US DoJ Issues Quote-Unquote Cryptocurrency Enforcement Framework

Don't think I've seen this covered yet here, or at least not in a dedicated thread, so figured I'd give this a mention.

Apparently, The US Department of Justice recently published a report authored by the Attorney General's (yep, ATS alternating hero/villain AG Barr) "Cyber Digital Taskforce" that is to describe an "enforcement framework" that law enforcement agencies can use to identify and crack down on "illicit" use of cryptocurrencies.

Link Here

I perused it briefly (it is rather lengthy), and I didn't notice anything shocking, in terms of planned changes to laws or new methodologies to regulate crypto coins, but I didn't go over it with a fine-tooth comb, so there may be some surprises in it.

The content of the doc is broken down as thus:

Section 1 - Threat Overview - "crypto currency for dummies" description of how they work, description of legitimate and illegitimate uses for crypto coin

Section 2 - Laws and Regulations - various codes and legal restrictions that pertain to exchanging crypto currency, i.e. various different wire fraud and laundering codes that can be used to prosecute folks handling cryptos as part of "illegitimate uses" outlined in section 1

Section 3 - Ongoing Challenges and Future Strategies - list traits and features of crypto coins that make transaction tracking difficult for authorities (e.g. altcoins with built-int anonymity measures, tumbling/mixing coin transactions etc)

A few interesting tidbits to me:

1. In section 1, various enforcement operations, seizures, investigations, darknet market "stings" and major arrests are chronicled. It includes both US domestic ~~and~~ international cases. Of course mainly it's US alphabet agencies driving the raids, with cooperation and assistance from other US allied nations (UK, EU, etc)

2. The document goes to great lengths to enumerate the ways terror organizations and criminal enterprises operate using crypto currency for financing terror operations, masking large-scale corporate and high-asset financial fraud and money laundering, state level (e.g. Iran, N. Korea) maneuvers to avoid sanctions, and it equates with very little or no distinction, "small fish" users of crypto coins buying illicit items on the black markets. So essentially, unless you are more or less investing/and/or buying/holding crypto currencies through large, registered and well-known coin exchanges....look out.

3. I believe that US enforcement agencies will in the future begin a wide-spread and thorough effort to makes sure every single transaction for cryptos is moving through a major exchange (e.g. Coinbase) such that it'll be very difficult to use these currencies without a detailed "paper trail" of who is exchanging what and for how much. But you might say "well coin 'tumblers/mixers' can help make transaction anonymous", and there are also certain alt-coins that are distributed, P2P and have countermeasure for identity tracking built into the currency system (e.g. Monero, Dash) to make tracing very difficult to near impossible. Based on the tone of this document, it's my belief that legislation and enfocrement initiatives will at some point be launched to ban and prosecute usage of tumbler/mixer services or certain alt-coins that are expressly designed to mask identity of those using it.

Like anything else, the authorities cannot police every single little act taken by the public, so there will be degrees IMO of the breadth and depth that efforts are made to enforce any laws made, particularly in point 3 about coin tumblers and anonymity-oriented altcoins. That said, I truly think that there are plans afoot to crack down on crypto currency to a level we've never seen. Authorities and many governments internationally are going to ramp up their efforts to start bringing this industry "out from the shadows". That means ensuring everybody, ANY significant vendor who transacts in crypto currency will need to register, and likely demonstrate that they have a system where any arbitrary client's transactions can be traced back to them.

If you are engaging in activities designed to mask/obfuscate/hide transactions by "tumbling", it's my feeling that those operations, at least large scale ones will be targeted and dismantled.

If you are designing, implementing and launching a new type of alt-coin that is meant to dodge registration and identification measures, IMO you will be targeted, and this would include software developers, cloud and hosting services, anyone who is involved with such R&D at least if it becomes an actual profitable business. If they can't break your cryptographic capabilities, find a bug in the system or otherwise circumvent the system's anonymity features, I believe they will just assume it's being used for nefarious activities, and they will go after the creators and those actively using it.

There is also the consideration of TOR and other so-called "onion routing" technologies that by design are able to conceal crypto-related "hidden" services/domains, hide users' IP address and true geographical location. I would just remind you that the TOR network was itself funded, researched, designed by the US DARPA, and there have been many suggestions that US government has means of "de-anonymizing" traffic and back-doors in place (mostly involving special "exit nodes" at the end of the TOR network topology) to allow them to trace traffic back to its source, if it wishes. TL;DR I wouldn't just assume that anonymity services like TOR will protect me if I'm trying to countermand/skirt any new laws or investigations related to "illicit use" of crypto currency. Also, don't forget, the FBI, DEA and other agencies have demonstrated a proclivity and very successful track record of infiltrating, impersonating, gathering user data and then seizing/raiding any operation they deem as a threat or as breaking US or international laws WRT use of crypt currencies for laundering, buying drugs/weapons/false IDs, blackmail, etc.

