Forfeiture is the permanent loss of that bitcoin by way of court order or judgment. Seizure may occur before forfeiture and not all seizures will result in forfeiture. One of the next seizures up on the auction block is $56 million worth of cryptocurrencies that authorities confiscated as part of a Ponzi scheme case involving offshore crypto lending program BitConnect. Unlike other auctions where the proceeds are redistributed to different government agencies, the cash from this crypto sale will be used to reimburse victims of the fraud. In August 2017, in a hard fork coin split, Bitcoin split into two cryptocurrencies, traditional Bitcoin and Bitcoin Cash (“BCH”). When this split occurred, any Bitcoin address that had a Bitcoin balance (as ZHONG’s addresses did) now had the exact same balance on both the Bitcoin blockchain and on the Bitcoin Cash blockchain.
To obtain a seizure warrant, the prosecuting agency must file an application and affidavit which purport in sufficient detail the factual allegations and probable cause for the seizure. In order to quality for remission, which is when forfeited assets are returned to victims of the crime, victims generally have to prove the seized assets previously belonged to them. For example, in this case, people would have to prove they previously owned bitcoin in Silk Road which was stolen by Zhong. “But with this much money, the government is sometimes open to being a bit more liberal,” said Lakatos. The parent of a child who overdosed on fentanyl-laced drugs purchased from Silk Road, for example, could potentially relate their claims closely enough to Zhong’s case in order to obtain some compensation, he said. As a whole, Smith said the money shouldn’t be earmarked for law enforcement in the first place.
The U.S. Government Is Holding More Than $3 Billion Worth of Seized Bitcoin. What Should It Do With It?
As an example, on September 19, 2012, ZHONG deposited 500 Bitcoin into a Silk Road wallet. Less than five seconds after making the initial deposit, ZHONG executed five withdrawals of 500 Bitcoin in rapid succession — i.e., within the same second — resulting in a net gain of 2,000 Bitcoin. As another example, a different Fraud Account made a single deposit and over 50 Bitcoin withdrawals before the account ceased its activity. ZHONG moved this Bitcoin out of Silk Road and, in a matter of days, consolidated them into two high-value amounts. ZHONG pled guilty on Friday, November 4, 2022, before United States District Judge Paul G. Gardephe.
Unannounced until now, the discovery of Zhong’s bitcoin last year marks the second largest cryptocurrency seizure in the history of the U.S. Department of Justice, just behind the February seizure of $3.6 billion in crypto from a Manhattan couple. Cryptocurrencies, such as Bitcoin, could be acquired cheaply in US government auctions. Learn more about how crypto came into US authorities hands, and how you could participate in the next Bitcoin government auction. And the third is deployment of the proceeds from those crypto sales. There are currently three main junctures in the flow of bitcoin and other cryptocurrencies through the criminal justice system in the U.S.
But he predicts that in three to five years, “there will be manuals edited and updated with, this is how you approach crypto tracing, this is how you approach crypto seizure.” Marshals Service encounters difficulty (e.g., the wire cannot be rejected) then you will be required to complete and submit a Vendor Request Form. The Vendor Request Form will give you the option to receive your return (i.e., payment) electronically or by check. The U.S. Marshals Service authority to dispose of forfeited property can be found at 28 C.F.R. 0.111(i). Bids that are contingent on financing terms of any kind will not be considered.
- Payments to a foreign financial institution (i.e., an overseas account) will require additional time to process and confirm.
- Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs.
- But none of the assets seized have the price volatility of cryptocurrencies.
- I don’t really think it would’ve been reasonable to expect for them to leave Bitcoin alone.
Reports are also not archived online and paper copies are not made. Bitcoin addresses linking wallets to owners are also not available. A warrant is not the only way for a law enforcement agency to seize bitcoin held by another individual or entity. Bitcoin can also be taken by the government through a process called forfeiture.
Criminal Forfeiture
For those willing to take the risk, crypto auctions could prove very lucrative. But what does appear clear is that more crypto seizure cases are being trumpeted to the public, like in the case of the FBI’s breach of a bitcoin wallet held by the Colonial Pipeline hackers earlier this year. The U.S. Marshals Service will initiate the return of losing bid deposits within (5) business days following the transfer of bitcoins to the winning bidder.
That cache of coins is currently worth around $8.6 billion, though many were sold in batches well below today’s price. Each U.S. Attorney’s Office establishes procedures that govern asset seizure for virtual currency. Prior to the commencement of a legal action or the actual seizure of assets, the Attorney’s Office collaborates with the U.S. Marshals Service to determine the quantity and valuation of the bitcoin that will be seized.
