The Crackdown on Crypto Crime by Governments Seizures Strategies and Impact

Exploring the Crackdown on Crypto Crime by Governments: Seizures, Strategies, and Effects


Ruholamin Haqshanas
Last updated:
June 12, 2024 04:57 EDT
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4 min read


Governments worldwide are increasingly focusing on confiscating cryptocurrencies linked to criminal activities.
The aim is to disrupt criminal networks and recover illicit gains by taking control of these assets.
Despite the decentralized nature of cryptocurrencies, governments have devised various methods and tactics to seize them.
The Rise of Government Crypto Confiscation
As the popularity and value of cryptocurrencies continue to rise, so does their misuse for illegal purposes.
One effective way to combat activities like money laundering, terrorism financing, and other illegal acts facilitated by cryptocurrencies is through seizures.
For instance, the UK has introduced new laws that empower law enforcement to seize, freeze, and recover crypto assets without the need for an arrest.
These measures, part of the Economic Crime and Corporate Transparency Act 2023, grant authorities the power to confiscate assets suspected of being connected to illegal activities and even destroy them if needed.
In the United States, the Department of Justice (DOJ) has set up the National Cryptocurrency Enforcement Team (NCET), which focuses on intricate investigations and prosecutions involving criminal misuse of cryptocurrency.
Other countries are also taking measures to regulate and oversee the use of cryptocurrencies in criminal activities.
Reasons and Methods for Government Cryptocurrency Confiscation
Governments primarily confiscate cryptocurrencies to combat illegal activities such as money laundering, drug trafficking, and tax evasion.
Notable cases like the Silk Road seizure underscore the scale and importance of these actions.
In 2013, U.S. authorities shut down the notorious darknet marketplace, seizing over 170,000 Bitcoins valued at around $33.6 million at the time.
Similarly, in February 2022, the Department of Justice confiscated 94,636 stolen BTC from the Bitfinex cryptocurrency exchange.
Ilya Lichtenstein and Heather Morgan, the individuals responsible for the hack, were also arrested and charged with conspiracy to commit money laundering.
These seizures are often carried out through coordinated law enforcement operations involving specialized units trained in cyber investigations.
Post-Seizure Procedures
Once cryptocurrencies are confiscated, governments secure and manage them using various methods.
Specialized wallets and cold storage solutions are utilized to ensure the security of these assets.
Typically, governments convert these assets into fiat currency through auctions or sales on cryptocurrency exchanges.
For instance, according to data from software engineer and researcher Jameson Lopp, the U.S. has sold $366 million worth of BTC in 11 auctions from 2014 to 2023.
In a recent case, the U.S. sold over 9,800 BTC connected to the Silk Road in March of the previous year.
The proceeds from these conversions are often directed back into law enforcement budgets or public services.
For example, funds from the Silk Road Bitcoin auction were allocated to the U.S. Treasury and other government departments.
Legal Framework
The legal basis for cryptocurrency confiscation varies by country but generally involves a mix of financial regulations, anti-money laundering (AML) laws, and specific statutes targeting cybercrime.
In the U.S., laws like the Bank Secrecy Act and the Money Laundering Control Act provide the necessary legal support for such actions.
International cooperation plays a vital role in tracking and seizing illegal crypto assets.
Organizations like Interpol and Europol facilitate cross-border collaboration, strengthening the global fight against crypto-related crimes.
It is important to note that tracking and seizing cryptocurrency present significant technological challenges due to the anonymous nature of blockchain transactions.
However, advancements in blockchain forensics have made it increasingly feasible to identify and trace illicit crypto assets.
Tools and techniques developed by companies like Chainalysis and CipherTrace assist governments in this complex task.
Significant Bitcoin Seizures
Several prominent cases demonstrate the process and impact of government cryptocurrency confiscation.
The Silk Road case, mentioned earlier, serves as a key example.
Another significant case involved the FBI’s seizure of $2.3 million worth of Bitcoin from the Colonial Pipeline ransomware attack in 2021.
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.
U.S. Government’s Ownership of Over $5 Billion Bitcoin
The U.S. government has emerged as 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 seized from cybercriminals and darknet markets 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 interest among crypto traders.
Any decision to sell these assets could potentially impact prices and have ripple effects 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 result 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, stated to the Wall Street Journal that the government does not actively trade or time the market.
Their actions are guided by the timing of the legal process.