At any rate, if you invest in crypto currencies, give this a read. Hopefully this won't disrupt those that are truly investing in crypto currencies as a security/hedge, but IMO this is a rather ominous and foreboding sign that US and others will soon embark on a "War on Cryptographic Currency", like the "War on Drugs", "War on Terror", etc etc

One point of clarification for those not familiar with crypto currency tumbling.

It is a process to ... scramble/intermix/obfuscate transactions that could potentially be used to trace participants in a purchase/exchange involving crypto coins back to their true identity. Crypto currencies /DO/ maintain a ledger ("the block chain") of what parties send what coins to another party. Now, these ledgers typically ~only~ represent participants using cryptographic keys (string of numbers and letters that help authenticate transactions and determine whose 'account' to debit coins from and deposit coins to), sort of like a personal routing number. While these keys on their own tell you nothing about the real person who owns it (it's just a bunch of numbers and letters), interested parties CAN trace back through the ledger history and in forensic way try to link transactions that correlate activity with specific individuals. If you are using an intermediary like Coinbase or LocalBitcoins to exchange crypto back to fiat, you for sure can be identified should the need arise. Tumbling is an attempt to make that backtracking through the ledger much much harder.

If it sounds a bit like money laundering, that is because it IS, or at least resembles laundering to a degree (i.e. moving money around through different channels/transactions to conceal true source/desination of $$$)

Read more about the process HERE.

to ban and prosecute usage of tumbler/mixer services or certain alt-coins that are expressly designed to mask identity of those using it.

I laughed pretty hard at this.

Good luck feds.

originally posted by: projectvxn

to ban and prosecute usage of tumbler/mixer services or certain alt-coins that are expressly designed to mask identity of those using it.

I laughed pretty hard at this.

Good luck feds.

I agree with you, I think it's a bit of an untenable problem for them (like a hydra, chop off one head, another springs up in its place).

That being said, they have been willing to infiltrate, shutdown and prosecute lots of darknet markets, despite knowing that once they close one down, more will just spring up to take its place.

As far as we know, //generally// the feds aren't (believed to be) using exploits/hacks in the software or protocol to locate operators of TOR services or track down folks via traffic analysis, although like I said it's been an ongoing debate for years whether or not alphabet agencies have figured out a way to de-anonymize onion routing based on controlling exit nodes and/or exploiting side channel vulnerabilities (e.g. cookies or JS files stashed in client browser that are sort of 'beacons'/indicators to unmask users).

Many times LE doesn't need to rely on tech, they are very adept at 'social engineering' and infiltrating ops the old fashioned way. Also many rumors about Feds setting up 'honey pot' services, tumblers and markets, merely to entrap unwary vendors and users.

It's a cat and mouse game, and many times it takes LE some time to catch up with innovations/countermeasures created to throw them off.

Half the gov is openly committing terrorism and this guy goes after sh!tcoins?
There is a super virus.
They have an offworld craft.
Aliens are real.
Start a race war.
The Russians.

When will the kitchen sink hit?

originally posted by: Mandroid7
Half the gov is openly committing terrorism and this guy goes after sh!tcoins?
There is a super virus.
They have an offworld craft.
Aliens are real.
Start a race war.
The Russians.

When will the kitchen sink hit?

Personally, it's my opinion that Barr is not the one heavily pushing this agenda; it precedes his tenure. If I had to guess it's likely stemming from a coalition of insistence from agencies with a breakdown of about ~60% DEA ("War on Drugs"), 20-30% Homeland Security/FBI (financing of terror) and the remainder IRS (tax evasion).

The capabilities that crypto currencies and the "dark net" have put in the hands of the drug industry has put a significant blind spot in DEA's ability to prosecute the "War on Drugs". Sure, lots of top level movers/shakers are still transacting the same ways they always have (i.e. organized crime and traditional communication/transportation methods), but a non-trivial % of drug sales have shifted to darknet markets on TOR. That, coupled with difficulty in following the money trail from BitCoin, have made DEA's work considerably harder.

