Coindesk recently pointed to congressional testimony given by Matthew Allen, an assistant director at the Department of Homeland Security, on cryptocurrency use in drug transactions.
As early as 2013, DHS informed Congress that is was monitoring the use of “virtual currency” by “transnational organized criminals.” DHS noted that cryptocurrency exchanges used to support illegal activity may constitute money laundering and violate banking regulations:
[T]he transfer of virtual currency arguably does constitute a transfer of “funds” within the meaning of Sections 1956 and 1960 of Title 18 of the United States Code (U.S.C.). As a result, if criminals are using a virtual currency system to promote criminal activities, to disguise or conceal the source of their illicitly derived proceeds, or to evade federal or state reporting requirements, they may be prosecuted for money laundering.
Similarly, the failure of a virtual currency exchanger or administrator to register with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) or the act of engaging in the transfer of criminally derived proceeds on behalf of the public, constitutes a violation of 18 U.S.C. §§ 1960 and 1956, respectively.
Homeland Security also explained that they were pursuing multiple avenues to limit criminal use of virtual currencies:
ICE has, therefore, strategically deployed a multi-prong investigative strategy designed to target illicit virtual currency platforms, currency exchangers, and underground black markets such as “carding,” illegal drugs, illegal firearms, and child pornography forums.
But the examples cited seem to involve traditional investigation with some side element involving virtual currency, rather than analysis of virtual currency transactions themselves to aid an investigation:
During the course of the [Silk Road] investigation, ICE special agents identified bitcoins used by buyers and sellers to complete their transactions on the Silk Road site. The bitcoins, worth an estimated $3.6 million, were located in Silk Road’s operating account and ultimately seized by the FBI.
. . . .
In May 2013, through an interagency taskforce led by ICE in Baltimore, Maryland, three U.S. bank accounts associated with what was then the world’s largest bitcoin exchanger, Japan-based Mt.Gox, which was moving approximately $60 million per month into a number of Internet-based hidden black markets operating on the Tor network, including Silk Road, were seized for violations of 18 U.S.C. § 1960, operating a money service business in the United States without a license.
The 2013 testimony therefore provided little information about the DHS / U.S. Government techniques in pursuing criminals through cryptocurrency transactions, though it suggested an increased focus on the issue. Tomorrow I’ll address Mr. Allen’s more recent testimony.