Expect new IRS crypto surveillance to come with a surge in confiscation
As the Internal Revenue Service (IRS) pushes forward with its proposal to increase cryptocurrency surveillance, a past report might offer a clue for how this information may be used in practice. In short, with the IRS set to keep tabs on Americans’ cryptocurrency usage through an expected 8 billion new returns, it seems the Department of Justice (DOJ) may soon have the tools it wants to start confiscating cryptocurrency at an unprecedented rate.
The issue stems from a 2022 report written by the DOJ in response to Executive Order 14067. For those who might not remember, Executive Order 14067 was President Biden’s first major cryptocurrency initiative. Although many people initially feared an impending crackdown was coming, the executive order largely delayed making sweeping changes by first calling on agencies to issue reports to inform future policies around cryptocurrency and related issues.
The report, written by the DOJ, covered a vast range of topics. Largely falling into four categories, the recommendations spanned ways to aid prosecutions, ways to improve investigations, ways to expand penalties for cryptocurrency-related crimes, and ways to increase the resources available for government employees.
Related: Bitcoin beyond 35K for Christmas? Thank Jerome Powell if it happens
What’s most interesting for the present conversation, however, is where the DOJ argued for increasing its ability to seize cryptocurrency.
For example, the report states that “it is critical that the United States have the authority to forfeit the proceeds of cryptocurrency fraud and manipulation as a means of deterring such activity and divesting violators of their ill-gotten gains.” Therefore, the DOJ recommends expanding its authority over criminal, civil, and administrative forfeiture.
The DOJ has claimed these updates are necessary because the department’s experience with cryptocurrency-related cases has “revealed limits on the forfeiture tools used to deprive wrongdoers of ill-gotten gains and, in certain cases, restore funds to victims.”
Yet this argument is difficult to understand considering how much and how often the government has been able to seize cryptocurrency over the years. In fact, the report itself mentions such cases. Between 2014 and 2022, the FBI seized around $427 million in cryptocurrency. The IRS seized another $3.8 billion between 2018-21.
With more than $4 billion on hand, the DOJ’s argument that the U.S. government is struggling to seize cryptocurrency is just not as apparent as the report’s recommendations make it out to be.
Related: IRS proposes unprecedented data-collection on crypto users
Still, the IRS’s broker proposal puts the DOJ’s report into a new light given the vast surveillance that the proposal would likely create — vast surveillance that could be used to start confiscating cryptocurrency at an even greater rate.
The problem is what’s referred to as administrative forfeiture. As Nick Sibilla explained in Forbes when the report first came out, “Under ‘administrative’ or ‘nonjudicial’ forfeiture, the seizing agency — not a judge — decides whether a property should be forfeited.” In other words, agencies do not need to prove to a judge that a crime was committed in order to seize the property.
The DOJ commended this process for promoting an “efficient allocation of government resources” while discouraging “undue burdens on the federal judicial system.” In fact, this process seems to be the DOJ’s preferred practice given that administrative forfeitures made up 78 percent of its forfeitures between 2000 and 2019.
With the IRS collecting vast amounts of new information on Americans’ cryptocurrency use, it’s possible that the DOJ may “suddenly” find vast new arenas for cryptocurrency confiscation. And again, it’s important to stress that these confiscations don’t have to start with an actual crime being committed—just the mere suspicion.
Given how often misunderstandings surrounding cryptocurrency have fueled headlines, it’s not difficult to imagine how such suspicions could emerge. For example, it was less than a month ago that more than 100 members of Congress cited a flawed report to call for a crackdown on cryptocurrency.
Considering the IRS proposal in this light helps to showcase one of the major risks of mass data collection. Whether it’s the DOJ seeking to expand its confiscation activities, the IRS looking to increase audits, or a hacker seeking out an exploit, massive government databases create tempting targets for both internal and external abuse.
If the IRS pushes forward with its proposal, cryptocurrency users should keep a careful eye on how that data is ultimately used by the government at large.
Nicholas Anthony is a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives. He is the author of The Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions and The Right to Financial Privacy: Crafting a Better Framework for Financial Privacy in the Digital Age.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Politics
‘Shy’ Reform voters in Labour areas led to Farage’s party winning by-election, Harriet Harman says
“Shy” Reform voters in Labour areas led to Nigel Farage’s party winning the Runcorn by-election by just six votes, Labour peer Harriet Harman said.
The Runcorn and Helsby seat, created in 2024, went to Reform UK’s Sarah Pochin who defeated Labour candidate Karen Shore by six votes.
