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Historic $1 Billion Bitcoin Seizure Provides Template for Recovering Assets from Cybercrooks: Sources

By Valentina Pasquali

A bid by federal prosecutors to recover a record $1 billion in Bitcoin from an accused hacker last week and a raft of successful seizures during the past year provide a blueprint for deploying civil forfeiture powers against cybercriminals, sources told ACAMS moneylaundering.com.

On Nov. 5, prosecutors in the Northern District of California filed a complaint to forfeit more than 69,000 bitcoins they had seized two days earlier from an unnamed individual who allegedly stole them more than 7 years ago from Silk Road, a defunct darknet marketplace.

The move came a day after the Justice Department announced that it had seized at the behest of authorities in Brazil some $24 million worth of digital tokens linked to an alleged investment fraud run out of the Latin American nation.

The case also follows multiple confiscations by U.S. authorities in the past year of cryptocurrencies worth more than $100 million from sanctions evaders, terrorist groups, pedophiles and other criminals.

The increased use of civil forfeiture powers in the cryptocurrency realm “hopefully” signals a “turning of the tide” in how U.S. law enforcement agencies pursue cyber and traditional crimes alike, Amanda Wick, a former senior official with the departments of Justice and Treasury, told moneylaundering.com.

“Historically the government has placed far more emphasis on obtaining convictions than recovering the proceeds of crime and that needs to change,” Wick, who now heads the legal affairs office for Chainalysis in Washington D.C., said. “What this $1 billion dollar seizure shows is that if you put in the resources, staffing, training, there’s a huge rate of return.”

Chainalysis is one of several firms that track cryptocurrency transactions on behalf of their government and financial institution clients, and has partnered with federal investigators and prosecutors in the Silk Road and other cases.

Sometime before April 2013, 70,411.46 bitcoins, worth approximately $354,000 at the time, were funneled out of addresses controlled by the first-of-its-kind darknet marketplace through 54 separate transfers, federal prosecutors in San Francisco noted in the 10-page civil forfeiture complaint.

“These 54 transactions were not noted in the Silk Road database as a vendor withdrawal or a Silk Road employee withdrawal and therefore appear to represent Bitcoin that was stolen from Silk Road,” prosecutors wrote.

69,471.082201 of those bitcoins, which had by then grown to $14 million in value, flowed to another address on April 9, 2013. There they sat untouched – with the exception of 101 tokens that were sent to defunct, illegal cryptocurrency exchange BTC-e in April 2015 – until prosecutors seized them from the alleged hacker, identified only as “Individual X”, last week.

The case underscores how prosecutors can obtain a big payoff by applying tried-and-tested investigative techniques, such as identifying key chokepoints in a criminal’s financial trail, to the new world of digital tokens, said Jeff Ross, a former federal prosecutor and Treasury official.

“It shows the government is catching up, has people who understand this stuff,” Ross said. “They are not afraid of cryptocurrencies anymore.”

The Justice Department’s Nov. 4 seizure of U.S.-based cryptocurrencies pursuant to a treaty with Brazil stemmed from the indictment in his home country of a Brazilian national, Marcos Antonio Fagundes, and several alleged accomplices who are accused of duping tens of thousands of victims from August 2017 to May 2019 into handing over more than $200 million for purported investments in cryptocurrencies.

The allure of civil forfeiture is that it enables prosecutors to recoup cryptocurrencies and other assets they can prove are proceeds of a crime, even when they cannot identify beyond a reasonable doubt the individual perpetrators, because they have absconded, are deceased or live abroad, like in the Brazilian case, said Stef Cassella, a former senior official at the Justice Department’s asset forfeiture and money laundering unit.

As a result, countries around the world that do not have civil forfeiture laws on the books are increasingly looking to adopt them, according to Cassella, who has been aiding authorities in Malta, Latvia, Brazil and other nations as they assess, develop or implement these statutes.

“Yes, you are going to see more cryptocurrency forfeitures because there’s more cryptocurrency involved in the economy but the legal process is the same,” Cassella, now an attorney with Asset Forfeiture Law in Maryland, said. “If you read civil forfeiture complaints involving Bitcoin, they read just like any other civil forfeiture complaint.”

In the U.S., the threat finance unit of the U.S. Attorney’s Office for the District of Columbia has pioneered the use of civil forfeiture powers to reclaim hundreds of millions of dollars’ worth of cryptocurrencies and other unusual assets, such as web domains, vessels and antiquities from pedophiles, terrorist groups and entities linked to North Korea and Iran.

That team, as well as “pockets” of “all-star” prosecutors across California and in New York, have done “cutting-edge” work in this area, said Wick, who was a senior policy advisory at Treasury’s Financial Crimes Enforcement Network until September. However, the growing role cryptocurrency is playing in all manner of financial crimes, from fraud to terrorist financing, requires federal authorities elsewhere in the country to also step up their game.

“My hope is that we start seeing this all around the country,” Wick said.

Contact Valentina Pasquali at vpasquali@acams.org

Topics : Cryptocurrencies , Info. Security/Cybercrime , Asset Forfeiture , Anti-money laundering
Source: U.S.: Courts , U.S.: Department of Justice
Document Date: November 11, 2020