IRS-CI Seize $3.6 Billion in Stolen Crypto From 2016 Hack
The Department of Justice (DOJ) arrested Ilya Lichtenstein and his wife, Heather Morgan, for allegedly laundering $4.5 billion in cryptocurrencies following the 2016 Bitfinex hack, an online digital currency exchange. The Internal Revenue Service Criminal Investigation (IRS-CI) confiscated more than $3.6 billion worth of cryptocurrency associated with the hack. This is the largest crypto financial seizure in DOJ history.
Morgan and Lichtenstein, according to court documents, conspired to launder stolen cryptocurrencies by routing and storing substantial amounts of bitcoin, which the pair then transferred to external financial accounts. Federal prosecutors have accused Lichtenstein and Morgan of using false personal and corporate identities, in addition to converting bitcoin to other forms of cryptocurrency to make it harder to track, a practice known as "chain hopping."
“In a methodical and calculated scheme, the defendants allegedly laundered and disguised their vast fortune,” stated IRS-CI Chief Jim Lee, “IRS-CI unraveled a sophisticated laundering technique, enabling them to trace, access and seize the stolen funds.”
Authorities said that the seizures and arrests confirm that online anonymity cannot hide theft and money laundering, and that cryptocurrencies can still be traced.
Cryptocurrency hacks and seizures are key drivers behind the Biden Administration's and Congress' attempts to regulate the digital currency industry. A coalition of Representatives also re-introduced a bill aimed at taxing gains made from trading cryptocurrencies.
“People think crypto is completely invisible from the IRS and the regulators because it’s anonymous, but that’s not true,” noted Shehan Chandrasekera, Head of Tax Strategy at CoinTracker.
According to the Treasury Department, however, the crypto economy is contributing to a major "tax gap," or the difference between taxes paid and taxes owed. By facilitating illegal activity, including tax evasion, cryptocurrency poses a significant detection problem.
Larry Cosme, National President of the Federal Law Enforcement Officers Association (FLEOA), commended federal agencies for their efforts, but insisted on the need for Congressional action on cybercurrency to ensure law enforcement have the resources to address cybercrime more robustly.
"This is the reality of what law enforcement is facing today. The anonymity of the cyber space requires law enforcement at every level to communicate and coordinate effectively to solve these new forms of crime,” stated Cosme, “The case further shows why it is important that our nation’s criminal laws reflect the reality of evolving criminal enterprises. Congress must understand these new threats and ensure law enforcement has all the tools necessary to combat these crimes.”
The Federal Bureau of Investigation (FBI) and Homeland Security Investigations (HSI) aided IRS-CI in the recovery of the funds.