DEA Seizure of Online Currency Sets Precedent

August 28, 2013 | Charles Bowen

untitledThe U.S. Drug Enforcement Administration (DEA) recently seized $814.22 worth of assets from a Charleston, South Carolina man. In and of itself, this is a common occurrence. Every day, the DEA seizes dollars, gold, treasury bonds, etc. for a myriad of reasons. What set this seizure apart, however, is that the assets seized by the DEA were Bitcoins, marking the first time the DEA (or any federal agency) has ever seized the digital currency from an individual.

According to the DEA’s official announcement of the seizure, the agency confiscated 11.02 BTC (that’s Bitcoin for those not well-versed in internetese) from Eric Hughes in April. The forfeiture was based on alleged violations of the federal Controlled Substances Act. The DEA has been quiet about what the precise violations were, but news reports indicate that the DEA believes Hughes is the person behind the fictitious online persona “Casey Jones,” a shady character who peddled illegal narcotics on the notorious underground website “Silk Road.” Hughes, who has no previous criminal convictions on his record, says he is not Casey Jones but thinks he might know who is given that he had several friends living in his apartment at the time of the DEA bust. Hughes claims he will cooperate with the DEA in an attempt to clear his name.

Though the drug charges are what allowed for the seizure, the interesting part of the story is that for the first time ever the DEA not only acknowledged the value of Bitcoins, but also found a way to get their hands on them. So what is a Bitcoin? They are a type of online currency that can be exchanged for dollars and vice versa. Like gold, there are a finite number of Bitcoins, which experts estimate to be around 21 million. Also like gold, Bitcoins are mined, though instead of digging in the ground, Bitcoins are uncovered on the Internet by individuals wielding complex algorithms as virtual pickaxes. The value of Bitcoins fluctuates, also like gold, sometimes swinging wildly over the course of a single day.

Given the level of effort and complexity involved, you may ask why anyone would choose to use Bitcoins. Simple: to avoid creating an easily-traced trail left by credit cards. Bitcoins help online customers maintain their anonymity. Online accounts can be created to hold a person’s Bitcoins while also obscuring that person’s real-world identity.

Though the DEA admits to seizing the Bitcoins, the agency has yet to spill the beans about how it managed to get its hands on them. According to experts, the police would have either had to use the exact computer that was used to make the Bitcoin transaction and then redirect the funds elsewhere or they used a sting operation to trick someone into routing Bitcoins into the DEA’s account.

While the anonymity of Bitcoins is prized in some circles, it is despised by law enforcement agencies that are only now identifying ways to interfere in Bitcoin exchanges. In May of this year, the creators of a digital currency similar to Bitcoin, known as Liberty Reserve, were indicted and accused of helping to launder nearly $6 billion. Earlier this month a federal judge in Texas declared that “Bitcoin is a currency or form of money”; an important declaration that allowed the SEC to continue an enforcement action against the operator of a Bitcoin-based hedge fund.

The recent legal actions concerning Bitcoin indicate a possible new wave of law enforcement actions online. As authorities are constantly looking for new ways to exert control over the dark reaches of the Internet, it seems likely Bitcoin will continue to receive scrutiny as many blame the currency for facilitating illegal activities. Those considering engaging in questionable activities online should keep a tight grip on their (digital) wallets.