Reform overturned a 34.8% majority gained by former Labour MP Mike Amesbury last year before he stood down earlier this year after he punched a constituent on a night out.
It is the closest by-election result since records began in 1945.
Read more: Badenoch apologises to Tory councillors
Labour peer and former minister Baroness Harman told Beth Rigby on the Electoral Dysfunction podcast: “If we’d have known it was so close, I, myself, would have gone on extra time there and got those six votes.
“So, there’s a real level of frustration and I’m sure there’ll be a post-mortem, but I think there’s a lot of talk about shy Reform voters in Labour areas.”
In the local elections, running at the same time, the Conservatives lost control of all 18 councils it was contesting, with Reform taking eight of those.
The party also won two of the six mayoral contests – Reform’s first two mayors.
Harriet Harman on the Electoral Dysfunction podcast
Baroness Harman said Labour now has “got to get on with delivering on the health service” and pointed out the minimum wage increase and breakfast clubs are only just being rolled out.
But she said the government also needs “more of a story” instead of just telling people to “bear with us” while it fixes what the Conservatives did.
“It seems to be that Farage has got no delivery, as yet, and all the story, whereas the government is really getting on with delivery, but it hasn’t got a big enough story about what that fits,” she said.
Read more: Reform’s political earthquake is now shaking our political system
An installation represents a bus stop during Reform UK’s local elections campaign launch in Birmingham. Pic: Reuters
She added that “Blue Labour” MPs – a socially Conservative wing of the Labour Party – “will be emboldened to press for further action” on issues like immigration, which they want to see a tougher stance on.
“There’s been grumbling about the big salience of the concerns of the winter fuel payment, but I don’t see there being any change on that,” she said.
Baroness Harman said she does not think the by-election and local election results were “utterly predictable” and will not lead to any splits or instability within the party.
Kemi Badenoch has apologised to Tory councillors who lost their seats after Reform made massive gains at the Conservatives’ expense in Thursday’s local elections.
The Conservative leader said she knew it was “disappointing” and that she was “sincerely sorry”, but added: “We are going to win those seats back – that is my job now.”
The Tories lost overall control of all 18 councils they had been in charge of that were up for election. There were 23 councils in the race in total.
Politics latest: Sky News analysis shows Reform surge in estimated national vote
A particularly bad loss was Buckinghamshire, which has been under Tory control since 1973 when local government was reorganised. The Conservatives lost overall control by just one seat after losing 29 seats.
Reform, which has never run in local elections before, gained eight councils from the Tories, one that had no overall control previously and one from Labour – the only Labour council up for grabs in this election.
Nigel Farage with the new Runcorn and Helsby MP Sarah Pochin. Pic: Reuters
The Lib Dems won Shropshire from the Tories, as well as Cambridgeshire and Oxfordshire – both of which had no overall control before.
The Conservatives had one win, with Paul Bristow being voted in as Cambridgeshire and Peterborough mayor, previously held by Labour.
Reform’s first major win of the election was the Runcorn and Helsby by-election where Labour lost to Reform by six votes. It was triggered by ex-Labour MP Mike Amesbury resigning after his conviction for punching a constituent.
Sir Keir Starmer said he “gets” why his party suffered defeat there and the results show “we must deliver that change ever more quickly, we must go even further”.
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Tories suffer heavy defeats
Addressing the Conservatives’ abysmal results, Ms Badenoch said: “Other parties may be winning now, but we are going to show that we can deliver and that we are on course and recovering.
“But they [the public] are still not yet ready to trust us,” she added.
“We have a big job to do to rebuild trust with the public.
“That’s the job that the Conservative Party has given me, and I’m going to make sure that we get ourselves back to the place where we are seen as being a credible alternative to Labour.”
Read more:
Reform’s political earthquake is now shaking our political system
Reform wins two new mayoral contests
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Farage: ‘This is Reform-quake’
Ms Badenoch said Labour’s election results showed Sir Keir Starmer “is on course to be a one-term prime minister”.
However, when asked if she would still be leader at the next general election, Ms Badenoch dodged the question and said: “I’m not playing all these questions that the media loves to ask about my future.
“This is not about me.”
She insisted she was the right person to lead the Conservatives, as she was chosen by the party’s members.
“I told them it wouldn’t be easy, I told them it would require a renewal and rebuilding of our party,” she said.
“That doesn’t happen in six months. I’m trying to do something that no one has ever done before, which is take their party from such a historic defeat back into government in one term.”
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