Bitcoin is a problem for government seizures – Bitcoin Magazine

by James · July 18, 2022

This is an opinion piece by Rowdy Yates, a former Marine and practicing lawyer.

When most people hear the words “frozen bank account” or “confiscation of assets”, they are probably imagining a sophisticated government black box worthy of a Hollywood montage, with mysterious synth music over it. The truth is far less glamorous, but no less disturbing. A sober examination of the authorities’ tools for seizing and losing property helps to shed light on a key characteristic of the value of bitcoin. In this piece, I dissect how the authorities legally seize property and why bitcoin is the asset class best positioned to resist this seizure.

First, we should discuss some basic terminology before discussing this low-resolution legal process. A “target” is a term used to refer to a person or business under investigation who is not normally charged with a crime. “Seizure of property” means that the authorities take one’s property and place this property in public custody; look at this as temporary imprisonment of property. “Freezing” means that the authorities deny you the opportunity to sell, move or transfer your property, but it does not necessarily take custody of the property; Think of this as house arrest for your property. Finally, “confiscation” (a subject for another day) means that the government gets a legal right to the property. Following a confiscation, the authorities can legally transfer, sell or destroy that property; look at this as the final and permanent confiscation of property. In other words, your ownership went to the electric chair. In particular, confiscation begins with a seizure.

With that encyclopedia in place, we can think of state confiscation as a three-step process. Law enforcement agents often receive a tip about a target committing a crime. If that crime is lucrative, agents try to figure out what assets the target is controlling: money in a bank account, Lambos, real estate, etc. This is step one. If the agents can find evidence that the assets are linked to a crime, the agents can ask a judge for permission to seize those assets – step two. Once agents have received their permission from the referee, they can begin interfering in the property right of the target, which is step three.

With that overview in place, let’s go through the stages of seizure and examine each step through the lens of third party custody, self-custody and the bitcoin ledger, specifically.

Table of Contents

Step one: Identify assets

In a third party world, many institutions are required by the Bank Secrecy Act to proactively provide the authorities with information about you and your assets – sua sponte. For example, if you perform any kind of financial transaction in the third party world that exceeds $ 10,000, the institution you use creates a foreign exchange transaction report (CTR) and any unusual activity in your accounts is documented by a suspicious activity report (SAR). These reports are provided for law enforcement on a regular basis; No police work is required to obtain this invasive information. If the agents want more in-depth information – no problem. They run to a government lawyer, who issues a summons in less than five minutes (no judge will probably ever see this, let alone sign it). The agent then runs the summons to a sub-reserve banker or other representative and presto: The custodian provides all the invasive data the agent wants.

In a world of self-defense, you are not obliged to report to the police when, for example, you move gold from the backyard to your underground cave. The government must find this information on its own. Certain assets are easier to find, such as cars registered in your name, but for the most part, agents will need to perform physical surveillance to identify your assets. This may not be difficult for affiliates, but it is not easy (unlike the section above). The agents also lose the cheap trick of using subpoenas in the world of self-sufficiency. Imagine for a second you were transposed into the karmic driven world of Earl. Keep in mind that agents actually have limited resources, and they are more likely to seize assets that are easy to find than those that are hidden.

In a Bitcoin ledger world, the general ledger is public but pseudonymous. Bitcoin does not provide law enforcement reports, although data analytics firms do. Analytics may be able to identify which UTXOs belong to you, but if you take precautions, the identification process will be laborious, costly and confusing for affiliates. To proceed with the legal process, agents must convince a judge that a particular UTXO is under your custody and control. This process will require competence across several knowledge dimensions and a significant aggregation of data. Newsflash: Law enforcement agents are just people; they fall asleep at school, fail in chemistry and get bad grades – just like us. In the Bitcoin Ledger world, identification is difficult. For a deeper exploration of the expertise and difficulties involved, read Namcios’ article describing the multi-year saga of law enforcement’s attempts to seize bitcoin from the 2016 Bitfinex hack.

Step two: Boring paperwork

In the United States, the government has a limited toolbox to legal¹ disturb your personal property in this way. Whether it’s the FBI, Homeland Security or another federal agency, the process is conceptually the same. Public agents work with public lawyers to prepare some paperwork that a judge can review and sign. Agents must perform three critical tasks with writing:

Identify the assets they want to seize.
Describe where the assets are.
Most importantly, they must tell the judge why these assets are bad (usually this means telling the judge that the assets are being used to commit a crime or that they are the proceeds of a crime).²

If the judge thinks the agent is wrong (this is quite rare), then the judge kicks the papers back to the agent and may give the agent an opportunity to revise the papers. If the judge agrees with the agent (this happens 99% of the time), the judge signs an order or an arrest warrant. This signed order or guarantee is nothing more than a piece of paper stating that the agent is legally authorized to seize (seize) or freeze the property.

Step three: Take property

Step three involves two parts for our agent:

Service: The agent must hand over the papers signed by the judge to the person in charge of the assets.
Transfer of assets: Logistical transfer of the assets to public custody or otherwise deny the target access.

As we explore below, each step can vary from simple to impossible, depending on the nature of the asset and the way it is stored.

In the world of third-party custody, the agent’s job is trivial when the property is deposited with a “law-abiding” custodian bank – such as a fractional reserve bank or financial services companies (eg Edward Jones or Charles Schwab). The agent only delivers the papers to the representative. Often the agent can submit the papers via internet portals and never leave the comfort of his air-conditioned office. The bank or finance company will then transfer money to a public account or lock the target out of the account (this was the very basic maneuver carried out by Trudeau against his subjects during the trucker protest). The custodian does not care about your property rights, and they are completely willing to crush them.

In a world of self-defense, the agent’s job is more difficult. There is no manager listed in the White Pages to make it easy to operate the paperwork, and the logistical task of moving assets can be even more complex. With conspicuous assets, agents can easily find the property, but larger and bulkier items require more logistics to seize (think of planes belonging to the cartel; the agent must rent a hangar). With unobtrusive property, the difficulty of the task increases dramatically. Imagine an agent trying to grab a secret stockpile of gold from some sniper pistol. The agent must try to find hidden properties in the meat area by either performing physical surveillance, developing a stealth network or hoping that the nuts send a tax map over Facebook. Self-preservation presents problems in the meat place because the manager (you) cares about property rights.

In a Bitcoin Ledger world, there are many problems for our agent. First, there is no address (physical, email or otherwise) to find a Bitcoin representative that our agent can serve with their signed official papers. There is no clerk, CEO or representative – dot – let alone one who can carry out the network transfer of your satoshi to a public address controlled by the authorities. The decentralized nature of Bitcoin is a major problem for our agent. More importantly, this benefit goes out the window if you do not have self-storage of your bitcoin. Second, with properly stored seed sentences, our agent must physically find the sentences or force you or negotiate with you to give up the sentences. This task becomes more daunting with multisig.

Bitcoin is peace of mind

When planning for asset protection, it is important to remember the old story that you and a friend meet a grizzly bear in the woods. You do not have to run away from the grizzly; you just have to run from your friend. When the government wants to seize cryptocurrency, they will go after Vitalik Buterin or another CEO to whom they can serve legal documents. When the government wants to seize bitcoin, they will go after return seekers and assets in third-party custody. This is because it is always easier for the authorities to deal with centralized organizations and assets, whether for tax purposes, social credit points or for seizure purposes. You should always be a hard target for bad actors, and your wealth should not be any different.