Perhaps becoming increasingly alert of the fact that cryptocurrencies operate within thin limits of regulation, global law enforcement has engaged high gear to curb the issue.
A host of law enforcement operations have led to the seizure and sale of confiscated cryptocurrencies across the world.
The State of Crypto Enforcement
Crypto seizures and sales, unheard of previous years, have become a common occurrence across various jurisdictions across the globe.
The enduring popularity of cryptocurrencies within criminal spaces, and the fact that it has become common for law enforcement agencies to encounter stashes of digital money in criminal operations, has influenced Uncle Sam to become an important player in crypto markets.
Although exact statistics lack about just how much crypto is within the custody of the U.S. government, many tech pundits and observers believe that some $1 billion worth of virtual currency has gone through the hands of the government.
Before we actually step into the portal of mega crypto seizures, this article will brush through the some reported notable events as far as regulation and enforcement of the digital asset industry is concerned.
In the News
Our first case invloves and Irish drug dealer knows as Cliffton Collins in which authorities from the country confiscated bitcoin worth $56 million. The operation involved the Criminal Assets Bureau (CAB) and investigations started after cannabis were discovered in Collin's car.
The second case involves a 2018 operation that was dubbed “Europe’s biggest LSD bust” in which The Spanish Guardia Civil and the Australian authorities partnered with Europol to enforce anti-darknet policies.
In the operation, a darknet organization responsible for producing designer narcotics was hit. In addition, like most other darknet drug rings, the criminal group was found to have been involved in money laundering – selling digital assets that ran into millions of Euros in bitcoin.
In Australia, law enforcement agents apprehended an individual accused of operating a drug business through the darknet. The 2018 operation led to the seizure of $350, 000 worth of crypto, apart from other contraband items.
Moving on, somewhere in Russia, the police seized more than 22 teller machines that were used to sell cryptocurrency across shopping centers, hotels, and malls in nine Russian locations.
All the confiscated machines were controlled by a single organization that had established a robust network of bitcoin dispensers across Russia.
An official from the Central Bank of Russia (CBR) remarked that the government body is dedicated in the fight against crypto-fueled organized crime. As such, he explained that cryptocurrencies are notorious agents of crime in the context of cross-border transfers of illicitly-gained wealth.
Last year, U.S. authorities confiscated more than $200, 000 worth of Bitcoin. This followed an operation that led to the arrest of a Boston-based trio – a group of people that conspired to sell drugs on the darknet.
The three men, Binh Thanh Le, Steven McCall, and Allante Pires, were slapped with drug conspiracy charges in which they were accused of planning to distribute Ketamine, Xanax, and MDMA.
In March, Le was cornered by the police after he unknowingly met an undercover agent with the intention of exchanging bitcoins for $200,000 in cash. The man was arrested just after completing the crypto transfer to the agent.
Further, also in the U.S., an Ohio man was apprehended in July on accusations of attempting to launder $19 million in bitcoin. Law enforcement agents found out that the bitcoin was obtained from proceeds derived from Silk Road drug dealings.
The feds found that Hugh Brian Haney engaged in high-level drug trafficking on Silk Road – at a time when law enforcement agents were on the lookout, monitoring the platform between the year 2011 and 2012.
The Mega Seizures
The following section will focus on the most prolific crypto seizures to date:
Millions Seized from AlphaBay Operator
Remember the case of Alexandre Cazes who ended his own life in a Thai prison? The story of the 25-year-old darknet operator who enjoyed the trappings of a mafia boss – including an assortment of fast cars, real estate, and bulging bank accounts?
You may probably recall that the man left behind an impressive number of digital wallets that held millions of dollars in cryptocurrencies.
Cazes’, whose death prevented him from facing the court for his crimes, was said to have masterminded and benefitted from the sale of illicit goods and services to the U.S. and beyond. The man used AlphaBay to maintain his customer base until the day the authorities staged a dramatic operation at his doorstep.
According to reports on the operation, authorities stormed Cazes’ residence by crashing a car into the entrance of his Bangkok mansion. This smoked the man out of his house, denying him sufficient time to encrypt or erase incriminating data from his laptop.
On entering the home, agents managed to find administrative credentials to his AlphaBay account which would open a Pandora’s Box into the world of a man who lived well and large.
Apart from his darknet dealings, the feds found a document spelling out Cazes’ net worth, which stood at $23 million – including large amounts of cash, posh real estate holdings and fast cars.
This wealth was achieved thanks to a longstanding career that the darknet lord had etched as an established AlphaBay operator that would earn good commissions from the darknet transactions that he handled.
