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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

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_...
      - gst 13y ago
        If you don't find a bank account you could always operate a P2P-style exchange like bitmarket used to: The exchange acts as an escrow for the Bitcoins, but the fiat transaction happens directly between market participants. Once the fiat arrives at the receiver the coins are released. In case there are any disagreements the exchange can ask both sides for proofs. This won't prevent 100% of fraud, but seems to have worked well for bitmarket. The reason why those P2P-style exchanges aren't common in the United States is because it's hard to directly transfer money between two people. With SEPA transactions in Europe you can directly transfer money to any recipient, usually for free (or at a very low cost).
        PeterisP 13y ago
        And at that point you have perfectly traceable transactions, since the 'fiat transaction' part has personally identifiable information of both participants.
    - PeterisP 13y ago
      AML laws are not US-specific - as soon as the current regulation catches up, any international exhange will either comply with their local AML laws doing the same thing, or will have trouble handling the 'real currency' part of their transactions.
  - 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?

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_...
    - gst 13y ago
      If you don't find a bank account you could always operate a P2P-style exchange like bitmarket used to: The exchange acts as an escrow for the Bitcoins, but the fiat transaction happens directly between market participants. Once the fiat arrives at the receiver the coins are released. In case there are any disagreements the exchange can ask both sides for proofs. This won't prevent 100% of fraud, but seems to have worked well for bitmarket. The reason why those P2P-style exchanges aren't common in the United States is because it's hard to directly transfer money between two people. With SEPA transactions in Europe you can directly transfer money to any recipient, usually for free (or at a very low cost).
      - PeterisP 13y ago
        And at that point you have perfectly traceable transactions, since the 'fiat transaction' part has personally identifiable information of both participants.
  - PeterisP 13y ago
    AML laws are not US-specific - as soon as the current regulation catches up, any international exhange will either comply with their local AML laws doing the same thing, or will have trouble handling the 'real currency' part of their transactions.
- 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?