15 ms·

How Bitcoins Involved in Crime Can Be Seized by the Feds

40 points by jamesbritt 13y ago

fantnn 13y ago
>Even Bitcoins that have been run through a tumbler to erase their identity have been successfully traced in a computer science experiment, he says. Anyone have a link to said study? Seems impossible if enough are being tumbled.
shawabawa3 13y ago
The article seems to miss out a very key point: How do they seize them? Do you knock on your door and demand your private keys? How can they do that if you've broken no laws? How do they even know you have them in the first place?
- wmf 13y ago
  Maybe they'd require US exchanges to seize blacklisted Bitcoin when it gets deposited.
  - jackgavigan 13y ago
    Such a requirement may not be limited to US exchanges. AML provisions require that any exchange (not just those in the US) that support the conversion of Bitcoin to/from USD register with FinCEN. If they were to refuse to cooperate with US LE agencies' efforts to confiscate bitcoins that were the proceeds of crime, they could be judged to have assisted in criminal money laundering.
    - gst 13y ago
      Many international exchanges don't really care about US AML provisions and/or about transacting in US dollars. And as long as they don't maintain US bank accounts they probably also don't care about being sued in the United States.
      - coldtea 13y ago
        I don't think that works well for people who are not drug barons.
        gst 13y ago
        Why not? Many European countries don't extradite their own citizens [1]. So you only need to comply with the local laws, which are often much less strict in terms of AML provisions. Of course you wouldn't want to do any international travel as an exchange operator who violates US law, but otherwise you're safe. [1] Instead, they can sue you locally, even if they crime happened in another country. However, this lawsuit will be according to local laws. So if the crime is only illegal in the other country they can't sue you.
        PeterisP 13y ago
        From what I see there has been a great, successful push to "harmonize" AML provisions, so I believe they are at their core pretty much the same throughout the 'civilized world' and the semi-dictatorships have much stronger controls than that - so all the big economies and major currencies are affected in the same way as USA/USD. Can you elaborate on which countries do you have in mind for "comply with the local laws, which are often much less strict in terms of AML provisions" ? For extradition you mention Europe, but the EU AML directive is already comprehensive enough to make illegal most suggested bitcoin-for-laundering use cases; and it can be expected that if there are major loopholes found, then (continuing with their existing AML policy) EU legislation will be quickly adapted to close them.
      - jackgavigan 13y ago
        Given the United States' track record when it comes to pushing out the boundaries of its extraterritorial jurisdiction, it would not surprise me if such exchanges were to encounter difficulties in finding a bank that was willing to provide them with banking facilities. Also, it would be inadvisable for the staff of such exchanges to travel to (or transit through) the United States. http://en.wikipedia.org/wiki/David_Carruthers#Arrest_during_US_transit_flight http://en.wikipedia.org/wiki/David_Carruthers#Arrest_during_...
    - quack 13y ago
      This is the biggest joke since the HSBC scandal broke. Feds dont care about real criminals laundering money. They just like it as a convenient scapegoat when it involves an enemy of the state. Also the US is not the world power anymore. They have no authority to 'flag' any currency.
- garrettgrimsley 13y ago
  To use their example: You own a lawn care company and do lawn maintenance for a client in Deleware for Dr. Olivia Bolles[1]. Unbeknownst to you Dr. Bolles is a drug dealer on Silk Road. She pays you for your services in bitcoin. The bitcoin wallet that her payment is posted to is publicly linked to you or your company through your website or perhaps your payment page. It is reasonable to assume that you are the benefactor of funds that go to this address otherwise you would be exchanging a service for naught! The government raids Dr. Bolles, seizes her wallets and while going over the transactions associated with these wallets discovers your wallet. They could then order you to surrender the funds based on the "nemo dat quod non habet" that they mentioned. Someone else will have to chime in with court cases that support/contradict my reasoning because that's beyond me. [1]http://thedailyrecord.com/2013/12/13/judge-silk-road-doctor-has-drug-abuse-problem/ http://thedailyrecord.com/2013/12/13/judge-silk-road-doctor-...
- natrius 13y ago
