Buried deep in a recent 61-page report by the United States Attorney General, the Biden administration has called for a dramatic expansion of the federal government’s ability to seize and hold cryptocurrency. If passed, the proposed amendments would strengthen both criminal forfeiture, which requires a conviction to permanently confiscate assets, as well as civil forfeiture, which does not require a conviction or even criminal charges.
Notably, the release of the report was coupled with the announcement of a new network of digital asset coordinators. This national network is made up of more than 150 federal prosecutors who will be trained in “the drafting of civil and criminal forfeiture actions”.
Due to the pseudonymous nature of crypto, it is sometimes assumed to be immune to government confiscation. But the reality is quite different. Last year, the US Marshals – the Department of Justice’s foreclosure custodians – handled nearly 200 cryptocurrency seizures worth $466 million.
Since fiscal year 2014, FBI, Secret Service, and Homeland Security investigations have collectively seized nearly $680 million worth of crypto (valued at the time of seizure), with hundreds of investigations still active involving assets digital. But even those amounts pale in comparison to IRS Criminal Investigation, which confiscated a staggering $3.8 billion in virtual currency between fiscal years 2018 and 2021.
Nonetheless, the Justice Department argued that the crypto “exposed the limitations of forfeiture tools used” by federal law enforcement and recommended “several updates to existing law.” First, the Attorney General wants to expand the most abusive form of civil forfeiture, which occurs without any independent or impartial judicial review.
In the context of “administrative” or “non-judicial” confiscation, the seizing body – and not a judge – decides whether an asset should be confiscated. The federal government can use administrative forfeiture to take almost anything except real estate and property valued over $500,000.
This $500,000 limit currently applies to cryptocurrency, but the Attorney General wants to “lift the $500,000 cap for cryptocurrency and other digital assets.” This would eliminate one of the few limits on administrative confiscation. Even if Congress refuses to act, thanks to a law signed into law last year, the Treasury Secretary could simply end the cap by passing new regulations.
This proposal is deeply worrying. Administrative confiscation offers grossly insufficient protection for owners. After seizing a property, the government only has to send a notice of administrative forfeiture. If an owner does not promptly file a claim for their own property, it is automatically forfeited.
Since foreclosed property may be the owner’s most valuable asset, owners often do not have the means to fight back. Yet even when a claim is filed, the homeowner may not have their day in court. According to a report by the Institute for Justice, federal agencies have dismissed more than a third of all claims filed for seized cash as “deficient,” with most claims being dismissed for “technical reasons.”
Not surprisingly, given that administrative forfeiture cases are much easier for the government to win, administrative forfeitures accounted for nearly 80% of all forfeitures conducted by the Department of Justice and 96% of forfeiture activity in the Treasury Department.
Although the Department of Justice praises administrative confiscation for its “efficiency” and for reducing “excessive burdens” in the justice system, in reality, administrative confiscation has weighed down the lives of thousands of victims who did nothing of badness.
Just ask Ken Quran. After coming to America from the Middle East, he opened a small convenience store in Greenville, North Carolina. But in June 2014, IRS agents burst into his store and told Ken they had a warrant to seize $570,000 and had already seized every penny from his bank account, which was $153,907. $.99. This money represented Ken’s life savings, earned over nearly 20 years of long hours running his business.
Less than three months later, Ken’s bank account was administratively confiscated. Without these savings, Ken was driven to the financial breaking point. He struggled to support his family, pay off his mortgage and cover a line of credit he had to take out to keep his store afloat. Ken has never been charged with a crime.
“I never believed this could happen in America,” Ken lamented. “I don’t understand how in this country the government can take the whole bank account of an honest businessman without proving he did something wrong.”
Fortunately, with the help of the Institute for Justice, Ken then filed a “Request for Remission or Mitigation” (essentially a pardon for the confiscated property). After a media storm, in February 2016 the IRS agreed to return all of the money it had wrongly taken from Ken. Although he lost fiat currency rather than crypto, as Ken’s story shows, there is absolutely no need to make administrative confiscation easier to use.
In addition to expanding administrative forfeiture for crypto, the Justice Department “would welcome amendments to provide criminal and civil forfeiture authority for commodity-related violations.” Allowing criminal forfeiture after a conviction for fraud or manipulation in crypto markets would be a valuable tool in cracking down on scammers.
Currently, most cryptocurrencies are considered commodities rather than securities. So under federal commodity laws, prosecutors can “charge fraud and manipulation in the cryptocurrency markets.” But unlike securities, these laws “do not allow forfeiture of ill-gotten gains from criminal activity involving commodities.”
But extending civil confiscation casts far too wide a net and would make it much more likely that innocent holders would lose their crypto to government confiscation. After all, civil forfeiture does not come with a conviction requirement, unlike criminal forfeiture. Additionally, there is a direct financial incentive for federal agencies to pursue forfeiture cases: once assets have been forfeited (civil or criminal), the seizing federal agency can retain up to 100% of the proceeds .
Unfortunately, the proposed asset forfeiture extensions are part of a larger assault on cryptocurrency, including attacks on financial privacy that cryptocurrency can otherwise afford. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is currently considering a rule that would extend intrusive reporting requirements to custodial wallets (i.e. those managed by a third party) – the same reporting requirements that led the IRS to seize Ken’s money.
If passed, the wallet host will be required to send detailed reports to FinCEN for every transaction with an unhosted wallet over $10,000, including personal information such as the names and physical addresses of both parties involved in the transaction. the transaction. Since the blockchain is inherently public, a single report on a single transaction would effectively become a digital skeleton key, allowing the federal government to spy on all other wallet transactions.
This is going precisely in the wrong direction. No matter how the midterms play out, Congress must reject the crypto crackdown proposal and limit civil forfeiture.