The Justice Department has asserted its need for the authority to seize cryptocurrency from Americans, even without judicial approval.

IRS's Growing Cryptocurrency Surveillance

As the Internal Revenue Service (IRS) forges ahead with its plans to intensify surveillance of cryptocurrency, a prior report sheds light on how this information could be utilised. With the IRS poised to monitor Americans' cryptocurrency activities through an anticipated 8 billion new returns, it appears that the Department of Justice (DOJ) may soon have the tools to commence cryptocurrency confiscation at an unprecedented rate.

Background: Executive Order 14067

This issue dates back to a 2022 report authored by the DOJ in response to Executive Order 14067, President Biden's first major cryptocurrency initiative. Although there were concerns of an impending crackdown, the executive order primarily called for agencies to issue reports to inform future cryptocurrency policies.

DOJ's Recommendations: Seizing Cryptocurrency

The report encompassed a wide array of topics, including recommendations to assist prosecutions, enhance investigations, increase penalties for cryptocurrency-related crimes, and expand resources for government employees. Of particular relevance is the DOJ's call for greater authority in cryptocurrency seizure.

The report argues for "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." Consequently, the DOJ suggests expanding its control over criminal, civil, and administrative forfeiture.

The DOJ contends that these updates are necessary due to limitations in forfeiture tools to deprive wrongdoers of their gains and, in certain cases, return funds to victims.

However, this argument appears perplexing considering the government's past success in seizing cryptocurrency, including the FBI seizing around $427 million between 2014 and 2022, and the IRS seizing another $3.8 billion between 2018 and 2021.

IRS's Role: A New Dimension

Despite substantial funds at hand, the IRS's broker proposal adds a new dimension to the DOJ's report, given the extensive surveillance it could create. This surveillance could facilitate increased cryptocurrency confiscation.

The challenge lies in administrative forfeiture, where agencies, not judges, decide whether property should be forfeited. The DOJ praises this process for efficient resource allocation and lessening the burden on the federal judicial system. Administrative forfeitures comprised 78 percent of the DOJ's forfeitures between 2000 and 2019.

Department of Justice forfeitures by category, 2009-19. Source: Institute for Justice

The Implication of Mass Surveillance

With the IRS accumulating vast amounts of information on Americans' cryptocurrency usage, the DOJ may discover new opportunities for cryptocurrency confiscation, even without evidence of a crime—merely suspicion.

Misunderstandings about cryptocurrency can easily trigger such suspicions, as seen when over 100 members of Congress recently called for a cryptocurrency crackdown based on a flawed report.

This underscores one of the primary risks of mass data collection, whether it's the DOJ expanding confiscation efforts, the IRS increasing audits, or potential abuse by hackers. Massive government databases are enticing targets for internal and external misuse.

A Call for Vigilance

If the IRS proceeds with its proposal, cryptocurrency users should closely monitor how the data is employed by the government. The potential implications for cryptocurrency users are significant, and vigilance is warranted in the face of growing government surveillance.