Lawyers representing Priti Patel, the home secretary, made the admission at the High Court on Thursday, while fighting legal action brought by three asylum seekers.
The men, from Iraq and Iran, were all arrested on arrival in the UK despite committing no crime, and were stripped of their possessions.
British authorities kept their mobile phones for several months, leaving them unable to contact their loved ones, as one of the men feared his wife and seven-year-old daughter had been killed.
The claimants are asking the High Court to make declarations of “serious illegality”, award damages and require the Home Office to alert everyone affected by the unlawful policy.
Their lawyers estimate that hundreds or thousands of mobile phones may have been unlawfully seized dating back to 2018.
The Home Office denied the policy existed in initial correspondence with the claimants' lawyers, and apologised for failing a “duty of candour”.
Alan Payne QC, representing the Home Office, told the High Court: “The home secretary is accepting that the seizure policies were unlawful, were not in accordance with the law for the purpose of the European Convention on Human Rights (ECHR) and it did not provide a lawful basis for the processing of data.”
Mr Payne said a version of a mobile phone policy that has been scrapped was unlawful because it was “blanket and unpublished”.
He also admitted that a separate policy to keep asylum seekers' phones for a minimum of three months was a “disproportionate interference” with human rights, and that the complete extraction of data from every phone violated the Data Protection Act.
The Home Office also admits that a practice where asylum seekers were ordered to hand over their PIN numbers to allow immigration officers to access their phones was unlawful, as were the data protection impact assessments done at the time.
Lawyers for the claimants argued that the concessions were “manifestly incomplete and inadequate to reflect the extent of the illegality”, but the home secretary’s team argued that the remaining grounds of legal challenge were “academic” and should be dismissed.
The court heard that the “blanket seizure policy” operated at the Tug Haven reception unit in Dover between April and November 2020.
Home Office lawyers said its “precise origins are not known” and the policy “appears to have developed organically”.
Sir James Eadie QC, representing the home secretary, said there was a “misunderstanding permeating that an illegal entry offence was always committed by passengers” on small boats at the time.
In December, the Court of Appeal ruled that crossing the Channel with the aim of being intercepted and claiming asylum did not amount to illegal entry, and that a “legal heresy” had developed among authorities and caused a series of wrongful prosecutions.
Lord Justice Edis, who heard both that case and the current challenge, said material received subsequently suggests “the origin of the error was actually in the Home Office and its agencies”.
In July 2020, the Home Office changed the policy to retain seized phones for a minimum of three months because there was a “lack of infrastructure” to process them as small boat crossings rose.
A backlog developed and in October 2020, Border Force started a “bulk returns process” – but the three claimants’ phones were not returned until legal action was threatened.
Their lawyers said that during one period, the Home Office told asylum seekers to call a phone number to arrange the return of their property or their phones would be destroyed.
But “calls to that phone number were not answered”, and it was replaced by an email that did not result in responses for months.
An Iranian asylum seeker, known as HM, was wrongly told that he had entered the UK illegally after he was intercepted on a small boat on 2 September 2020.
He was told to remove his shoes, jacket, wedding ring and watch, hand over his bag, empty his pockets and searched.
HM was never charged with an offence but his phone was not given back for over three months, while his wedding ring and other possessions have not been returned.
The court heard that he spent months not knowing if his wife and seven-year old daughter were alive because of the phone seizure, fearing that they had been killed.
He has since been identified as a potential victim of trafficking, the court heard.
The second claimant, an Iraqi asylum seeker known as MA, was picked up by Border Force in the Channel on 8 May 2020.
He was also arrested, searched and had his phone and possessions seized.
MA was told he had to provide his PIN number and complied, and was not given the phone back for 10 months.
The third claimant, an Iraqi asylum seeker known as KH, was intercepted in a small boat on 25 April 2020 and had his mobile phone seized without explanation.
Data from MA and KH’s phones was extracted, analysed, shared and stored, but HM’s phone was not used.
Mr Payne said “nearly every aspect” of the mobile phone policy had changed, and that currently phones were not being seized from small boat passengers who are classed as witnesses or victims of smuggling.
The home secretary’s lawyers maintain that seizures can still be legal under a clause that enables searches for items that “can be used to assist an escape from lawful custody and/or as a weapon”.
Mr Payne asked judges to consider “fairness” for the staff who operated the illegal policy.
“What is being challenged is operational decisions taken under huge pressure in response to an evolving emergency,” Mr Payne said.
“These decisions and steps were taken by dedicated people who aren’t lawyers, doing the very best they could to deal with an incredibly difficult situation
“No one had time to sit down and look at material and write a 67-page thesis on the Data Protection Act and have that benefit of hindsight to unpick decisions.”
The case, before Lord Justice Edis and Mr Justice Lane, continues.