Late last week, approximately $1 billion worth of bitcoin were seized by the US government. The bitcoin represents criminal proceeds that had been hacked from Silk Road’s bitcoin wallets back in 2012 or 2013. The US Government is now suing for the formal forfeiture of the seized bitcoins.
Who was Silk Road?
Silk Road was an online black market selling everything from drugs to stolen credit card details and murderers-for-hire. It ran on the dark web and was operated as a Tor service. Tor services were used to provide Silk Road’s users with privacy while browsing online. They allow users to browse anonymously and securely without their activities being monitored.
The website was launched in February 2011 and remained in operation until October 2013. At this time, the site was shut down by law enforcement agents. In addition, Ross Ulbricht, the site’s founder who went by the online pseudonym of “Dread Pirate Roberts”, was arrested.
According to a statement by the US Department of Justice (DoJ), “Silk Road was the most sophisticated and extensive criminal marketplace on the Internet. […] Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs as well as other unlawful goods and services to well over 100,000 buyers, and to launder hundreds of millions of dollars derived from these unlawful transactions.”
The statement goes on to say that the website had “nearly 13,000 listings for controlled substances and many more listings offering illegal services, such as computer hacking and murder for hire, which generated sales revenue totaling over 9.5 million Bitcoins and commissions from these sales totaling over 600,000 Bitcoins.”
In October 2015 Ulbricht, was convicted on seven charges of money laundering, computer hacking, narcotics trafficking and criminal enterprise. He is currently serving two life prison sentences without possibility of parole.
Silk Road’s Bitcoin Wallet Possibly Hacked
In 2020, the US used a third-party bitcoin attribution company to try and locate Silk Road’s criminal proceeds. According to the civil forfeiture complaint filed at the US District Court of Northern California on 5 November 2020, the company was hired to analyze Silk Road’s Bitcoin transactions.
During the analysis, the company found 54 transactions going to two bitcoin wallets that seemed abnormal. Due to the withdrawals’ small sums and their description, the company deduced that these were not regular Silk Road transactions. But rather, these transactions represented bitcoins being stolen by someone who had managed to hack Silk Road’s wallets.
Consequently, an investigation was conducted by US Attorney’s Office and Internal Revenue Service (IRS) Criminal Investigation agents into the hack. They determined that Silk Road had been hacked in or about 2012 and 2013. As stated in the complaint someone had been able “to hack into Silk Road and gain unauthorized and illegal access to Silk Road and thereby steal the illicit cryptocurrency from Silk Road and move it into wallets that Individual X controlled.”
During the investigation, the agents also found that, in 2013, the hacker had moved the stolen bitcoin. The bitcoins contained in the two wallets were transferred to a single consolidated bitcoin account. This finding led the agents to a hacker they called Individual X. The value of the bitcoins at the time of the transfer was approximately $14 million.
The investigation also found that Ulbricht had become aware of Individual X’s identity and threatened him to return the funds. Individual X did not return the cryptocurrency but kept it and did not spend it. Consequently, the funds remained untouched in the account, except for one transaction in 2015, until 3 November 2020.
US Suing for Formal Forfeiture of the Seized Funds
Following the investigation into the hack, law enforcement agents seized the bitcoin, which is now valued at approximately $1 billion. Individual X then signed a Consent and Agreement to Forfeiture, which signs the bitcoin over to the US government.
The DoJ statement says “The successful prosecution of Silk Road’s founder in 2015 left open a billion-dollar question. Where did the money go? Today’s forfeiture complaint answers this open question at least in part. $1 billion of these criminal proceeds are now in the United States’ possession.”
The sum is the largest amount of cryptocurrency seized by the DoJ to date. It is still not known if the seized funds represent all of Silk Road’s criminal proceeds. If not, it is not known where the rest of the funds are located.
The bitcoin was seized from Individual X on 3 November. Then, on 5 November, the civil forfeiture complaint was filed. It is the first step towards the US government permanently owning the funds. The complaint alleges that as the funds are proceeds from criminal activity, they should be permanently forfeited to the government. As IRS Criminal Investigation Special Agent in Charge Kelly R. Jackson says in the DoJ statement: “Criminal proceeds should not remain in the hands of the thieves.”
In the past, the US government has auctioned off forfeited cryptocurrency.