Importantly, a significant portion of Cazes’ wealth was found in the form of cryptocurrencies owing to the fact that AlphaBay accepted payments only in crypto. Specifically, the man held an upwards of $8 million in digital assets ranging from bitcoin, ether, ZCash to Monero.
Authorities discovered those customer monies had been transferred into various companies and crypto exchanges to avoid the prying eyes of law enforcement. The investigation also alleged that Cazes employed the use of mixers and tumblers to digitally scramble the cryptocurrencies across a series of wallets in an effort to obscure transaction histories.
Today, Caze’s stash is now held by the U.S. Department of Justice, which confiscated the coins during a major global crypto bust. The Department intends to trade the funds which, considering the current price of bitcoin in the world market, could result in huge economic gains.
Otherwise, knowledge about the fate of confiscated crypto is hard to find – you may need a lot of cyber muscle and time to understand the scale of crypto seizure and the resulting figures in crypto.
Silk Road
Ross William Ulbricht, alias Dread Pirate Roberts, created Silk Road based on three innovative technologies – cloud storage, Tor and Bitcoin.
The incorporation of cryptocurrency was a convenient fix to suit the needs of darknet buyers and sellers – bitcoin allowed people to trade anonymously under the veil of a decentralized currency that avoids the need of a central banking regulator.
By the year 2013, when the authorities hit the Silk Road marketplace, criminal masterminds had become quite versed with the advantages of transacting in bitcoin, but the police were not as savvy about it.
As one prosecutor observed, there lacked enough expertise to enable law enforcement agencies to deal with the menace sufficiently. Bitcoin users, mostly criminals, had become sophisticated that they did not need the services of brokers like Coinbase who would hold crypto funds on their behalf.
Ulbricht had his own digital wallet that he controlled by private key which, in cases like his, the feds can only access the funds when their suspect reveals the key. Because of this challenge, law enforcement agents devised a plan to allow their access to the darknet mastermind’s bitcoins. They managed to figure out a trick get hold of his digital funds – law enforcement grabbed his unlocked laptop while arresting him in San Francisco.
To take you back, in the Cazes case, the AlphaBay operator was still logged in to his AlphaBay admin account when law enforcement raided his Thailand estate. In the case of Dread Pirate Roberts, the agents had upgraded their methods.
The feds owned more than two digital wallets that would be used to hold the Silk Road crypto and obtain bitcoins captured by other enforcement bodies. Once this was achieved, the feds took the standard well-known route of preparing to auction the bitcoin of.
Nonetheless, they encountered critical challenges owing to the scale of crypto that they were dealing with – it was a massive 175,000 bitcoins that compared significantly to the entire crypto world’s cache.
Point to note, U.S. authorities chose to stagger the auctions for the Silk Road bitcoins in an effort to avoid the possible eventuality of bitcoin’s price crashing from a single sale.
Specifically, four auctions happened between the year 2014 and 2015, in which authorities sold the bitcoin for an average price of $379. Bitcoin would then benefit from a run-up following the auctioning of 3,813 bitcoins where the marshals got $45 million in net gains – considering a unit price of $11,800.
Now, considering the above prices, it is possible that the Silk Road bitcoins garnered a staggering $2.1 billion, an amount that would finance the entire U.S. Marshals Service for a whole year. Just imagine that.
Silk Road 2.0
In 2014, U.S. law enforcement agencies apprehended “Defcon”, a darknet operator that managed the darknet market Silk Road 2.0.the 26-year-old Blake Benthall was arrested on account of illegal activities that he oversaw through the role he played in the website.
In an official statement, Manhattan’s U.S. Attorney dubbed Silk Road 2.0 as “identical” to the criminal enterprise that the first Silk Road was designed. Silk Road 1 was closed down in October 2013 after the arrest of its now-imprisoned operator, Ross Ulbricht. The closure of the first Silk Road inspired the creation of Silk Road 2.0 which aimed to fill the void left by the former.
Like the first Silk Road, the new darknet site served to create an open, crypto-enabled e-commerce platform that would advance criminal interests. Visitors to Silk Road 2.0 were welcomed with a message that stated: “Silk Road has risen from the ashes, and is now ready and waiting for you all to return home.”
Investigators learnt that in December 2013, the arrest of three persons linked to Silk Road 1 gave rise to the new crop of darknet masterminds that would create Silk Road 2.0 – with Benthall at the helm.
An FBI report intimated that Silk Road 2.0 was instrumental in the creation of a conducive environment for thousands of drug dealers who would launder millions of dollars obtained from illicit deals. Authorities estimated that Silk Road’s portfolio garnered $8 million every month in sales from thousands of active users.
