The U.S. government for years has run a side business selling cryptocurrencies such as bitcoin and others at auction. Unfortunately, Uncle Sam has a bad track record regarding market timing. In 2018, 500 bitcoin was sold to Riot Blockchain for around $5 million which is as per current rate is more than $23 million. 30,000 bitcoins were purchased for $19 million by Tim Draper, tech entrepreneur in 2014, whose sum is more than $1.3 billion as per current rate.
All of this bitcoin was seized by the government and the typical assets held in high-profile criminal sting operations. Everything is sold in the same manner. “It could be ten boats, twelve automobiles, and one of the deals would be X amount of bitcoins being sold,” said the director of the Internal Revenue Service’s cybercrime unit, Jarod Koopman.
The U.S. authorities confiscated $56 million worth of cryptocurrency as part of a Ponzi scheme investigation involving overseas cryptocurrency platform which will be autcioned next, i.e. BitConnect. Disregarding the earlier auctions, where the eared revenue was transferred to other government organizations, and the money recieved from BitConnect crypto sale will be used to compensate fraud victims. The government’s crypto collection and selling operation is expanding so quickly that it has just engaged the assistance of the private industry to manage the storage and sale of its token stockpile.
Bitcoin seizing and stocking
To track down and seize blockchain produced tokens that were built to avoid law enforcement. “In terms of creative thinking, the government usually trails a few steps behind criminals,” said a former federal cybercrime prosecutor, Jud Welle.
Bitcoin and other cryptocurrencies are merely passing through three important crossings in the US criminal justice system. The initial step is the search and seizure. The second aspect is how to deal with crypto that has been seized. The money collected from cryptocurrency sales must then be put to use.
As per Koopman, the first stage is a cooperative effort in practice. He added that his staff frequently collaborates with other government authorities on joint investigations with the FBI, the Drug Enforcement Administration, or the Bureau of Alcohol, Tobacco, Firearms, and Explosives, for example. He said that “since it is hard for one agency to investigate, the cyber arena cases become joint cases between two agencies.” For example, Koopman has worked on the government’s Silk Road cases and the 2017 AlphaBay investigation, which resulted in the closing of another prominent and enormous dark web marketplace.
According to Koopman, his Internal Revenue Service (IRS) division typically deals with crypto monitoring and open source data covering tax evasion, fake tax filings, and tax evasion. His squad consists of professional law enforcement personnel with weapons and badges who carry out search, arrest, and seizure orders. Other organizations with more budget and resources focus on the technical issues.
To ensure proper oversight, multiple groups are present during the seizure. Managers are individuals who set up the necessary hardware wallets to keep the seized currency safe. “To prevent tampering, the secret keys are maintained in the headquarters,” Koopman explained. The government has brought back massive quantities of cryptocurrency in recent years. “1.2 billon, $137 million and $700,000 worth crypto was confiscated in 2021, 2020 and 2019 respectively,” Koopman told CNBC in August. In 2021, the September 30 was when the fiscal year ended. Since cybercrimes are picking up, so are the digital tokens with it; the government crypto coffers will swell much further.
Crypto Auction
Once the investigation is closed, the primary agency responsible for conducting the auction of the crypto coins is the U.S. Marshals Service. Around $8.6 billion which is approximately 1, 85,000 bitcoins was held as well as auctioned. Although, many batches were sold at a lesser price compared to today’s rate. Because it’s too huge a job for one government entity to undertake unilaterally, the Marshals Service is no longer responsible for it. The US General Services Administration, which generally auctions off surplus state assets like trucks, put captured bitcoins up for auction earlier this year.
After more than a year-long search, the Department of Justice (DOJ) employed Anchorage Digital, a San Francisco bank, to be its keeper for the bitcoin confiscated or lost in the criminal cases in July. The United States’ Anchorage (Bank) will assist the government in storing and monetizing digital assets. The contract had previously been allocated to BitGo. “Marshals Service hiring professionals to assist them is a good thing, which means that it is here to stay,” Sharon Cohen Levin, who was the chief of the United States Attorney’s Office’s embezzlement and seizure of assets unit in the Southern District of New York for 20 years and who collaborated on the first Silk Road case, agreed.
As per Koopman, selling off crypto in blocks at fair market value is unlikely to change. “You queue up to gamble on it.” “We don’t want to overburden the marketplace with inventories,” he added, adding that this could affect pricing. But, other than spreading out sales, Koopman said he isn’t trying to “time” the market and sell at peak crypto prices.
In the Silk Road Bitcoin case in November 2020, the government captured about $1 billion. Those bitcoins are idling in a crypto wallet since the lawsuit is pending. The government’s revenues would have been more significant if they had sold the bitcoin holding when the token’s price soared above $67,000 last month, rather than at today’s pricing.
Where does the money go?
The feds divide the spoils once an investigation is closed and the cryptocurrency has been swapped for fiat currency. The Treasury Forfeiture Fund or the Department of Justice Assets Forfeiture Fund are the two accounts where the money from the sale are usually put.
The Treasury Forfeiture Fund, was what they looked and captured accounts for, which accumulated up to 70% making it one of the biggest individual contributors. After being placed in one of these two funds, the redeemed cryptocurrency could be used for a range of functions. For example, Congress has the authority to cancel the funding and divert them to other projects.
“If we make a request for licenses or equipment, the Treasury office will assess it.” Koopman’s team earns varying amounts based on the assignments that are offered.” Other times, they will receive nothing because Congress will decide to withdraw all of the funds from the account.
As per Alex Lakatos, a Washington, D.C. lawyer, law firm Mayer Brown who assists clients on seizure, monitoring where all the money’s going isn’t easy. Forfeiture.gov is a website run by the Justice Department that provides some insight into current seizure activities. This document, for example, describes a case from May in which 1.04430259 bitcoin was taken from a Kansas resident’s wallet. Ten more bitcoins were stolen from a Texas resident in the month of April. Nevertheless, it’s unclear if the list is comprehensive enough to include all active cases.
“I don’t suppose any single site holds all of the cryptocurrency owned by the US Marshals, much less the crypto forfeited by numerous states.” “It’s a bit of a jumble,” Lakatos added. That he doesn’t know how an official will try to get their hands on it if they want it.” A Department of Justice spokesperson said in a statement CNBC that he’s “quite comfortable” there was no centralized record of bitcoin seizures.
What is certain, though, is that too many crypto confiscation cases are being publicized, such as the FBI’s hacking of a bitcoin wallet held by the Colonial Pipeline hackers earlier this year. “The press and network security professionals can closely examine this material.”