Category Archives: DEA

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SEC Looks to Blockchain for Improved Verification Model

SEC Looks to Blockchain for Improved Verification Model

In a development which may be received in the cryptocurrency space with a certain degree of irony, the United States Securities and Exchange Commission (SEC) has expressed an interest in employing blockchain tech as an analyzing tool in the government department.

The SEC wants to hunt out firms which may be able to support the agency identify owners of cryptocurrencies with more clarity, particularly those with wallet addresses for multiple currencies. In order to improve its attribution data capability, the SEC has published the following request:

“The SEC is seeking information for potential sources to support the goal of acquiring data for the most widely-used blockchain ledgers, including the universe of available information and transaction details.”

The SEC has said that it needs a blockchain solution which will guarantee no data loss to its verification methods and has exacting requirements as to any analytics company it engages for the task. The measures not only carry the obvious irony of using the backbone of a technology which it has spurned in the past to solve an in-house problem but is seen by some in the industry as worrying, clearly demonstrating that the SEC still has cryptocurrencies under their microscope.

Another development that was cause for further industry concern happened last year when the US Drug Enforcement Administration (DEA), through Agent Lilita Infante, declared:

“The blockchain actually gives us a lot of tools to be able to identify people. I actually want them to keep using them [cryptocurrencies].”


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US Spent Over $5 Million on Blockchain Espionage in 2018

The United States government has spent USD 5.7 million with blockchain analytics firms so far in 2018 and this spending is accelerating, according to a report by digital currency publication Diar. Blockchain analytics firms are paid to conduct blockchain espionage, for criminal prosecution, taxes, and to ensure crypto regulations are being followed.

Bitcoin has a public blockchain ledger, where every transaction and address can be viewed by anyone. Firms like Chainalysis, Elliptic, CipherTrace, Scorechain, Coinfirm, Blockchain Intelligence Group, Bloq, and DMG Blockchain Solutions have developed advanced software which can attach identities to Bitcoin transactions, and transactions for other cryptocurrencies as well. The biggest customers of these firms are banks and financial institutions, who use blockchain analytics to ensure no breach of know your customer (KYC) or anti-money laundering (AML) policies. Collectively, the major blockchain analytics firms listed have received USD 28.8 million of contracts.

The Internal Revenue Service (IRS) is the biggest spender relative to other US government agencies at USD 2.19 million. The IRS is in charge of taxes in the United States, and it seems it is using the most advanced blockchain tracing technology people to build cases against crypto users who are not paying taxes. This despite members of the United States congress requesting that the IRS make its crypto tax guidelines clearer, since at this point the crypto tax code issued by the IRS is so unclear, prohibitive, and arduous that most crypto users don’t know how to pay crypto taxes.

The second biggest government spender is Immigrations and Customs Enforcement (ICE) at USD 1.54 million. This is probably because the ICE seizes drugs and other illegal goods at customs, and sometimes these packages are linked to crypto payments done over the darkweb.

The Federal Bureau of Investigations (FBI) takes third place in spending with USD 1.14 million, and this is probably related to crypto activity associated with criminal suspects and crime organizations. The Drug Enforcement Agency (DEA), in fifth position with USD 0.22 million, probably uses blockchain analytics firms for the same reasons the FBI does. The FBI and DEA can actually use blockchain analytics data in court for criminal prosecution.

The Securities and Exchange Commission (SEC) is at sixth place at USD 0.18 million. The SEC is cracking down hard on initial coin offerings (ICOs) and other fraudulent crypto-related securities, so it makes sense they’re spending some money on blockchain analytics. The Commodity Futures Trading Commission (CFTC) spends USD 0.12 million, likely to ensure exchanges are maintaining regulatory compliance, since Bitcoin trading is regulated under commodity laws.


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Only 10% of Bitcoin Transactions Are for Crime, down from 90% in 2013

Drug Enforcement Agency (DEA) agent Lilita Infante says that 10% of Bitcoin transactions are associated with illegal activity. This is down from 90% of Bitcoin transactions being used for crime in 2013.

Infante works for the DEA Cyber Investigative Task Force, which specializes in cryptocurrency and the dark web. She says although the ratio of illegal to legal Bitcoin transactions has declined drastically, the total transaction volume of Bitcoin used for crime has surged higher than ever before.

Unfortunately, the data used to come to these conclusions has not been disclosed, although Infante hints that the DEA has sophisticated methods for tracking Bitcoin activity. The DEA data is some way off from earlier research which found that Bitcoin use for illicit purposes had declined much more. A study released by blockchain analytics firm Elliptic in January 2018, for example, said that only 1% of Bitcoin transactions were for illegal purposes, with methodology and data fully disclosed.

Basically, if these results are to be believed, Infante is saying that legitimate Bitcoin trading, investing, and use for goods and services has increased dramatically and is outpacing the use of Bitcoin for illegal activity, even though overall there is much more money being transacted with Bitcoin for illegal activities now than in 2013.

Bitcoin was deemed popular among criminals because it is much more anonymous than using the traditional banking system and is an efficient way of sending money to purchase anything. Bitcoin is also an extremely efficient way to send money across borders.

However, Infante asserts that although the DEA didn’t have much skill back in 2013, now they have advanced technology which can easily attach identities to Bitcoin transactions. Of course, such technology depends on Bitcoin users not using Bitcoin to its maximum potential, since it is possible to remain highly secretive while transacting Bitcoin. Many methods to obscure address association exist, including “mixing” or “tumbling”, single-use addresses, and anonymous routers or VPNs to obscure IP, making tracking more difficult.

Further, Infante hints that the DEA can even track privacy coins like Monero and Zcash, although presents nothing to back her tall claim.

The Bitcoin blockchain is public though, and if a user isn’t being careful they can be easily traced. Infante says, “The blockchain actually gives us a lot of tools to be able to identify people. I actually want them to keep using them.”


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