“In fiscal year 2019, we had about $700,000 worth of crypto seizures. In 2020, it was up to $137 million. And so far in 2021, we’re at $1.2 billion,” Koopman told CNBC in August. In practice, the first stage is a group effort, according to Koopman. He said his team often works on joint investigations alongside other government agencies. That could be the Federal Bureau of Investigation, Homeland Security, the Secret Service, the Drug Enforcement Agency, or the Bureau of Alcohol, Tobacco, Firearms and Explosives. “It could be 10 boats, 12 cars, and then one of the lots is X number of bitcoin being auctioned,” said Jarod Koopman, director of the Internal Revenue Service’s cybercrime unit. Losing bid deposits will be first returned (i.e., refunded) to the financial institution and account from which they originated.
The crypto auction block
Facilitation is any act or conduct which causes the crime to become harder to detect, or any instrument wielded by the individual that enabled the crime to occur. For example, consider a company which engages in money services business activities using bitcoin. Operating without the appropriate licensure could result in a criminal money laundering or conspiracy to launder charge.
Seizure proceedings must be based on a law enforcement agent’s finding of probable cause that the asset represents the proceeds of, or was used to facilitate, criminal activity. The Forfeiture.gov site, which records Justice department administrative, civil and criminal forfeiture actions, should typically be the place to find out more about the total number of bitcoins held by the government. But, according to the Fortune report, there is a lag between the publication date of an online report and the date of seizure.
Assets used to facilitate a criminal act could have been lawfully obtained, but they are still subject to seizure if the asset was used in or enabled the commission of the crime. Investors, tech-personalities, and crypto-enthusiasts will be happy to discover that cryptocurrency can be acquired cheaply in US government auctions. Indeed, US government agencies, including the US Marshals (USMS) and General Services Administration (GSA) have distributed various digital assets via auction over the last few years. These assets were acquired in the course of criminal investigations or bankruptcy and are a fast and easy way to develop your portfolio. This guide will survey this practice and show you how to buy crypto at the next US government auction.
Can I form a syndicate of buyers to participate in the auction?
Zhong pled guilty on Nov. 4 in New York federal court to committing wire fraud, according to a statement from Damian Williams, U.S. Attorney for the Southern District of New York. In July, following a more than yearlong search, the Department of Justice hired San Francisco-based Anchorage Digital to be its custodian for the cryptocurrency seized or forfeited in criminal cases. Anchorage, the first federally chartered bank for crypto, will help the government store and liquidate this digital property. The U.S. General Services Administration, an agency that typically auctions surplus federal assets, such as tractors, added confiscated cryptocurrencies to the auction block earlier this year. Marshals Service is the main agency responsible for auctioning off the government’s crypto holdings. To date, it has seized and auctioned more than 185,000 bitcoins.
“In my experience, folks that are in these positions in high levels of government, they may be there for a short period of time, and they want to get some wins under their belt,” said Welle. “This is the kind of thing that definitely captures the attention of journalists, cybersecurity experts.” “You basically get in line to auction it off. We don’t ever want to flood the market with a tremendous amount, which then could have an effect on the pricing component,” he said. In recent years, the government has brought back record amounts of crypto. Other agencies that have more money and resources focus on the technical components.
But little else is known about the government’s handling of bitcoins. Now, a new Fortune article takes a look at the mechanics of the government’s handling of its stash of cryptocurrencies. There are 3 basic conclusions that can be drawn from the US government’s present policy towards auctioning off digital assets. Koopman said the crypto traced and seized by his team accounts for roughly 60% to 70% of the Treasury Forfeiture Fund, making it the largest individual contributor. But other than spacing out sales, Koopman said, trying to “time” the market to sell at peak crypto prices isn’t his objective. The process of auctioning off crypto, in blocks, at fair market value, likely won’t change, according to Koopman.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice. ZHONG, 32, of Gainesville, Georgia, and Athens, Georgia, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. A Department of Justice spokesperson told CNBC he’s “pretty sure” there’s no central database of cryptocurrency seizures.
In that scenario, a warrant may not be necessary if the defendant willingly relinquishes the private key in exchange for a plea bargain. In November 2020, the government seized $1 billion worth of bitcoin linked to Silk Road. Because the case is still pending, those bitcoins are sitting idle in a crypto wallet. Had the government sold its bitcoin stake when the price of the token peaked above $67,000 last month, coffers would have been a whole lot bigger than if they liquidated at today’s price.
“The government is usually more than a few steps behind the criminals when it comes to innovation and technology,” said Jud Welle, a former federal cybercrime prosecutor. For the most part, the U.S. has used legacy crime-fighting tools to deal with tracking and seizing cryptographically built tokens, which were inherently designed to evade law enforcement. This certification extends and applies to all members of a syndicate. The primary bidder should perform whatever due diligence the bidder feels is necessary in order to comfortably make that certification. All deposit and purchase funds must be received from a U.S. bank.
There is no amount of physical force or legal coercion that can transfer bitcoin from one party to another without the corresponding private keys. However, if authorities can ascertain the real-world identity of an individual and their bitcoin addresses, they can coerce that individual to divulge the private keys required to move the bitcoin. Bitcoin may be seizure-resistant, but humans are still vulnerable to physical threats, blackmail, and other forms of coercion. Bitcoin that is used to facilitate a crime can be seized by a warrant.