  You don't have to seize them. You can just declare that funds will not be accepted from any wallets that receive Bitcoin from the flagged wallet. If an entity with enough market power started flagging wallets, services would quickly build in functionality to reject funds from flagged wallets.
  - Houshalter 13y ago
    That would be a disaster. People would immediately dump all the worthless "flagged" coins on markets and services that haven't had time to respond to the new protocol. Those people would go bankrupt overnight, possibly before they even have time to realize it's happening and shut down.
  - gst 13y ago
    And how would this work in practice. Let's assume you have one "clean" Bitcoin and I have one stolen/flagged Bitcoin. I'm now sending you 0.1 Bitcoins and you don't know that those are flagged. So how would this influence your remaining Bitcoins? If you send 0.1 Bitcoins to someone else: Would you sell the stolen Bitcoins first? Would you sell the clean Bitcoins first? Are all of your coins tainted by a given percentage? (Yes, I know that just receiving those coins would create a separate input that you can ignore in order to avoid tainting your coins. But at some point clean and flagged input will be merged together into a single one.)
    - eterm 13y ago
      You sell the clean first. You are assumed to always be holding 0.1 dirty coins, so you must keep a balance > 0.1 at all times to avoid spending the dirty coins.
      - gst 13y ago
        So now let's assume I'm selling something on an auction site and someone pays me with coins where I assume it's likely that they are stolen (but I don't have any definite knowledge about that). For some reason I now need to refund the buyer. Do I now first need to transfer all but 0.1 coins to somewhere else, so that I can send the remaining 0.1 coins back?
- wehadfun 13y ago
  If people can't find stolen bitcoins how can the FBI find bitcoins from illegal activity?
  - corin_ 13y ago
    I can't find who stole my mobile phone, it doesn't necessarily mean the FBI couldn't (if they wanted to). Obviously this is not relevant to the technical specifications of Bitcoin, but my point is that this comparison isn't really relevant.
- deleted 13y ago
  [deleted]
- andrewfong 13y ago
  > Do you knock on your door and demand your private keys? Pretty much. If you're storing your bitcoin with something like Coinbase, they could also knock on Coinbase's door. > How can they do that if you've broken no laws? Buying stolen artwork is not a crime if you don't know it's stolen. But the government can still seize the stolen artwork and return it to its original rightful owner. The only recourse you have is to go after the person who sold you the stolen artwork -- which may not be very feasible for you to do in the case of semi-anonymous bitcoin transactions. > How do they even know you have them in the first place? If you use a third-party service like Coinbase, they could just ask them. If you're using your own wallet, they'd have to rely on good-old fashioned deduction -- e.g. if the previous holder of the coins has an accounting log showing payment to you in bitcoins, that's probably enough to infer that you have or did have possession. It might be enough to shift the burden of proof so that you have to show that you don't have possession of the bitcoins.
  - tlrobinson 13y ago
    > you have to show that you don't have possession of the bitcoins How exactly do you prove you don't possess something?
    - andrewfong 13y ago
      More accurately, you have to refute the evidence that's already been produced that you do possess something. For example, if someone says "I paid tlrobinson 2 bitcoins for mowing my lawn on Sunday," you could produce evidence that you were on a business trip on Sunday and therefore couldn't be the same tlrobinson referenced in the previous statement. Or argue that the person making that statement is a liar. Or point out that 2 bitcoins is an absurd amount to pay for mowing a lawn. Etc.
    - dllthomas 13y ago
      This isn't really any more of an issue with bitcoin than with Caymans accounts. It already leads to some messiness, but it doesn't stop them from throwing people in jail.
  - AJ007 13y ago
- whyenot 13y ago
  If you buy something at Overstock.com or cash out at Coinbase or an exchange they can find you. Related: I've met several people who are planning to use bitcoins to avoid paying taxes. I'll leave it as an exercise for the reader why that could be a very bad idea.
  - evacuationdrill 13y ago
    At the least, isn't the IRS able to come look at your possessions to approximate your tax liability, or something along those lines?
jfasi 13y ago
