The Internal Revenue Service (IRS) is advancing its efforts to enhance surveillance of cryptocurrency transactions, which could potentially provide the Department of Justice (DOJ) with unprecedented tools for cryptocurrency confiscation.
The groundwork for this development was laid in 2022 when the DOJ released a report in response to Executive Order 14067, President Biden’s cryptocurrency initiative.
Rather than an immediate crackdown, the order sought to inform future cryptocurrency policies through agency reports.
The DOJ’s report covered a wide range of topics, but its most significant aspect for the current discussion is its emphasis on increasing the government’s ability to seize cryptocurrency assets.
The report argued that such authority was vital to deter cryptocurrency fraud and manipulation, recommending the expansion of the DOJ’s powers over criminal, civil, and administrative forfeiture.
Despite this, it’s important to note that the government has had considerable success in seizing cryptocurrency in the past.
Between 2014 and 2022, the FBI seized approximately $427 million, while the IRS seized $3.8 billion between 2018 and 2021.
Thus, the DOJ’s assertion of struggling to seize cryptocurrency assets appears less evident than the report suggests.
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However, the IRS’s recent broker proposal takes on new significance in light of the potential for increased surveillance.
The issue lies in administrative forfeiture, where agencies, rather than a judge, determine whether property should be forfeited without needing to prove a crime was committed.
The DOJ favored this process, as it streamlined resource allocation and reduced burdens on the federal judicial system, with administrative forfeitures comprising 78% of the department’s total forfeitures between 2000 and 2019.
With the IRS poised to collect extensive data on Americans’ cryptocurrency activities, the DOJ could find fresh opportunities for cryptocurrency confiscation, based not on proven wrongdoing but on mere suspicion.
Given the frequent misunderstandings surrounding cryptocurrency, such suspicions could easily arise, as demonstrated by a recent flawed report that prompted over 100 members of Congress to call for a cryptocurrency crackdown.
This situation underscores a significant risk associated with mass data collection – it creates tempting targets for both internal and external abuse.
Whether the government seeks to expand its confiscation activities, increase audits, or hackers look for vulnerabilities, large-scale databases can be exploited.
Therefore, if the IRS proceeds with its proposal, cryptocurrency users should closely monitor how the government utilizes the collected data, recognizing the potential for misuse and the importance of safeguarding their digital assets.
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