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Users Bitcoins Seized by DEA

Published on June 23rd, 2013 by bcohen

By Brian Cohen and Adam B. Levine

UPDATED: 7/9/2013 - Mr. Hughes's lawyer has denied that he is "Casey Jones"

The Drug Enforcement Administration posted an Official Notification that Bitcoin (i.e. property) belonging to Eric Daniel Hughes was seized for forfeiture pursuant to 21 U.S.C. § 881, because the property was used or acquired as a result of a violation of the Controlled Substances Act (21 U.S.C. §§ 801 et seq.)


13-DEA-581051, 11.02 Bitcoins, Acct.#1ETDwGUC1QcjYuehFr3u1FD3MvDaUs7SFy,

VL: $814.22 which was seized in Charleston, SC from Eric Daniel Hughes AKA Casey Jones on April 12, 2013

The DEA appears to have been the first agency to seize actual Bitcoins from an individual with this seizure. Exactly how the Bitcoin was seized is not known as of this writing. However, reading the top of the notice it appears that Mr. Hughes can request release of the seized property during the pendency of the forfeiture proceeding due to hardship. How the DEA would return the Bitcoin to Mr. Hughes is also unknown.

There is no indication the Bitcoin protocol was compromised. "Seizure" is probably a word used to imply that money was received in the process of a Silk Road sting operation, rather than actually seized from the bitcoin user's wallet." said Andreas M. Antonopoulos, a security expert and Let's Talk Bitcoin contributor

The Bitcoin address referenced in the complaint recieved a transaction for 11.02btc at 17:10:36 Blockchain time on the date noted as "seized". This could mean that either the DEA took control of a computer with an unencrypted wallet and transferred the amount to a DEA controlled wallet, or more likely that this was not an in-person confiscation at all. This could be an illicit "Silk Road" transaction, where US authorities set up a "honeypot" selling account, and accepted the 11.02btc as payment.

The honeypot scenario seems more likely as the sender-address was not emptied into the "DEA" account. There is one other transaction in the referenced account, for 17.24btc which entered 5/22/13 and is transferred out 5/28/13 - It moves through one intermediary account, is then combined into a block of 200btc and moves through an account that transacts only in 100 or 200btc blocks totaling 10,100btc. Following any one of those 200btc blocks leads you to apparent "mixer" transactions, small amounts of value peeling off of the larger amount at each hop. Taint analysis reveals that nearly 10% of those bitcoins eventually pass through an address responsible for transacting more than 419,000btc since 2012

With an anonymized blockchain, and lacking skilled forensic investigators (Are you one? Contact us!) it's hard to do anything but speculate. Our efforts unearthed no Bitcoin addresses that contained ANY bitcoins, apparently sent far downstream. BTCBible.com has submitted a FOIA request on the details surrounding this incident, and on Monday during business hours will be following up with the Charleston, SC Police Department to see if there's a police report to correspond with the confiscation.

Reviewing the Department of Justice's Forfeiture website of which the DEA is a participant, it appears that the seizure records are continuously updated and that the seizure may have been posted in the notice as early as April of this year.

Other agencies participating in the seizure program include Bureau of Alcohol, Tobacco, Firearms and Explosives, Federal Bureau of Investigation, U.S. Attorney's Office, U.S. Customs and Border Protection, U.S. Postal Inspection Service and the U.S. Secret Service.

The DEA consolidated the regulations for seizure and forfeiture in October 2012. This included "...Sec. 8.14 {which} adds a provision to the Department's regulations allowing for the pre- forfeiture disposition of seized property when the property is liable to perish, or to waste, or to be greatly reduced in value while being held for forfeiture, or when the expense of holding the property is or will be disproportionate to its value." With the exponential rise in the value of Bitcoin around the time the Bitcoin were seized, it is unknown whether or not the DEA used this new provision as a means to convert the Bitcoin into U.S. Dollars to lock in its value at the time.

As the Wall Street Journal Reported in an August 2011 article "Federal Asset Seizures Rise, Netting Innocent With Guilty," "Forfeiture law has its roots in the Colonial days, when it was used to battle pirates and smugglers." A Digest of American Law from 1824 further details seizures dating back to February 1792

We would be remiss if we did not mention that the original notice stated in bold type that "The names of persons (e.g. Eric Daniel Hughes) or businesses appearing in this notice are not necessarily criminal defendants or suspects, nor does the appearance of their names in this notice necessarily mean that they are the target of DEA investigations."

This is a developing story, if you have any information please contact [email protected]

Additional References:

United States Attorneys' Manual :Criminal Resource Manual: Forfeiture/Seizure

Additional Contributions to the article provided by Dan Roseman, David Perry,Justus Ranvier and George Ettinger

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