Tracing methods

Analytical rules used to allocate illicit and legitimate funds when they are commingled at an address or within a transaction. These rules are accounting conventions, not records of which specific units of value were spent. Results can differ significantly depending on the method chosen, which should always be stated.

• FIFO (First In, First Out): funds are treated as leaving in the order in which they arrived.
• LIFO (Last In, First Out): the most recently received funds are treated as leaving first.
• Haircut (pro-rata): each outgoing transfer is assigned the same proportion of illicit funds as the balance from which it is paid.
• Poison: any transfer from a balance containing illicit funds is treated as entirely illicit. This is the most expansive of these rules.
• LIBR (Lowest Intermediate Balance Rule): the amount of illicit funds traceable through an address cannot exceed the lowest balance held between the receipt of the illicit funds and the point at which tracing is assessed. The rule assumes that the holder spends their own legitimate funds first, preserving the illicit funds for as long as the balance permits. Once the balance falls below the original illicit amount, subsequent legitimate deposits do not restore the traceable amount.

These methods are particularly relevant when funds are commingled and their individual paths cannot be established directly. LIBR derives from common-law tracing principles and is used in some asset-recovery proceedings. Its legal applicability depends on the jurisdiction and the proceedings involved; analytical tracing conventions do not automatically determine legal ownership or entitlement to recovery.