Specifically, it was revealed that Silk Road’s offerings were largely comprised of banned narcotics which were marketed openly within darknet corridors. The FBI further claimed that an officer from Homeland Security managed to enter Silk Road 2.0, interacting with private and confidential elements of the website that were reserved for Defcon. Further, HSI said that its agents contacted Benthall during his tenure as the operator of Silk Road 2.0.
SELEC
An operation against organized crime by the Bulgarian government led to the confiscation of an upwards of 200,000 bitcoins – a figure that could easily fetch $3 billion according to the price today.
The Southeast European Law Enforcement Center (SELEC), a regional outfit comprising 12 European nations, successfully confiscated 213,519 bitcoins in a 2017 operation. The seizure was preceded by the arrest of 23 Bulgarians who, authorities said, were involved in a large scale customs fraud scam.
The total amount of bitcoins seized is estimated to have been $3 billion – considering a unit price of $15,524.
In addition, it is alleged that the arrested individuals had hacked into Bulgarian Customs computers using a virus they had developed. The virus enabled the criminals to circumvent payment protocols, thus enabling them to transport goods into the country without remitting the necessary fees.
Interestingly, it became known that the virus was uploaded onto government systems by compromised agents. The criminal operation is said to have resulted in losses running into millions of dollars.
At this point, it is still unclear what the Bulgarian government intends to do with the seized crypto. Reports from a Bulgarian website (translated to English) claim that the Bulgarian government’s decision to keep mum about the massive cache of seized crypto is due to an ongoing investigation surrounding the case.
Notably, the website reports that the bitcoin unit price at the time of publication was at $2, 354. A screenshot of the now-deleted SELEC press release can be found in the website, it shows that the total amount of seized digital assets stood at $500 million considering Bitcoin’s unit price that year.
Wallstreet Market & Valhalla
The servers of darknet platforms Wall Street Market and Valhalla were seized by German and Finnish authorities – with arrests being made in Germany, Finland, and the U.S.
Both sites were known to be a favorite marketplace for the trade-in illicit goods and services. This attribute stemmed from the fact that the two sites had successfully gained customer trust due to their experience and scale of work regarding online dealings.
Operating behind the veil of the Tor network, Valhalla was considered to be among the most seasoned marketplaces within darknet spaces, boasting of a portfolio of 30,000 products and services. Point to remember, Valhalla began operations in the year 2013 as a Finnish-only platform called Silkkitie.
The arrest of Wall Street Market operators was the product of a Europol-led operation seeking to smoke out criminals working in the hidden web. The arrests occurred concurrently and in different locations under various law enforcement jurisdictions.
The German police led the arrests of Wall Street masterminds while their Finnish counterparts seized Valhalla. U.S. law enforcement, on the other hand, apprehended two notable drug dealers associated with the darknet markets.
By the time of its closure, Wall Street Market had gained the reputation of being the second-largest darknet site in existence. The seizure of its servers was also accompanied by the confiscation of lots of cash and cryptocurrencies. Specifically, Bitcoin and Monero were found in large amounts.
Europol officials shared that Wall Street had developed issues despite the growth of its huge customer base. Reportedly, its owners were apparently planning an exit scam – an event where the operators would disappear with traders’ funds.
In fact, it is said that a number of Wall Street staff are reported to have blackmailed users by issuing threats regarding the possible release of user credentials. As this happened, one moderator is said to have exposed high-level credentials to internet users.
A Department of Justice publication explained the possible origin of Wall Street Market’s woes. The press release said that the owners’ intention to pull off an exit scam was due to the entry of a lot of new users and the tough scrutiny they had received – the shutdown of Dream Market was an important motivator for their intentions.
Hansa Market
In 2016, a Dutch police operation took a different turn from the usual darknet seizures that we are accustomed to – law enforcement agents literally took over Hansa at a time it had gained significant popularity within the hidden web.
In reports, it was intimated that a 10-month investigation led agents into trailing Hansa’s 3,600 dealers who offered thousands of listings in drug advertisement. The drugs ranged from cocaine to heroin, including a number of fraud kits and counterfeit goods.
In the investigation into the once Europe’s largest darknet platform, which was dubbed Operation Bayonet, Dutch agents not only revealed the mysteries surrounding the site’s administration in Germany but went a step further to hijack admin accounts. This decision allowed investigators to take full control of the website.
