IRS Crypto Surveillance and the DOJ’s Cryptocurrency Seizure Plans: What to Expect

• The U.S. Department of Justice wants more power to take people’s cryptocurrency, even without a judge’s approval.

• They say it’s to stop fraud, but some think it’s unnecessary because they’ve already seized billions in cryptocurrency.

United States Department of Justice (DOJ) is advocating for an increase in its authority to confiscate cryptocurrency assets from American citizens. The DOJ’s push for enhanced powers comes as the Internal Revenue Service (IRS) embarks on a significant cryptocurrency surveillance effort, raising concerns about the potential consequences for individuals involved in the digital currency space.

Cryptocurrency Confiscation: DOJ’s Growing Interest

The DOJ issued a comprehensive report in response to Executive Order 14067 in 2022, tracing the catalyst for this development. This executive order, initiated by President Biden, marked a significant step toward shaping the future of cryptocurrency regulation in the United States. While some initially feared a severe crackdown on the industry, the order focused on gathering information and recommendations from various agencies to inform future policy decisions.

The DOJ’s report addressed a broad spectrum of topics related to cryptocurrency. Among its numerous recommendations, four categories stand out: aiding prosecutions, improving investigations, expanding penalties for cryptocurrency-related crimes, and bolstering resources available to government employees. Of particular interest is the DOJ’s plea for expanded authority over the seizure of cryptocurrency assets.

Asserting the Need for Enhanced Authority

The report underscores the DOJ’s perspective on the necessity of having the authority to forfeit the proceeds of cryptocurrency fraud and manipulation. They argue that this authority is a deterrent against illicit activities and a means to deprive wrongdoers of their ill-gotten gains. Consequently, the DOJ calls for an expansion of its authority concerning criminal, civil, and administrative forfeiture in the realm of cryptocurrency.

Questionable Justification?

However, some critics have questioned the DOJ’s assertion that it lacks the tools to seize cryptocurrency effectively. Historical data reveals a considerable success rate in this regard. For instance, between 2014 and 2022, the FBI seized approximately $427 million in cryptocurrency, while the IRS confiscated an additional $3.8 billion between 2018 and 2021. These substantial figures cast doubt on the urgency of the DOJ’s plea for enhanced powers.

A key aspect of the DOJ’s recommendation involves administrative forfeiture. This process grants the seizing agency, rather than a judge, the authority to decide whether the property should be forfeited. The DOJ has commended administrative forfeiture for its efficient allocation of government resources and its ability to reduce burdens on the federal judicial system. In fact, between 2000 and 2019, administrative forfeitures constituted a substantial 78 percent of all forfeitures carried out by the DOJ.

Privacy Concerns and Potential for Misuse

With the IRS poised to collect a vast amount of new information on Americans’ cryptocurrency activities, concerns arise regarding the potential misuse of this data. Critics argue that the DOJ could use this extensive surveillance to initiate cryptocurrency confiscations based solely on suspicion rather than concrete evidence of criminal activity. Given the complex and often misunderstood nature of cryptocurrency transactions, there is apprehension that innocent individuals may find themselves in the crosshairs of such investigations.

This development underscores a broader issue concerning mass data collection by government agencies. Whether it is the DOJ seeking expanded confiscation powers, the IRS aiming to increase audit capabilities, or malicious actors attempting to exploit vulnerabilities, vast government databases become tempting targets for abuse, both internal and external.

Given the IRS’s proposal to increase cryptocurrency surveillance, we advise individuals involved in the cryptocurrency space to stay vigilant about the government’s potential use of this data. The potential for increased confiscation based on suspicion rather than concrete evidence necessitates careful consideration of one’s financial activities in the digital currency realm.

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