In a newly released affadavit, it was discovered that Homeland Security has a special task force setup to identify unlicensed bitcoin exchangers. The affadavit is based off a case that has been ongoing for a year now, and overall shouldn’t come as a surprise to many that unlicensed bitcoin exchanges are under scrutiny; in particular after the NYDFS released their BitLicense in 2015.
As pictured above in an affadivit, the special agent investigating a marijuana distributor case who used bitcoin as an accepted payment method, wrote:
13. I am part of a digital currency task force focused on identifying the use of digital currency to launder the proceeds of criminal activity. As part of this task force, I have been involved in several investigations into unlicensed digital currency exchangers and narcotics distributors on the darkweb who use digital currency to receive payment for the sale of narcotics. These investigations have brought my attention to numerous individuals who have been cycling through large amounts of Bitcoin.
Bitcoin exchanges have been under scrutiny for some time now, and people using exchanges to launder money shouldn’t be caught with their eyes wide open on this news, however it’s notable that in the affadavit HSI is acknowledging the special task force exists and that it investigates people and bitcoin transactions on different bitcoin exchanges.
Using bitcoin to launder money isn’t the smartest thing to do, as bitcoin isn’t 100% anonymous, however there are certain levels of psuedo-anonymity involved in bitcoin as there is no identity tied to bitcoin addresses. In addition people who use bitcoin mixers or tumblers can achieve more anonymity than others. In a report published in January, it was somewhat trivial for bitcoin intelligence companies to track and plot bitcoin transactions coming from different bitcoin exchanges and markets.
What is even more interesting is that in the affadivit, HSI says they use a free tool to track bitcoin exchange transactions, such as WalletExplorer.com. This tool is provided by the same developer who works for blockchain intelligence company Chainalysis. One can only assume that the government is also using the paid versions of Chainalysis software to further their investigations.
For those that aren’t as familiar with bitcoin, WalletExplorer.com is a bitcoin blockchain explorer, similar to other blockchain explorer sites like blockchain.info. Blockchain explorers as the name insinuates, allows users to explore and navigate the bitcoin blockchain public ledger of transactions, bitcoin addresses, and bitcoin blocks. In the affadavit, HSI reveals even more information, providing the date and bitcoin transaction value. Knowing this information and the darknet market that was used (AlphaBayMarket), we were able to easily obtain the defendants bitcoin address.
The transaction in the affadavit took place on January 4, 2016 for 6.154 bitcoin. The only transaction to match that amount on that date is 369c9feb4b60bee002e8aee123c796f0b3a3bbd03ea3cb7538009db489fe4fe3 which shows us the receiving address of the defendant as 1F9kxZ2ThujvV2L41mxGyhpAJ9nUCLH2Az.
In the report it’s stated that the defendant in the past used the bitcoin exchange LocalBitcoins to buy and sell bitcoins, but stopped using it a few years ago. It’s also said that the defendant’s password was obtained by HSI, allowing them to access his PGP encrypted emails and also his bitcoin wallet. They don’t say which wallet he was using however.