With the recent announcement of the Blockchain Alliance “A Public-Private Forum to Help Combat Criminal Activity on the Blockchain” founded by Coin Center and the Chamber of Digital Commerce, Cointelegraph highlights some recent events overlooked by the Bitcoin industry that immediately precipitated the announcement including an FBI “playbook” and European seizure survey.
Ever since Let’s Talk Bitcoin broke the story in June 2013 that the DEA (Drug Enforcement Agency) seized 11.02 bitcoin from a bitcoin user, the internet has been aflutter what exactly it means to seize bitcoin and the extent of control that law enforcement has over everyone’s favorite cryptocurrency.
At the time, Bitcoin superstar Andreas M. Antonopoulos stated that “There is no indication the Bitcoin protocol was compromised. “Seizure” is probably a word used to imply that money was received in the process of a Silk Road sting operation, rather than actually bitcoin seized from the user's wallet."
Andreas’ words still hold true today. At its core, literally Bitcoin core, it is not possible to seize bitcoin. However, it is possible to seize bitcoin depending on how a Bitcoin user interacts with the cryptocurrency (including sending it to law enforcement unbeknownst to the user -- as was likely the case of the seizure discussed above).
Track Record
Of note, the most upvoted stories in r/Bitcoin on Reddit right after the Blockchain Alliance announcement was a Tweet by Andreas M. Antonopoulos:
“Blockchain Alliance is a terrible idea. Spend money fighting poverty, not phantom threats used as excuses to fund war and surveillance […] Bitcoin is economic inclusion, global access and anti-poverty. If you want to help law enforcement, blow the whistle on a fat cat banker."
And a post by Bruce Fenton, the Executive Director of the Bitcoin Foundation:
“Friends: the Blockchain Alliance isn't a debate over whether we should engage government or not, it's about whether this particular form of engagement is helpful or harmful.”
Last summer, “Last Week Tonight with John Oliver” covered Civil Forfeiture for HBO in a shocking YouTube video with a tagline “Did you know police can just take your stuff if they suspect it's involved in a crime? They can! It’s a shady process called ’civil asset forfeiture,’ and it would make for a weird episode of Law and Order. See?” This was tempered by a response by the Department of Justice earlier this year with an order by Attorney General Eric Holder, “Prohibit[ing] Federal Agency Adoptions of Assets Seized by State and Local Law Enforcement Agencies except where needed to Protect Public Safety.”
The FBI
In September the Federal Bureau of Investigation (FBI) released a Law Enforcement Bulletin “Virtual Currency: Investigative Challenges and Opportunities.” Calling law enforcement’s interdiction in a crime an “opportunity” is a bit baffling if you stand back and look at this choice of words (that said I almost made the exact opposite argument in “United States to Monitor Canadian Border for Illicit Drug-Related Bitcoin Transactions”).
In the bulletin is a section entitled “Virtual Currency Seizure,” which essentially is an FBI playbook for seizing bitcoin. It notes that “Prosecutors may forfeit bitcoin through existing asset forfeiture laws as proceeds of criminal activity or as property involved in money-laundering violations.”
It further explains the intricacies of seizing bitcoin:
“Seizing bitcoin will require law enforcement officers to take hold of or otherwise gain lawful access to the electronic media where the wallet resides (e.g., on a laptop, thumb drive, or server). The Bitcoin address also may be recorded as printed ‘QR’ codes or strings of letters and numbers, known as a paper wallet. The bitcoin immediately should be transferred to a government-controlled wallet, and the media holding the wallet should be segregated and stored without connection to the Internet. Merely seizing the wallet and storing it as evidence is insufficient because backup wallets may exist online or in another location. If the bitcoin are not moved to a government-controlled wallet, they may be transferred by a third party using a backup wallet; in that case, the original seized wallet no longer will hold any value. If a third-party business holds bitcoin in an e-wallet, investigators must serve process on the business just as one would serve a seizure warrant on a financial institution for funds in an account.”
The bulletin further explains that due to the volatile nature of virtual currencies the bitcoin may be sold before an investigation is finalized:
“[…] Due to the volatile nature of virtual currency, prosecutors should consider obtaining a stipulation for interlocutory sale where possible, which will permit the sale of the virtual currency prior to completion of the forfeiture. In the event law enforcement officers seize a large quantity of virtual currency, prosecutors should consider breaking it up into smaller batches for sale after forfeiture or an order for interlocutory sale […].”
While the article does portray the government (in particular the FBI) as being particularly savvy, it is has always been interesting to note that the first ever bitcoin seizure involves a case of mistaken identity as noted in “DEA Seizes Bitcoin: Seizure Points to Earlier Mistaken Identity.” Moreover, a recent survey from the Council of Europe reveals that not all governments are prepared to respond to Bitcoin related crimes.
Council of Europe
The Council of Europe, which according to Wikipedia is a “regional intergovernmental organization, which promotes human rights, democracy, and the rule of law in its 47 member states, covering 820 million citizens) issued a questionnaire/report a day after the FBI bulletin.
Through The European Committee on Crime Problems Committee of Experts on the Operation of European Convention on Co-Operation in Criminal Matters, a questionnaire entitled “Questionnaire on the use and efficiency of CoE instruments as regards international cooperation in the field of seizure and confiscation of proceeds of crime, including the management of confiscated goods and asset sharing” provides an overview of Bitcoin seizure capabilities in Europe.
This included a question: “is your state in a position to provide assistance in procedures related to virtual currencies such as bitcoins, especially as regards seizure and confiscation?”
A summary table of responses was included in the report and it is included below:
| State | Assistance | Comment | ||
| Andorra | Yes | All proceeds of crime | ||
| Azerbaijan | No | No | ||
| Belgium | Yes | In principle | ||
| Bulgaria | No | |||
| Finland | Unknown | |||
| Germany | Yes | German law considers bitcoins to be objects which are subject to confiscation (section 73 (1), first sentence, StGB) | ||
| Norway | Yes | Criminal Procedure Act, chapter 16 | ||
| Sweden | Yes | No experience | ||
| Switzerland | No experience | |||
| Turkey | Yes | |||
| Ukraine | Yes | |||
| United Kingdom | Yes | Order on the value of bitcoin. The UK can also restrain virtual currencies depending on the nature of how they are held |
Digging into the actual responses provided to the survey reveals some gaps in governments’ ability to “control” Bitcoin. Finland’s actual response to this question was “No idea, really” German and United Kingdom’s responses were as follows:
“German law considers bitcoins to be objects which are subject to confiscation within the meaning of section 73 (1), first sentence, StGB. Pursuant to section 111b (1) in conjunction with section 111c of the German Code of Criminal Procedure (Strafprozessordnung, StPO), they may be seized in order to secure confiscation by court order. The Federal Court of Justice has not yet issued a final-instance ruling on this issue; however, an appeal on points of law is currently pending before that court, which will clarify this question (and others).”
United Kingdom:
“The UK would conduct proceedings based on the value of the bitcoins, i.e. the courts would specify a confiscation order on the defendant which would reflect the value of the bitcoin. The UK can also restrain virtual currencies depending on the nature of how they are held.”
Other nations provided detailed responses as well and readers are encouraged to read the report in its entirety to see more comprehensive responses.
It will be interesting see how the Blockchain Alliance will interface with law enforcement and government. If this involves the seizure of bitcoin, we will just have to wait and see. In the meanwhile governments appear to be “seizing the opportunity.”