fact that the property is digital does not make the interference any less serious.
The state also tried to analogize the case to prior situations in which authorities cooperated with online platforms to remove unlawful content. That analogy was always weak, and the court treated it as such. There is a real difference between a platform deciding what user-generated content it will host and the state effectively causing the seizure of specific assets belonging to a specific person. One is content governance. The other is interference with property. They are not the same category, and they should not be governed by the same legal instincts.
What makes this decision especially useful is that it does not descend into the usual techno-mysticism that often infects crypto cases. It does not pretend blockchain exists in some lawless vacuum. But it also does not accept the opposite extreme – the idea that because enforcement is hard, ordinary jurisdictional constraints should become optional. Instead, the court does something more disciplined. It acknowledges the realities of digital assets, but insists that if the law is going to adapt, it has to adapt through legislation and proper international mechanisms, not improvised enforcement shortcuts.
That is exactly right.
Because this case is not really about whether the police had a good reason to be concerned. Maybe they did. The court did not say otherwise. It did not dismiss the investigation. It did not bless the wallet holder. It simply said that the means used were unlawful. And that distinction matters. A legal system worth taking seriously does not measure the legality of state action only by how sympathetic the target is. It measures it by whether the state acted within the limits of its authority.
There is an easy temptation in cases like this to focus on the wrong thing. To ask whether the authorities were chasing bad actors. To ask whether the funds were suspicious. To ask whether the outcome was understandable.
Those are not irrelevant questions. But they are not the first question.
The first question is whether the state had the power to do what it did.
That is the question the court answered. And its answer was the right one.
Because once we accept that digital assets are somehow different enough to justify making jurisdiction up on the fly, it becomes very hard to say where that logic stops. If legal authority can simply expand to match technological convenience, then “borderless” stops being a feature of crypto and starts becoming an excuse for state overreach.
That should make lawyers uncomfortable. It should make policymakers uncomfortable too.
If the law no longer fits the facts of digital finance, then the law needs to be updated. But until that happens, the answer cannot be to blur the line between what is useful and what is lawful.
Crypto may be borderless. State power is not.
