How does one confiscate a wallet divided into an M of N scheme with the pieces located at multiple different physical locations?
They are going to have to either ask permission or torture/abduct the owner. Torture/abduction is a huge escalation from the simple account seizure of more traditional assets.
Ask the owner of Silk Road how that worked for him. Are you seriously refuting that the US government can't seize bitcoins from you with jurisdiction if they wanted to?
Yeah, because Ross Ulbricht was so security conscious that he stored his bitcoins in an M of N scheme with the pieces locked at multiple different physical locations, right? Oh yeah, that's right, he didn't do that.. in fact if you believe the FBI's spiel he was so incompetent when it comes to security that he misconfigured his captcha giving away Silk Road's real IP address.
He also wasn't (under U.S. law) the kingpin of an international criminal organization or anything like that, right? The government simply kidnapped him to steal his bitcoins, it's not like he did anything illegal to draw so much attention from the feds.
At least in the United States, you typically cannot be compelled to give up an encryption key, but that doesn't mean the authorities can't use it if they happen to find or crack it (or if you give it up voluntarily). If he had a 2 of 3 wallet and the feds only found one of those three keys, they couldn't access his coins and they couldn't compel him to give up the other two keys. Even if they could (legally, through an order of the court) compel him to give up those keys, what's the worst that could happen if he doesn't comply? He goes to prison? He's already facing a possible life sentence, giving up evidence against himself wouldn't make his life any easier or keep him out of prison so what incentive would he have to comply instead of simply ignoring the order and being held in contempt? I'd think his odds of ever seeing the outside of a prison again would be much better if he simply claimed he didn't know the other two keys and stuck to that story than if he gave up the keys (testimony and evidence against himself which would prove his guilt beyond any reasonable doubt).
ETA: In fact, with only the one key, they may or may not even be able to prove that the key could be used to sign transactions for a given P2SH (starts with 3) address. That would depend on whether or not the P2SH script has ever been revealed on the blockchain. If the same key had also been used as a traditional P2PKH (starts with 1) address with some incoming and outgoing transactions it could potentially create some plausible deniability even if the P2SH script was known, so it would be in his best interest not to reveal those two keys even if threatened with contempt of court.
Nice try, though.
I've got an idea, let's run a website that is a marketplace for illegal drugs while living in the US! Who's with me?
A trained monkey is probably more security conscious.
^ this
Let's also do it with an improperly configured server that leaks its IP address even over TOR. On top of that, why not use our real names when we rent the servers? We should probably also talk about it on bitcointalk and stack overflow using accounts that could be linked to our real identities, just to be on the safe side.