Make no mistake, the DoJ can issue directives and research papers and studies until they're blue in the face about how crypto currency can aid & abet terrorists, human traffickers, illegal arms dealers and money launderers. At the end of the day, IMO, this comes down to being a skirmish in the larger "War on Drugs", and it's those concerns that are primarily motivating these initiatives.

a reply to: SleeperHasAwakened

I'm laughing more at the idea that they're going to ban tumblers or coins like Monero.

It's hilarious.

a reply to: SleeperHasAwakened

Make no mistake, the DoJ can issue directives and research papers and studies until they're blue in the face about how crypto currency can aid & abet terrorists, human traffickers, illegal arms dealers and money launderers. At the end of the day, IMO, this comes down to being a skirmish in the larger "War on Drugs", and it's those concerns that are primarily motivating these initiatives.

The US Dollar is still the number one means of exchange for illicit markets in and off line. I get the concern from the feds on this front but we're talking orders of magnitude worth of difference between crypto use and USD use in illicit markets.

originally posted by: projectvxn
The US Dollar is still the number one means of exchange for illicit markets in and off line. I get the concern from the feds on this front but we're talking orders of magnitude worth of difference between crypto use and USD use in illicit markets.

I agree with you but with the possible exception of child porn trafficking. This is really about lack of visibility and control which the government doesn't like being precluded from either.

a reply to: AugustusMasonicus

They're going to use that as an excuse to weaken encryption and destroy cybersecurity online.

They already drafted a bill aimed squarely at encryption and bitcoin+ the rest of the alt coin market using this as an excuse.

originally posted by: projectvxn
They already drafted a bill aimed squarely at encryption and bitcoin+ the rest of the alt coin market using this as an excuse.

The child porn piece?

This idea will never work

The only move they have is to make crypto illegal

Anything less is like trying to kill off a ant colony with a hammer ... you simply can't get them all

a reply to: AugustusMasonicus

Yes. They are using child pornography to violate everyone's privacy.

So of course it won't get any opposition.

originally posted by: projectvxn
a reply to: SleeperHasAwakened

I'm laughing more at the idea that they're going to ban tumblers or coins like Monero.

It's hilarious.

Yeah maybe the term 'ban' is not the best perspective to look at it. What I believe is more likely outcome is not saying "we hereby ban all coin tumblers!", but rather "you as a business cannot broker transactions and assign value between parties unless you can identify BOTH sending and receiving sides in some manner". So not so much eliminating them as mandating they have certain reporting/audit requirements, kind of like KYC in finance world. If you read the document, there was a section in there that stipulated that as an intermediary, you could be charged with fraud/laundering violations if you're facilitating anonymous exchange of large sums of money. They even described a case where they arrested some lady for doing this (page 13)

Keep in mind they don't have to defeat technological barriers. Their MO is to infiltrate and discover identities via 'social engineering' and undercover work, then bring the hammer down on those involved.

Can they nail everyone in a distributed P2P ledger-based currency system? No, but they can identify the 'big fish' and pursue them.

a reply to: SleeperHasAwakened

That depends heavily on the type of crypto being used. You can't fry big fish you can't see. Monero is perfect for this and cannot be banned. That's why they're talking about bans on things like crypto tumblers and privacy coins. The is no KYC with Monero and other systems like it.

Just saying, this is an uphill battle. The reason they want bans is because they can't do regular social engineering police work with tech like that around.

originally posted by: projectvxn
a reply to: SleeperHasAwakened

That depends heavily on the type of crypto being used. You can't fry big fish you can't see. Monero is perfect for this and cannot be banned. That's why they're talking about bans on things like crypto tumblers and privacy coins. The is no KYC with Monero and other systems like it.

Just saying, this is an uphill battle. The reason they want bans is because they can't do regular social engineering police work with tech like that around.

Ah yes, I recall hearing about Monero a bit, but never delved into it. So I'm guessing (just from perusing their site) that the big preventative measure is an enciphered block chain that hides the send/receive addrs?

For sure, my guess is that the attack surface here isn't trying to brute force decrypt the block chain, or otherwise defeat the cryptographic security. I'd say it's more likely they would look to exploit some type of MitM flaw, set up their own miners/nodes or the equivalent, and try to intercept participants and transaction data that way. This was the alleged attack vector for defeating TOR network. I'd have to read up more on the protocol to understand feasibility and what Monero does to prevent this.

Like I said, this whole thing is a big cat and mouse game. The feds will spend time/energy to try to disrupt today's hot new altcoin, make inroads, but then 2-3 years later the next generation of currency comes out to close the gaps from the previous generation.

This is I think why most people dismiss gov't efforts to try to regulate/control these markets. It's a giant whack-a-mole.