Furthermore, it was explained that the events adding up to the undercover investigation involved the surveillance of the site’s traders. The agents meddled with the platform’s code in order to harvest sensitive data about its users and even tricked scores of Hansa’s merchants into opening a file in their systems that would expose their specific locations.
The progress and conclusion of the investigation are what law enforcement agencies praise to one of the most significant blows to darknet commerce in recent history. Consequently, the operation led to the confiscation of millions of dollars in crypto, high profile arrests and the creation of a vast database of darknet users that would guide anti-darknet efforts.
Black Hand Market
Moving on, a joint law enforcement operation, involving French authorities, the National Directorate of Intelligence and Customs Investigations, led to the shutdown of Black Hand Market – one of the biggest illicit darknet marketplaces in existence, known to support the trade in narcotics, stolen data, counterfeit goods, and weapons.
According to reports, authorities also apprehended the site’s main admin and other persons related to the site’s operation. Further, law enforcement agents gained access to Black Hand Market’s servers and confiscated fake documents. Importantly, loads of cash was seized including about 25,000 Euros in cryptocurrencies.
A study of the site’s traffic revealed that the platform had an upward of 3,000 users who accessed the online market from France, giving an indication that the website was quite popular among the darknet criminal community in the country.
The Grant West Case
Sometime in August, a court directed the seizure of bitcoin worth more than 900,000 pounds from an incarcerated cybercriminal, which was the first case of its kind in the UK.
Grant West, a 27-year-old man, was infamously described as a “one-man” hacker who was arrested in September 2017. West’s arrest followed the seizure of about 1 million pounds worth of digital assets which were held in various accounts.
However, the events following his arrest and seizure of crypto presented serious challenges in terms of victim compensation. This problem was brought about by Bitcoin’s price volatility which had seen the unit price of Bitcoin plummet that year.
It is reported that the court proceedings that sought to ensure victim compensation were halted as the agreement signed by West, to agree to the confiscation of the crypto, showed a much greater amount to that which was seized.
UK authorities have held about 82 bitcoin that was reportedly amassed by West through illicit activity. Unlike traditional currencies, bitcoin lacks a centralized exchange rate that would beget its stability in the global market.
Instead, the virtual coin saw a period between 2017 and 2018 – having risen in value at the end of 2017 before plummeting significantly by May 2018.
What the Government Does with Seized Cryptocurrencies
The fact that cryptocurrencies are traded and invested all over the world has posed significant challenges on the part of law enforcement surrounding digital currencies – governments have not gotten their arms around the crypto world as much as they would want.
Although we all know that even the U.S. government still has a long way to go as far as crypto enforcement and regulation is concerned, there is a wealth of evidence indicating that large amounts of crypto have passed through the government’s hands for a long time now.
Various reports indicate that the U.S. government has held at least $1 billion worth of digital currencies.
At the conclusion of every crypto seizure, it has been found that law enforcement agencies have always ensured the seizure of crypto assets owned by crime suspects. In most cases, these virtual coins have boasted values that would shame some of the most established business moguls we revere.
The big question certainly is – what do governments do with confiscated cryptocurrencies?
Well, it has gone on record that global governments have auctioned massive amounts of digital assets following major crypto seizures.
In fact, the U.S. Marshals Service has established itself as a known auctioneer of seized crypto – the agency works to ensure that the digital currencies confiscated by the Federal Bureau of Investigation (FBI) and the Drug Enforcement Administration (DEA) is sold to interested parties.
The process that follows the sale of crypto is simple. Once the sales are concluded, the U.S. Justice Department usually distributes the proceeds thereof to collaborating agencies involved in designated operations.
For instance, a local law enforcement agency may petition to receive more than half of the proceeds derived just because they made critical contributions towards the success of a sting operation.
Point to note, international partners are also potential beneficiaries whenever a major crypto criminal goes down. Sometimes, victims of crime may receive a share of the proceeds in form of restitution for the harm and theft they may have suffered in the hands of a criminal’s activity.
Ultimately, the remainder of funds gained from the sale of seized crypto remains with the Justice Department, which would make decisions about the final leg of disbursements to be made.
The Challenge of Crypto Price Volatility
This article has emphasized the uniqueness of cryptocurrencies in the eyes of law enforcement agencies. This aspect is borne in the several attributes that bitcoin and other digital assets present.
Truthfully, the U.S. government is very experienced at dealing and seizing valuable property to be sold at auctions – but no other class of assets is as complicated, as volatile as the virtual currencies. This challenge has begotten a host of questions and events as far as law enforcement control of digital coins is concerned.