> The FBI already owns 5 to 10 percent of [bitcoins], which are now out of circulation. Given that money laundering and drug transactions have become major parts of bitcoin's current use case, law enforcement's tendency to seize bitcoins puts yet another deflationary pressure on the system. The biggest obstacle to bitcoin becoming a currency rather than a speculator's darling is the stability of its value. Meanwhile, the system's incentives seem to promote hoarding in hopes of a price spike. Not that this is problem in and of itself. Bitcoin's decent anonymity creates very real value, and it looks poised to be a medium of exchange. It just puts a damper on the hopes that future transactions will be denominated in bitcoin rather than dollars.
- bluedino 13y ago
  What are the chances of hackers taking them back?
  - wmf 13y ago
    About the same as the chances of hackers deleting the FBI's evidence against them?
    - topynate 13y ago
      Not the case, actually. It's safe to assume that the FBI is very big on backups, probably paper backups, to prevent people doing just that. But stealing the bitcoin from the FBI wouldn't require deleting anything, just access to the private key. Now admittedly, the FBI also has a lot of experience keeping short bits of data secret (for instance, the real identities of moles and protected witnesses). But they don't exactly have a perfect record on that count.
- gtCameron 13y ago
  That is only if the FBI holds onto them forever. However, unless something has changed, I was under the impression that they plan on auctioning them off just like any other seized asset http://www.forbes.com/sites/kashmirhill/2014/01/16/the-feds-are-ready-to-sell-the-silk-road-bitcoin-kind-of/ http://www.forbes.com/sites/kashmirhill/2014/01/16/the-feds-...
EA 13y ago
I have US dollar bill B03542754F in my pocket right now. I wonder about its "blockchain" and how it has flowed into and through our economy. I wonder if it at anytime in its life has been a part of illegal activity.
- 1337biz 13y ago
  Dear Sir, your $100 dollar bill was used in an illegal money transaction in 1972. It is your personal duty as a good citizen to destroy this element of crime immediately !
  - aestra 13y ago
    Not too many bills from 1972 are still in circulation.
    - Houshalter 13y ago
      Banks keep records of bills that are destroyed and replaced with new bills.
  - eterm 13y ago
    If your bill turns out to have one of the IDs that is known to have been given to DB Cooper then indeed they'll want it back.
- qnaal 13y ago
  http://www.wheresgeorge.com http://www.wheresgeorge.com
- bluedino 13y ago
  Wheresgeorge.com
- jackgavigan 13y ago
  "Money is not generally subject to a replevin action unless it is marked or packaged in such as way as to make it distinguishable." Source: http://rjcesq.com/?p=15 http://rjcesq.com/?p=15
walden42 13y ago
Trustless mixing will make this nearly impossible for the Feds.
- wmf 13y ago
  Unless they decide that all the money coming out of the mix is tainted.
  - erichocean 13y ago
    Law enforcement in general only works effectively when a small portion of the population is a target for enforcement. If mixing exchanges represented a significant fraction of bitcoin activity, a "tainting" law would be practically unenforceable.
    - shittyanalogy 13y ago
      It's called selective enforcement. See the war on drugs.
    - Fomite 13y ago
      That assumes that "a significant fraction of bitcoin activity" is not also "a small portion of the population"
- tlrobinson 13y ago
  Or law-abiding users who simply want financial privacy will be afraid to use mixing for fear of (literally) being mixed up in illegal activity, just as most people won't run Tor exit nodes.
- PeterisP 13y ago
  Bitcoin mixing is trivial to defeat. (a) Forbid offering and using it; (b) if 'tainted' money enters a pool, then the operator and/or the participants become jointly liable for returning back all of the money; (c) seize money from whomever is easiest to reach. (d) observe casual people never ever participating in such mixing after the first publicized case. All of the above is within powers of legislators+lawenforcement, and there are precedents of them doing different-but-similar things for other ways of money laundering.
logfromblammo 13y ago
If no one gives what he does not have, then no one takes what he cannot hold. The Feds cannot seize your Bitcoins unless they have your cooperation or can obtain your private keys by other means. In order to search your property and make a seizure, the police must at least have a reasonable suspicion that you, yourself, have committed a crime, and that the property to be seized is either evidence of or proceeds from that crime. That's the legality. In reality, police will illegally search your computers, transfer your coins while you are cuffed, and then you will have no practical recourse. Begin protecting yourself with encryption and strong passwords now, and help your non-technical acquaintances learn how to use it. It is only a matter of time before you or someone that you know ends up on the wrong end of an injustice.
