Government gets comfortable with asset forfeiture at every level; but the feds are especially enjoying the boon crypto has brought.
August 9, 2021
By: Bobby Casey, Managing Director GWP
It’s a nasty trick. Enough people believe that the law is sacrosanct, so when people break those rules, it’s justified to punish them in some way. I see it on social media all the time. People are put out by getting a citation, and certainly do look for ways out of them, but if they can’t, they are resigned to paying and think it’s equally acceptable that it happen to others.
This is such an accepted practice, that law makers often lean heavily on revenues from fines to offset their budgets and avoid raising taxes.
This is one of the big reasons why I get furious when legislators get eager to criminalize more stuff: it’s just an excuse to fine people. And then when they legalize it, they make up for lost fine revenue by taxing it. It’s an obvious scam no matter what.
Just to give you an idea of what that looks like, here are some stats:
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Hundreds of jurisdictions throughout the country use fines to fund a significant portion of their budget.
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Fines and fees account for more than 10% of general fund revenues in nearly 600 U.S. jurisdictions. In at least 284 of those governments, it’s more than 20 percent.
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When fine and forfeiture revenues in all funds are considered, more than 720 localities reported annual revenues exceeding $100 for every adult resident.
States like Louisiana build their budgets around fines, fees, and forfeiture; especially where hiking taxes is politically uncomfortable.
While some states have revisited their policies, Institute for Justice evaluated each state and gave it a ranking a while back. The higher the number the BETTER the state, the lower the number the worse the state.
They ranked each state on eight different factors: Municipal Authority, Court Independence, Payment Terms, Driving Suspensions, Procedural Protections, Punishment Limitations, and Incarceration and Collections. Two major findings IJ made:
- Nearly every state performs poorly on factors related to municipalities’ financial incentive to pursue fines and fees. For example, only two states—Kentucky and Missouri—firmly cap municipal fines and fees revenue. And no state with municipal courts requires municipalities to send all court revenue to a neutral fund.
- A sizable number of states have not codified protections against incarceration for failure to pay court debt, despite U.S. Supreme Court precedent finding it unconstitutional to jail people without first determining whether they have the means to pay. Fifteen states do not bar courts from jailing people who lack the means to pay fines and fees. And 11 do not require ability-to-pay hearings.
Something to note, that while states might have their polices that are not bad, each state can have its share of cities that are just parasitic when it comes to this kind of policing for profit.
We’ve discussed taxation by citation before, as well as the modern day debtors’ prisons when people can’t pay.
But as you well know by now, this isn’t just a state and local thing. This is also a federal thing. And the latest fixation in federal seizures is…? You guessed it: cryptocurrencies.
The headline that caught my eye was: IRS has Seized $1.2 Billion Worth of Bitcoin this Fiscal Year.
Jarod Koopman, director of the IRS’ cybercrime unit said in one interview:
“In fiscal year 2019, we had about $700,000 worth of crypto seizures. In 2020, it was up to $137 million. And so far in 2021, we’re at $1.2 billion.”
The fiscal year ends in October, which means there’s nearly 2 months still remaining.
This all started with Ross Ulbricht and the take down of Silk Road. Ross had 144,000 BTC total. The feds confiscated 30,000 BTC from him and auctioned it off. A hacker accessed another 69,000 BTC, which has yet to be auctioned off. The whereabouts of the remaining 45,000 BTC are unknown.
The assets are confiscated, auctioned off, and then the funds put into one of two funds based on which investigative agency was in charge: The Treasury Forfeiture Fund or the Department of Justice Assets Forfeiture Fund.
Seized crypto accounts for anywhere from 60-70% of the Treasury Forfeiture Fund, just to give you an idea of what sort of cash cow this is for them. Clearly, the Feds are not letting crypto out of their sight as this can be a career booster and boon for their coffers.
The US Marshal’s Service oversees the assets like cryptocurrency that are up for auction. They are seizing crypto from all over the US, yet they have no centralized database to keep track of any of it.
That sounds shady, but okay.
After all that, these federal agencies can request funding for things like equipment or Congress can allocate it all toward something they want.
The IRS will seize crypto holdings for any tax debts, no different than seizing a home.
The feds are partnering with private agencies to help them in their audits, investigations, and storage of cryptocurrencies, which means they are serious about finding who is dealing in crypto:
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The IRS recently contracted with crypto tax service provider TaxBit to assist with auditing crypto transactions to verify the correct reporting of taxes by high-volume traders.
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Federal law enforcement agencies, and in particular the IRS, partnered with the digital forensics company Chainalysis to conduct blockchain analysis as a way to specifically identify how and where various bitcoins moved around.
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Department of Justice hired San Francisco-based Anchorage Digital to be its custodian for the cryptocurrency seized or forfeited in criminal cases. Anchorage, the first federally chartered bank for crypto, will help the government store and liquidate this digital property.
The feds are definitely getting excited if not used to their new “gains” with crypto seizures. Be careful with your crypto.
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