How Governments are Cracking Down on Crypto Crime: Seizures, Strategies, and Impact
Governments around the world are increasingly turning to seizing crypto related to criminal activities.
By confiscating these assets, authorities aim to disrupt criminal networks and reclaim illicit gains.
Despite the decentralized nature of cryptocurrencies, governments have developed various methods and strategies for seizing them.
The Trend of Government Crypto Confiscation
As the popularity and value of cryptocurrencies soar, so too does their misuse for illegal activities.
One way to combat money laundering, terrorism financing, and other illegal activities facilitated by cryptocurrencies is through seizures.
For instance, the UK has enacted new laws that empower law enforcement to seize, freeze, and recover crypto assets without requiring an arrest.
These measures, part of the Economic Crime and Corporate Transparency Act 2023, allow authorities to confiscate assets suspected of being linked to illegal activities and even destroy them if necessary.
In the United States, the Department of Justice (DOJ) has established the National Cryptocurrency Enforcement Team (NCET), which focuses on complex investigations and prosecutions of criminal misuses of cryptocurrency.
February 2022, the FBI had already shown its commitment to tackling crypto crime with the formation of the National Cryptocurrency Enforcement Team (NCET).
All of these scammers got caught in a $30 Million crime ring.
https://t.co/p9zSvdo57V— AlphaGamer.Sats_🛡_(510.Sats)_(💙,🧡) (@AlphaGamer_sats) October 20, 2023
Other countries are also taking steps to regulate and control the use of cryptocurrencies in criminal activities.
Why and How Governments Confiscate Cryptocurrency
Governments confiscate cryptocurrencies primarily to combat illegal activities such as money laundering, drug trafficking, and tax evasion.
High-profile cases like the Silk Road seizure highlight the scale and significance of these actions.
In 2013, U.S. authorities shut down the infamous darknet marketplace, seizing over 170,000 Bitcoins, valued at around $33.6 million at the time.
Likewise, in February 2022, the Department of Justice confiscated 94,636 stolen BTC from the Bitfinex cryptocurrency exchange.
Ilya Lichtenstein and Heather Morgan, who were responsible for the hack, were also arrested and charged with conspiracy to commit money laundering.
Such seizures are often executed through coordinated law enforcement operations involving specialized units trained in cyber investigations.
Post-Confiscation Process
Once cryptocurrencies are confiscated, governments manage and secure them through various methods.
Specialized wallets and cold storage solutions are used to ensure the assets’ security.
Typically, governments convert these assets into fiat currency through auctions or sales on cryptocurrency exchanges.
For perspective, the U.S. has offloaded $366 million worth of BTC in 11 auctions from 2014 to 2023, according to data from software engineer and researcher Jameson Lopp.
In a recent case, the U.S. sold off more than 9,800 BTC connected to the Silk Road in March last year.
The proceeds from these conversions are often funneled back into law enforcement budgets or public services.
For instance, funds from the Silk Road Bitcoin auction were allocated to the U.S. Treasury and other government departments.
Legal Framework
The legal foundation for cryptocurrency confiscation varies by country but generally involves a combination of financial regulations, anti-money laundering (AML) laws, and specific statutes targeting cybercrime.
In the US, laws such as the Bank Secrecy Act and the Money Laundering Control Act provide the necessary legal backing for such actions.
International collaboration is crucial for tracking and seizing illegal crypto assets.
Organizations like Interpol and Europol facilitate cross-border cooperation, enhancing the global fight against crypto-related crimes.
It is worth noting that tracking and seizing cryptocurrency pose significant technological challenges due to the anonymous nature of blockchain transactions.
However, advancements in blockchain forensics have made it increasingly possible to identify and trace illicit crypto assets.
Tools and techniques developed by companies like Chainalysis and CipherTrace aid governments in this complex task.
Major Bitcoin Seizures
Several notable cases illustrate the process and impact of government crypto confiscation.
The Silk Road case, mentioned earlier, is a prime example.
Another significant case involved the FBI’s 2021 seizure of $2.3 million worth of Bitcoin from the Colonial Pipeline ransomware attack.
Furthermore, in November 2022, the U.S. Attorney’s Office in the Southern District of New York announced a $3.3 billion cryptocurrency seizure from fraudster James Zhong, who had unlawfully obtained over 50,000 BTC from the Silk Road dark web marketplace.
These operations often involve meticulous forensic work and international cooperation.
US Government Owns Over $5 Billion Bitcoin
The U.S. government has become one of the largest holders of Bitcoin, acquiring approximately 200,000 coins (worth around $5 billion) through seizures related to criminal activities.
The digital assets were seized from cybercriminals and darknet markets and are securely stored offline in encrypted hardware wallets controlled by various federal agencies, including the Justice Department and the Internal Revenue Service (IRS).
The fate of the U.S. government’s Bitcoin holdings has sparked curiosity among crypto traders.
Any decision to sell these assets could potentially impact prices and send ripples throughout the trillion-dollar digital asset market.
However, the government’s approach is not driven by market speculation or timing.
Instead, the accumulation of BTC is a byproduct of the lengthy legal process of confiscating and managing these assets.
Jarod Koopman, the executive director of the IRS’s cyber and forensics services section, told the Wall Street Journal that the government does not actively trade or time the market.
Instead, their actions are dictated by the timing of the legal process.
The U.S. isn't in the HODLing game. The slow conversion of bitcoin into dollars isn't market speculation; it's bureaucracy. As Jarod Koopman of the IRS puts it, they don't play the market; they follow the legal process timeline.
— Arman Abdul Rahman (@armanarahman) October 25, 2023