- Karunamon 13y ago
  Even if they do have your private keys, they have no assurance that they have the only copy of them. If you're forced to hand over private keys to a wallet that more than one person has keys for, there's nothing that prevents the other person from (with bad intent or otherwise) moving those funds to another wallet.
  - tlrobinson 13y ago
    I'm not sure what your point is. Upon seizure they'd presumably sweep the coins to their own account. Multi-sig transactions can prevent any one person from running off with the funds, and will likely become common in the next year or so.
    - deleted 13y ago
      [deleted]
      - tlrobinson 13y ago
        Of course they can. In the case of Silk Road they immediately swept the coins into their own Bitcoin address on October 2 (https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX?sort=1 https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5G...), the same day they seized and shutdown Silk Road (http://news.yahoo.com/fbi-raids-alleged-online-drug-market-silk-road-153729457.html http://news.yahoo.com/fbi-raids-alleged-online-drug-market-s...). No one with the Silk Road keys can take them back, it doesn't matter that the FBI is still holding the Bitcoins. They'll only get better at this.
Houshalter 13y ago
Absurd. No one demands that you give cash back if it turns out to have been used in a crime. Imagine if your employer was accused of a crime, or sold something to a criminal, etc.
- cjg 13y ago
  I read your comment and thought, yes it would be absurd to apply this to cash and therefore it seems also absurd to apply it to bitcoin. However, there are people who would like bitcoin to fail, perhaps because they are part of the established financial system and so, it's possible that a court might rule that because an individual bitcoin amount can be traced back to a crime it should be confiscated. The thing is, that potentially that causes problems for cash. As soon as technology is capable of tracking cash in the same way the same legal argument could be used. This is already relatively easy for electronic balances, but technology that tracks bank notes is quite easily imaginable. I wonder what the case law for electronic cash balances is.
- ZachPruckowski 13y ago
  Sometimes they do - for instance money used in stings and busts by law enforcement might have its serial numbers recorded. If you're subsequently searched and found to have money used in a drug bust, there are gonna be some tough questions and the money might get confiscated. If someone uses a fraudulent credit card to buy something from you online, you're not going to be able to keep that money when the fraud's reversed. If you (unknowingly) buy stolen property you can be forced to give it back, and then it's up to you to go after the guy who sold it to you. If you knowingly buy stolen property you're in trouble. Given that BTC serial numbers are in plain view as opposed to stolen goods or dollar bills where you need a warrant, it's a lot easier to demand the BTC back.
mistercow 13y ago
>The FBI already owns 5 to 10 percent of them, which are now out of circulation The FBI has seized around half a billion dollars worth of bitcoin, and they've just "taken it out of circulation"? I realize that half a billion isn't that much in the grand scheme of things, but still, this hardly seems like ideal management of seized assets.
- wmf 13y ago
  That BTC is going to be auctioned; it's only out of circulation temporarily.
andrewfong 13y ago
Hypothetical: Suppose you owned a car, and this was stolen. If the car were sold intact, then presumably you could reclaim the car from the buyer because of the nemo dat rule. But now suppose the thief sold the car to a salvage yard. The salvage yard breaks the car down into scrap metal, which is melted down and recycled for use in other products. I'm not very familiar with this area of law, but presumably you would no longer have a claim to the car or the scrap because the original piece of property to which you had title, the car, was destroyed. You might have a claim against the scrap yard for not checking title on the car and could recover the fair market value of the vehicle. Same with bitcoin -- once someone comingles the stolen coins with other coins, the original balance of coins has been destroyed. There is no action against parties further down the blockchain. Your only remedy should be to recover the fair market value of the coins from the party that "destroyed" the coins. <standard "this is not legal advice" disclaimer goes here>

