U.S. District Judge J. Paul Oetken approved the largest single seizure of bitcoins in history on Jan. 15, with almost 30,000 units of the cryptocurrency forfeited under the federal seizure of the Silk Road website and the arrest of the website’s alleged founder and operator, Ross Ulbricht. Based on the exchange rate at the time this article was written, the forfeiture is valued — according to Mt. Gox — at $25,977,780.00.
However, the government has indicated that it has another 144,336 bitcoins seized from Ulbricht’s computers, currently valued at $126,438.336.00.
“As alleged, Ross William Ulbricht operated Silk Road — a global illegal cyber business designed to broker criminal transactions — protected by a presumed anonymity and motivated by profit,” said Southern District of New York’s U.S. Attorney Preet Bharara. “With his arrest and our subsequent seizures of millions of dollars worth of Silk Road’s Bitcoins, we have sent a clear message to him and everyone else running criminal enterprises on the dark web: we are determined and equipped to hold you to account.”
Ulbricht — who was operating under the moniker “the Dread Pirate Roberts,” a nod to the pseudonym Westley the Stable Boy used in “The Princess Bride” — was arrested on Oct. 1 in San Francisco on charges of attempted murder for his part in a murder-for-hire scheme and for his operation of Silk Road.
Silk Road was a Darknet marketplace specializing in the selling of illicit drugs, weapons, fake identification and other forms of illegal paraphernalia. the Justice Department alleges — beside the site being a front for drug dealing — that Silk Road also funneled money for a number of criminal operations. Prosecutors have called the website the most “sophisticated and extensive criminal marketplace on the Internet,» with the Silk Road racking up over a billion dollars in sales.
While the bitcoins seized from the Silk Road website is unquestionably related to the Justice Department’s investigation, the question of the 144,336 bitcoins seized from Ulbricht’s personal computers present the federal government with a thorny situation. Ulbricht has sued the federal government for the return of his personal bitcoins. As it is possible that Ulbricht obtained the bitcoins legitimately through trading or bitcoin mining, and since it is unlikely that the federal government can definitively prove that the bitcoins on his personal computers were connected to his operating Silk Road, Ulbricht argues that the bitcoins are not subject to civil forfeiture rules.
Per a clarification published by the Federal Reserve and the Department of Homeland Security in 2013, the bitcoin is recognized not to be a valid form of currency exchange or have any intrinsic currency value and is therefore not subject to money handling rules. A bitcoin is a virtual cryptocurrency consisting of a timestamp that links to a publicly-shared database called the blockchain and a hashtag, which represents the solution to a complicated equation that has an ever-shrinking target. Solving this equation requires a computer to go through a massive number of computation cycles; a bitcoin, within itself, only reflects the fact that a computer successfully found a valid solution.
Per civil forfeiture rules, the federal government must prove that Ulbricht’s personal bitcoins were used in the planning or execution of the crime. As bitcoins are not recognized as money, possession of the bitcoins at the time of the crime is not enough to justify the seizure.
As new virtual currencies proliferate onto the market, this may force law enforcement to re-consider how it will engage civil assets forfeitures in the future.