When it comes to the battle against cryptocurrency-related crimes, the United States Internal Revenue Service (IRS) has found a secret weapon in blockchain analytics. This sophisticated tool has played a pivotal role in helping the IRS seize an astonishing $10 billion worth of cryptocurrency.
The IRS’ collaboration with Chainalysis, a leading blockchain analytics firm, offers a revealing glimpse into how public-private partnerships can bolster law enforcement efforts. This partnership was highlighted by IRS Criminal Investigations (IRS-CI) Chief Jim Lee at Chainalysis’ recent Links conference in Amsterdam, where he detailed how this technology has been instrumental in tracking digital money trails.
The IRS entered the crypto scene in the early 2010s as Bitcoin began to infiltrate the financial system. The establishment of infrastructure to combat digital crimes and identity theft paved the way for cryptocurrency investigations, further enhanced by the tools developed by private institutions such as Chainalysis.
The IRS-CI, along with hundreds of other law enforcement agencies, utilizes Chainalysis’ blockchain analysis tools for its investigations. Lee admitted that without these tools, investigating crypto-related crimes would be almost ‘impossible.’ The public-private partnership with Chainalysis has been a game-changer, enabling the IRS to trace crypto transactions from public blockchains to darknet marketplaces.
Even with these advanced tools, investigating crypto crimes remains a Herculean task. It demands significant investment in people, data, and technology. As Lee noted, “You can’t just seize $10 billion in value.”
The ongoing challenge for the IRS is not only successfully seizing cryptocurrencies but also securely storing billions of dollars of digital assets. Such tasks highlight the complexity and inherent risks involved in handling digital assets on this scale.
The IRS-CI’s efforts have been fruitful, contributing substantially to the U.S. Treasury asset forfeiture fund in recent years. The department’s seizure of $3.6 billion in the 2016 Bitfinex hack exemplifies the effectiveness of these efforts. Furthermore, the IRS-CI also facilitates knowledge sharing and training in using tools like Chainalysis Reactor with local and international crime enforcement agencies.