40 points by jamesbritt 13y ago

>Even Bitcoins that have been run through a tumbler to erase their identity have been successfully traced in a computer science experiment, he says. Anyone have a link to said study? Seems impossible if enough are being tumbled.

shawabawa3 13y ago

The article seems to miss out a very key point: How do they seize them? Do you knock on your door and demand your private keys? How can they do that if you've broken no laws? How do they even know you have them in the first place?

wmf 13y ago
Maybe they'd require US exchanges to seize blacklisted Bitcoin when it gets deposited.
- jackgavigan 13y ago
  Such a requirement may not be limited to US exchanges. AML provisions require that any exchange (not just those in the US) that support the conversion of Bitcoin to/from USD register with FinCEN. If they were to refuse to cooperate with US LE agencies' efforts to confiscate bitcoins that were the proceeds of crime, they could be judged to have assisted in criminal money laundering.
  - gst 13y ago
    Many international exchanges don't really care about US AML provisions and/or about transacting in US dollars. And as long as they don't maintain US bank accounts they probably also don't care about being sued in the United States.
    - coldtea 13y ago
      I don't think that works well for people who are not drug barons.
      - gst 13y ago
        Why not? Many European countries don't extradite their own citizens [1]. So you only need to comply with the local laws, which are often much less strict in terms of AML provisions. Of course you wouldn't want to do any international travel as an exchange operator who violates US law, but otherwise you're safe. [1] Instead, they can sue you locally, even if they crime happened in another country. However, this lawsuit will be according to local laws. So if the crime is only illegal in the other country they can't sue you.
        PeterisP 13y ago
        From what I see there has been a great, successful push to "harmonize" AML provisions, so I believe they are at their core pretty much the same throughout the 'civilized world' and the semi-dictatorships have much stronger controls than that - so all the big economies and major currencies are affected in the same way as USA/USD. Can you elaborate on which countries do you have in mind for "comply with the local laws, which are often much less strict in terms of AML provisions" ? For extradition you mention Europe, but the EU AML directive is already comprehensive enough to make illegal most suggested bitcoin-for-laundering use cases; and it can be expected that if there are major loopholes found, then (continuing with their existing AML policy) EU legislation will be quickly adapted to close them.
    - jackgavigan 13y ago
      Given the United States' track record when it comes to pushing out the boundaries of its extraterritorial jurisdiction, it would not surprise me if such exchanges were to encounter difficulties in finding a bank that was willing to provide them with banking facilities. Also, it would be inadvisable for the staff of such exchanges to travel to (or transit through) the United States. http://en.wikipedia.org/wiki/David_Carruthers#Arrest_during_US_transit_flight http://en.wikipedia.org/wiki/David_Carruthers#Arrest_during_...
  - quack 13y ago
    This is the biggest joke since the HSBC scandal broke. Feds dont care about real criminals laundering money. They just like it as a convenient scapegoat when it involves an enemy of the state. Also the US is not the world power anymore. They have no authority to 'flag' any currency.
garrettgrimsley 13y ago
To use their example: You own a lawn care company and do lawn maintenance for a client in Deleware for Dr. Olivia Bolles[1]. Unbeknownst to you Dr. Bolles is a drug dealer on Silk Road. She pays you for your services in bitcoin. The bitcoin wallet that her payment is posted to is publicly linked to you or your company through your website or perhaps your payment page. It is reasonable to assume that you are the benefactor of funds that go to this address otherwise you would be exchanging a service for naught! The government raids Dr. Bolles, seizes her wallets and while going over the transactions associated with these wallets discovers your wallet. They could then order you to surrender the funds based on the "nemo dat quod non habet" that they mentioned. Someone else will have to chime in with court cases that support/contradict my reasoning because that's beyond me. [1]http://thedailyrecord.com/2013/12/13/judge-silk-road-doctor-has-drug-abuse-problem/ http://thedailyrecord.com/2013/12/13/judge-silk-road-doctor-...