For instance, the strategic timing of bitcoin sales can correspond to situations of crypto price hikes. By so doing, government agencies can earn from such dealings to supplement their budget needs. Instead, the government has been notorious for selling crypto cheaply.
To put this situation into perspective, the 2014-2015 bitcoin auctions occurred when bitcoin sold for $379 per token. Venture Capitalist Tim Draper made an estimated $18.5 million off the auctions – after buying 30,000 coins.
Considering the current crypto prices, Draper’s stake stands at an impressive $300 million, considering that this amount has been achieved in just two years.
Nonetheless, Uncle Sam tried mimicking Draper’s trick in the year 2018. The price of bitcoin had reached almost $20,000 in late 2017, and government agencies tried selling 513 coins. By the time they received authorizations for sale in January 2018, bitcoin’s price had taken a dip by almost 50 percent its real value.
Some Criticism
Critics have come out to comment on the recent and past dealings by governments concerning crypto seizures.
One observation is that members of the public lack proper channels and the capacity to follow through the fate of seized crypto. This is contrary to the rules of democratic systems in which citizens ought to understand the everyday dealings of the state machinery that rule them.
Otherwise, the U.S. government’s forfeiture exchange, which allows citizens to follow up on such transactions, happens to be preserve of crypto-savvy users. Crypto sales on the Forfeiture website have not been stored in archives, and are rarely labeled clearly.
Second, the nature of digital assets regarding the meteoric rise in value means that these government deals involve massive amounts of money. As mentioned earlier in this article, the U.S. Marshals garnered $45 million from a single cryptocurrency auction.
Some observers are concerned that the aspect of massive profits and secrecy within the government’s crypto dealing may predispose to corruption across forfeiture platforms, which would translate to the government’s abuse of power.
Indeed, U.S. authorities have been subjected to investigation regarding the embezzlement of forfeiture monies. A 2017 probe found the misappropriation of forfeiture funds to procure agent perks like expensive custom artwork.
The remarks made by one former prosecutor, Mr. Clifford Histed, pointed to the worrying trend of agent skimming whenever it came to the seizure of cash. In his view, Bitcoin happens to be suitable fodder for such unlawful actions.
In addition, the nature of digital assets presents critical problems across the echelons of legal and procedural guidelines.
In principle, is the government permitted to stall or boost a virtual currency sale in order to take advantage of market dynamics for best profit? Or, in instances of a darknet operator who converted Monero to Bitcoin just before latter’s price spike, who benefits from the resultant profit.
Such questions, among several other concerns, underscore the fact that cryptocurrencies are a unique form of asset that differs sharply with whatever property the U.S. government has always been familiar with.
The forfeiture system is not mature enough to dive into the complex world of crypto trading. Truth is, if U.S. authorities fail to establish a more transparent system of managing forfeiture funds, trouble will always loom.
When Governments Hoard Cryptocurrencies
The crypto world is riddled with stories of individual investors stacking up on digital assets. Well, this habit is also commonplace to large institutions. Modern times have seen the advent of crypto-focused hedge funds and the government seems to have joined the bandwagon a long time ago.
Apart from the U.S. government’s unsold crypto and Bulgaria’s cache of 200,000 bitcoins, a few more governments seem to have expressed keen interest in the digital currency. This article will touch on two major cases.
Sweden
The year 2017 placed the Swedish government on the front page of the news after they expressed interest to auction some confiscated crypto. The value of confiscated assets was quite small compared to the SELEC case – the Swedish enforcement authority had shared its plans to sell just $3, 200 worth of crypto at the time.
North Korea
It should be quite obvious that North Korea is an extreme example when it comes to hoarding crypto. While several other governments have actually organized public auctions of crypto, North Korea has only issued signs of gathering crypto and hoarding bitcoin.
The majority of digital currency exchange hacks experienced in South Korea have been blamed on North Korea. In fact, the rumor mill is rented with speculations about North Korea’s intention to influence the price of bitcoin in order to earn profits.
Conclusion
Cryptocurrency seizures have become commonplace in modern times with the total amount of seized digital currencies standing at more than 2 percent of all available crypto in circulation.
In fact, it has been reported that there’s about 453,000 bitcoin in confiscation which, interestingly, is registered with the two crypto seizures of all time – the Silk Road and SELEC cases.
Otherwise, to put in perspective, some 198,000 bitcoin seized by U.S. authorities was obtained from the various crypto busts that keep hitting the headlines – with Uncle Sam selling a majority of the stash for $151 million.
In closing, crypto enthusiasts must brace themselves for the imminence of aggressive cryptocurrency enforcement in the near future and beyond.
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