I'm guessing the BTC wallet has been confiscated. Maybe. But yes, there's a good chance that those 700k BTC are never, ever going to see daylight ever again. The real problem here is that BTC depends on the private key to "release" the goods ... so if the scammer doesn't give 'em up, those 700k are as good as gone.
Now, I wonder who would be so stupid to fall upon a scam like this. 7% per week return? That screams Ponzi anywhere, BTC or not!