natrius 13y ago
You don't have to seize them. You can just declare that funds will not be accepted from any wallets that receive Bitcoin from the flagged wallet. If an entity with enough market power started flagging wallets, services would quickly build in functionality to reject funds from flagged wallets.
- Houshalter 13y ago
  That would be a disaster. People would immediately dump all the worthless "flagged" coins on markets and services that haven't had time to respond to the new protocol. Those people would go bankrupt overnight, possibly before they even have time to realize it's happening and shut down.
- gst 13y ago
  And how would this work in practice. Let's assume you have one "clean" Bitcoin and I have one stolen/flagged Bitcoin. I'm now sending you 0.1 Bitcoins and you don't know that those are flagged. So how would this influence your remaining Bitcoins? If you send 0.1 Bitcoins to someone else: Would you sell the stolen Bitcoins first? Would you sell the clean Bitcoins first? Are all of your coins tainted by a given percentage? (Yes, I know that just receiving those coins would create a separate input that you can ignore in order to avoid tainting your coins. But at some point clean and flagged input will be merged together into a single one.)
  - eterm 13y ago
    You sell the clean first. You are assumed to always be holding 0.1 dirty coins, so you must keep a balance > 0.1 at all times to avoid spending the dirty coins.
    - gst 13y ago
      So now let's assume I'm selling something on an auction site and someone pays me with coins where I assume it's likely that they are stolen (but I don't have any definite knowledge about that). For some reason I now need to refund the buyer. Do I now first need to transfer all but 0.1 coins to somewhere else, so that I can send the remaining 0.1 coins back?
wehadfun 13y ago
If people can't find stolen bitcoins how can the FBI find bitcoins from illegal activity?
- corin_ 13y ago
  I can't find who stole my mobile phone, it doesn't necessarily mean the FBI couldn't (if they wanted to). Obviously this is not relevant to the technical specifications of Bitcoin, but my point is that this comparison isn't really relevant.
deleted 13y ago
[deleted]
andrewfong 13y ago
> Do you knock on your door and demand your private keys? Pretty much. If you're storing your bitcoin with something like Coinbase, they could also knock on Coinbase's door. > How can they do that if you've broken no laws? Buying stolen artwork is not a crime if you don't know it's stolen. But the government can still seize the stolen artwork and return it to its original rightful owner. The only recourse you have is to go after the person who sold you the stolen artwork -- which may not be very feasible for you to do in the case of semi-anonymous bitcoin transactions. > How do they even know you have them in the first place? If you use a third-party service like Coinbase, they could just ask them. If you're using your own wallet, they'd have to rely on good-old fashioned deduction -- e.g. if the previous holder of the coins has an accounting log showing payment to you in bitcoins, that's probably enough to infer that you have or did have possession. It might be enough to shift the burden of proof so that you have to show that you don't have possession of the bitcoins.
- tlrobinson 13y ago
  > you have to show that you don't have possession of the bitcoins How exactly do you prove you don't possess something?
  - andrewfong 13y ago
    More accurately, you have to refute the evidence that's already been produced that you do possess something. For example, if someone says "I paid tlrobinson 2 bitcoins for mowing my lawn on Sunday," you could produce evidence that you were on a business trip on Sunday and therefore couldn't be the same tlrobinson referenced in the previous statement. Or argue that the person making that statement is a liar. Or point out that 2 bitcoins is an absurd amount to pay for mowing a lawn. Etc.
  - dllthomas 13y ago
    This isn't really any more of an issue with bitcoin than with Caymans accounts. It already leads to some messiness, but it doesn't stop them from throwing people in jail.
- AJ007 13y ago
whyenot 13y ago
If you buy something at Overstock.com or cash out at Coinbase or an exchange they can find you. Related: I've met several people who are planning to use bitcoins to avoid paying taxes. I'll leave it as an exercise for the reader why that could be a very bad idea.
- evacuationdrill 13y ago
  At the least, isn't the IRS able to come look at your possessions to approximate your tax liability, or something along those lines?

