The Govt. Realized Bitcoin Could Not Be Shut down, Says U.S. Federal Prosecutor

In an almost hour long interview, Kathryn Haun, Assistant Attorney for the U.S. Department of Justice in San Francisco and lecturer on digital currencies at Stanford Law School, who prosecuted her own colleagues, Shaun Bridges, a former Secret Services agent and Carl Mark Force, a DEA agent, for public corruption in an investigation arising from Silk Road, the infamous drug bazaar shut down in 2013, stated that  the reason United States government did not shut down bitcoin is because they “recognize you can’t shut down bitcoin.”

“There is simply no way” – Haun said, “with these technologies once the genie is out of the bottle you can’t put it back in…but even if we could hold the developers of these technologies accountable,” the federal prosecutor continued, that would be “counter to the legal system.”

The federal prosecutor wondered whether the law should be changed, emphasizing she was not saying so or otherwise, before arguing that developers state it is for privacy, “which I like”, but it is “obviously the case a large percentage of criminals will use” the technology. “At what point you, as a developer, are comfortable with the technology being used for more harm than good?” the prosecutor rhetorically asked.

“Ironic” Bitcoin Exchanges Ask Us to Investigate Thefts

It is “ironic” developers or exchanges ask federal agencies to investigate digital currency-related crimes, such as bitcoin thefts, Assistant Attorney for the U.S. Department of Justice in San Francisco stated.

Haun compared the situation to a bank robber who, after prison, is assaulted. “It’s not like I would not take the case because we had previously been in an adversarial relation,” Haun said.

There have been no known successful prosecutions of any digital currency-related hack in the now almost seven years’ history of bitcoin. There have been many such thefts, with Bitfinex being the latest example, but we are not aware of any state-level investigation into Bitfinex or any other hack with United States’ Office of Accountability criticizing federal agencies in 2014 for failing to protect consumers.

Mixers and Tumblers Don’t Work

In further portions of the interview, Haun stated that mixers and tumblers, which aim to obfuscate transactions, “were not that great, did not tumble or mix as well as advertised” and, “some of the time” allowed investigators to “unscramble” transactions.

The federal prosecutor stated that criminal uses of bitcoin have a lot in common with other crimes as, in effect, agents follow the money. Using her own colleagues as an example, Haun explained that “a high-level review, showed [Shaun Bridges] was liquidating hundreds of thousands of dollars’ worth of bitcoin a month.” For obvious reasons this was suspicious, opening further investigations and the uncovering of evidence indicating he had contacted exchanges, telling them that certain transactions were proceeds of crime, seizing their funds and then sending them to his own personal account.

It is not clear whether one such exchange was MT Gox. The Federal prosecutor stated they discovered there were two rogue agents because one of them, presumably Carl Mark Force, had sent 21,000 bitcoins, worth $15 million, which had been stolen from a Silk Road vendor, directly to MT Gox. He withdrew them, the prosecutor says, two days before DAE seized MT Gox’s bank accounts and, after a pause, before “the hacks”, Haun stated.

They recognized there were two agents because Shaun Bridges had a different “signature”, the prosecutor says. He tended to obfuscate his ill gains first, then cash them out, to hide evidence, rather than send them directly to MT Gox as Force did.

The Bitcoin blockchain helped

They both pleaded guilty, but their role, if any, in the downfall of MT Gox, has not been revealed, something of particular importance now that Mark Karpeles has been released without charges indicating, at least on a prima facie case, that he is not guilty of any prosecutable crimes during his operations of MT Gox.

Zcash May End The Money Trail

The prosecutor expressed skepticism regarding Zec’s claims of full anonymity, emphasizing that if it works as advertised then it would make the prosecutor’s job “a lot more difficult.”

Criminals want to be paid, Haun stated, therefore agents follow the money, but:

“If we all the sudden omit an entire source of evidence historically available, that will make our job a lot more difficult, definitely.”

 

Although the prosecutor wonders whether Zcash would work as advertised, she states that it is not a question of if we will have anonymous money, but when, as technology is advancing.

While Haun stated that she endorses privacy and private transactions, common core features of anonymizing software or cryptocurrencies, she added:

It’s obviously the case that a large number of criminals will be using and gravitating towards that form of technology [anonymous currencies,]. At what point do you, as a developer…are comfortable with your technology is being used for more harm than good?

 

Legitimate Uses

Haun emphasized that bitcoin has legitimate uses, stating that a number of federal agents had bitcoin, “not to steal,” but because they found the technology interesting. She then discussed potential uses of blockchain technology for record keeping, especially as it relates to official documents, such as birth certificates, which are often forged for identity theft.

Blockchain could help do away

Blockchain, not having a central administrator nor paper records, can “significantly reduce” tampering and fraud of official documents, Haun stated, emphasizing that this was a serious problem as in all cases she has prosecuted there has been at least one forged document. The lecturer in digital currencies, however, was unable to provide other unrelated examples of blockchain’s use when asked, falling back to a similar category instead, medical records.

Nonetheless, regardless of the prosecutors’ statements and their potential interpretations or, even, her own personal views, the interview is a welcomed step towards greater transparency and community engagement from those taxed with assisting the public.

As blockchain technology goes mainstream, skills are necessarily very much in short supply. Federal agencies, therefore, need to create a far better reputation as far as this space is concerned if they are to attract more talent. Treating hacks and thefts of millions seriously rather than dismissing them as “ironic” would be an obvious step towards such ends.

Images from Shutterstock and YouTube/TED.

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