All the way back in 2013, the federal Drug Enforcement Agency (DEA) seized 11.02 BTC from a South Carolina man attempting to buy illegal substances online. The seizure was the first of its kind and marked the beginning of a multi-billion dollar asset appropriation program spanning the DEA, FBI, and other US law enforcement agencies.
When the DEA reported its first Bitcoin bust, the crypto in question was worth just $814. But in the years since, US agencies have moved on to much larger fish.
As reported by 21.co, the government’s single largest haul was 94,643 BTC seized from wallets controlled by Heather Morgan and her husband Ilya Lichtenstein. Earlier this year, Morgan and Lichtenstein pleaded guilty to orchestrating a scheme to launder proceeds from the 2016 hack of the Bitfinex crypto exchange.
Both the second- and third-largest stashes of Bitcoin obtained by the government stem from the Silk Road darknet market.
The most valuable Silk Road seizure was undertaken by the Internal Revenue Service (IRS) in 2020. After the government successfully traced assets that had been stolen from the platform prior to it being shut down, the IRS commandeered 69,369 BTC from an unidentified Silk Road hacker
A year later, law enforcement seized an additional 51,326 BTC from James Zhong, who siphoned the funds from the marketplace between 2012 and 2014.
Although the three largest government bitcoin busts account for around 200,000 BTC between them, the real value of the government’s bitcoin holdings could be even higher as that figure is only a lower-bound estimation based on publicly available information.
For the roughly $5B worth of BTC associated with the three largest seizures, it is unlikely that there will be any legal challenges to the government’s ownership of the Silk Road Assets.
Even the imprisoned Silk Road founder Ross Ulbricht has already forfeited any claim to the seized Bitcoin as part of a deal that saw the government use some of the assets to pay off Ulbricht’s $183 million court debt.
However, when it comes to the Bitfinex funds, the exchange itself has a legitimate claim to the seized Bitcoin.
In a statement , Bitfinex said it will work with the DoJ to “establish our rights to a return of the stolen Bitcoin.”
Meanwhile, although Bitfinex insists that it has settled its debts with users who lost funds to the hack, many of the exchange’s customers contest that they should be entitled to some of the seized Bitcoin, setting up a potential legal clash.
Due to the drawn-out legal process required to liquidate its holdings, and the need to consider legitimate legal claims like Bitfinex’s (and its customers’), it can take years for the government to convert its Bitcoin into dollars.
In comments reported by the Wall Street Journal, executive director of the IRS’s cyber and forensic services department Jarod Koopman remarked that “we don’t play the market.”
Instead, Koopman observed that “we basically are set by the timing in our process.”