jfasi 13y ago

> The FBI already owns 5 to 10 percent of [bitcoins], which are now out of circulation. Given that money laundering and drug transactions have become major parts of bitcoin's current use case, law enforcement's tendency to seize bitcoins puts yet another deflationary pressure on the system. The biggest obstacle to bitcoin becoming a currency rather than a speculator's darling is the stability of its value. Meanwhile, the system's incentives seem to promote hoarding in hopes of a price spike. Not that this is problem in and of itself. Bitcoin's decent anonymity creates very real value, and it looks poised to be a medium of exchange. It just puts a damper on the hopes that future transactions will be denominated in bitcoin rather than dollars.

bluedino 13y ago
What are the chances of hackers taking them back?
- wmf 13y ago
  About the same as the chances of hackers deleting the FBI's evidence against them?
  - topynate 13y ago
    Not the case, actually. It's safe to assume that the FBI is very big on backups, probably paper backups, to prevent people doing just that. But stealing the bitcoin from the FBI wouldn't require deleting anything, just access to the private key. Now admittedly, the FBI also has a lot of experience keeping short bits of data secret (for instance, the real identities of moles and protected witnesses). But they don't exactly have a perfect record on that count.
gtCameron 13y ago
That is only if the FBI holds onto them forever. However, unless something has changed, I was under the impression that they plan on auctioning them off just like any other seized asset http://www.forbes.com/sites/kashmirhill/2014/01/16/the-feds-are-ready-to-sell-the-silk-road-bitcoin-kind-of/ http://www.forbes.com/sites/kashmirhill/2014/01/16/the-feds-...

EA 13y ago

I have US dollar bill B03542754F in my pocket right now. I wonder about its "blockchain" and how it has flowed into and through our economy. I wonder if it at anytime in its life has been a part of illegal activity.

1337biz 13y ago
Dear Sir, your $100 dollar bill was used in an illegal money transaction in 1972. It is your personal duty as a good citizen to destroy this element of crime immediately !
- aestra 13y ago
  Not too many bills from 1972 are still in circulation.
  - Houshalter 13y ago
    Banks keep records of bills that are destroyed and replaced with new bills.
- eterm 13y ago
  If your bill turns out to have one of the IDs that is known to have been given to DB Cooper then indeed they'll want it back.
qnaal 13y ago
http://www.wheresgeorge.com http://www.wheresgeorge.com
bluedino 13y ago
Wheresgeorge.com
jackgavigan 13y ago
"Money is not generally subject to a replevin action unless it is marked or packaged in such as way as to make it distinguishable." Source: http://rjcesq.com/?p=15 http://rjcesq.com/?p=15

walden42 13y ago

Trustless mixing will make this nearly impossible for the Feds.

wmf 13y ago
Unless they decide that all the money coming out of the mix is tainted.
- erichocean 13y ago
  Law enforcement in general only works effectively when a small portion of the population is a target for enforcement. If mixing exchanges represented a significant fraction of bitcoin activity, a "tainting" law would be practically unenforceable.
  - shittyanalogy 13y ago
    It's called selective enforcement. See the war on drugs.
  - Fomite 13y ago
    That assumes that "a significant fraction of bitcoin activity" is not also "a small portion of the population"
tlrobinson 13y ago
Or law-abiding users who simply want financial privacy will be afraid to use mixing for fear of (literally) being mixed up in illegal activity, just as most people won't run Tor exit nodes.
PeterisP 13y ago
Bitcoin mixing is trivial to defeat. (a) Forbid offering and using it; (b) if 'tainted' money enters a pool, then the operator and/or the participants become jointly liable for returning back all of the money; (c) seize money from whomever is easiest to reach. (d) observe casual people never ever participating in such mixing after the first publicized case. All of the above is within powers of legislators+lawenforcement, and there are precedents of them doing different-but-similar things for other ways of money laundering.

logfromblammo 13y ago

If no one gives what he does not have, then no one takes what he cannot hold. The Feds cannot seize your Bitcoins unless they have your cooperation or can obtain your private keys by other means. In order to search your property and make a seizure, the police must at least have a reasonable suspicion that you, yourself, have committed a crime, and that the property to be seized is either evidence of or proceeds from that crime. That's the legality. In reality, police will illegally search your computers, transfer your coins while you are cuffed, and then you will have no practical recourse. Begin protecting yourself with encryption and strong passwords now, and help your non-technical acquaintances learn how to use it. It is only a matter of time before you or someone that you know ends up on the wrong end of an injustice.

Karunamon 13y ago
Even if they do have your private keys, they have no assurance that they have the only copy of them. If you're forced to hand over private keys to a wallet that more than one person has keys for, there's nothing that prevents the other person from (with bad intent or otherwise) moving those funds to another wallet.
- tlrobinson 13y ago
  I'm not sure what your point is. Upon seizure they'd presumably sweep the coins to their own account. Multi-sig transactions can prevent any one person from running off with the funds, and will likely become common in the next year or so.
  - deleted 13y ago
    [deleted]
    - tlrobinson 13y ago
      Of course they can. In the case of Silk Road they immediately swept the coins into their own Bitcoin address on October 2 (https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX?sort=1 https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5G...), the same day they seized and shutdown Silk Road (http://news.yahoo.com/fbi-raids-alleged-online-drug-market-silk-road-153729457.html http://news.yahoo.com/fbi-raids-alleged-online-drug-market-s...). No one with the Silk Road keys can take them back, it doesn't matter that the FBI is still holding the Bitcoins. They'll only get better at this.

Houshalter 13y ago

Absurd. No one demands that you give cash back if it turns out to have been used in a crime. Imagine if your employer was accused of a crime, or sold something to a criminal, etc.

cjg 13y ago
I read your comment and thought, yes it would be absurd to apply this to cash and therefore it seems also absurd to apply it to bitcoin. However, there are people who would like bitcoin to fail, perhaps because they are part of the established financial system and so, it's possible that a court might rule that because an individual bitcoin amount can be traced back to a crime it should be confiscated. The thing is, that potentially that causes problems for cash. As soon as technology is capable of tracking cash in the same way the same legal argument could be used. This is already relatively easy for electronic balances, but technology that tracks bank notes is quite easily imaginable. I wonder what the case law for electronic cash balances is.
ZachPruckowski 13y ago
Sometimes they do - for instance money used in stings and busts by law enforcement might have its serial numbers recorded. If you're subsequently searched and found to have money used in a drug bust, there are gonna be some tough questions and the money might get confiscated. If someone uses a fraudulent credit card to buy something from you online, you're not going to be able to keep that money when the fraud's reversed. If you (unknowingly) buy stolen property you can be forced to give it back, and then it's up to you to go after the guy who sold it to you. If you knowingly buy stolen property you're in trouble. Given that BTC serial numbers are in plain view as opposed to stolen goods or dollar bills where you need a warrant, it's a lot easier to demand the BTC back.

mistercow 13y ago

>The FBI already owns 5 to 10 percent of them, which are now out of circulation The FBI has seized around half a billion dollars worth of bitcoin, and they've just "taken it out of circulation"? I realize that half a billion isn't that much in the grand scheme of things, but still, this hardly seems like ideal management of seized assets.

wmf 13y ago
That BTC is going to be auctioned; it's only out of circulation temporarily.

andrewfong 13y ago

Hypothetical: Suppose you owned a car, and this was stolen. If the car were sold intact, then presumably you could reclaim the car from the buyer because of the nemo dat rule. But now suppose the thief sold the car to a salvage yard. The salvage yard breaks the car down into scrap metal, which is melted down and recycled for use in other products. I'm not very familiar with this area of law, but presumably you would no longer have a claim to the car or the scrap because the original piece of property to which you had title, the car, was destroyed. You might have a claim against the scrap yard for not checking title on the car and could recover the fair market value of the vehicle. Same with bitcoin -- once someone comingles the stolen coins with other coins, the original balance of coins has been destroyed. There is no action against parties further down the blockchain. Your only remedy should be to recover the fair market value of the coins from the party that "destroyed" the coins. <standard "this is not legal advice" disclaimer goes here>