Open Source Arrests: US Officials Sour on Biden’s War on Privacy

Open Source Arrests: US Officials Sour on Biden’s War on Privacy
Photo by Serge Kutuzov / Unsplash

Biden is waging war on financial privacy, and not everyone is happy.

The last several weeks have weighed heavily on those in Bitcoin who use privacy tools and software.

Between the ceremonious arrests across two continents, Justice Department press releases, FBI warnings, and souring mood in Washington, many popular services for both sovereign and private Bitcoin use have wound down their operations in the US, forcibly or on the advice of their legal teams.

It’s only the opening salvo of the Biden Administration’s new front against those seeking privacy on Bitcoin.

The apprehension of the developers behind the popular Samourai Wallet, coupled with the trial against the makers of the Tornado Cash protocol and the prosecution of Roman Sterlingov for his alleged ties to the custodial mixer Bitcoin Fog, have cast dark clouds against developers working to further privacy on public blockchains.

With the extrajurisdictional arrest of early Bitcoin promoter Roger Ver and the prosecution of Binance founder ‘CZ’ Changpeng Zhao, it seems that no category of wealth or even citizenship is immune in the Biden era of Crypto Prosecution.

While these actions are serious operations of power and authority, it’s becoming more clear that many officials aren’t so keen on the narrative – and perhaps doubt it outright.

Washington Concerned Over Open Source Crackdown

At the Financial Times’ Crypto and Digital Assets Summit in London last week, I was able to ask several US officials directly about these cases and the chilling effect they would have on regular users of the Bitcoin protocol who care about financial privacy and autonomy.

The event itself was full of officials and central bankers from the United Kingdom, Europe, and the United States, as well as private bankers and asset managers keen on finding some way to integrate cryptocurrency or digital assets. While most talks were focused on positive aspects of CBDCs or the “tokenizing of assets,” whatever the hell that means, there were some insights that may help give cause to advocates for sovereign Bitcoin use.

Gibran Rezavi, the Department of Treasury’s senior advisor for cybersecurity and digital assets, responded cautiously to my question about the negative ramifications for Americans who care about privacy in wake of the Samourai arrests. If developers running an open source, non-custodial protocol for collaborative transactions are targeted, aren’t we all fair game?

"I do share your concerns, I cannot speak for other actors or agencies in the government, but there is a method to the madness,” he said. “Everything else is above my pay grade."

Rezavi previously discussed how the Treasury Department’s main concerns with cryptocurrency are how they are used in ransomware attacks, not necessarily private usage and self-custody. He even admitted to being fascinated by the technology and an early proponent of mining himself.

His comments in response to my question, namely the “method to the madness” and “pay grade,” reveal that political forces are the main instigator of these actions rather than any institutional forces. 

The professional civil servants understand the folly of the Biden crackdown, but they must follow the direction of political appointees possibly acting on other interests. This speaks to a radical ideological attack on Bitcoin that temporarily holds power in Washington, but could soon change after this fall’s election – that is if we believe the opposition's current campaign promises.

Another official I spoke with at the event, Michael Hsu, head of the Office of the Comptroller of the Currency, the country’s most powerful banking regulator, told me that any kind of legal framework would be helpful to tamper down the ideological battle against Bitcoin and its crypto offspring. “We need legal clarity from the people, namely Congress, to help better inform and mature our agencies on crypto technologies,” he said. “Our wish is not to smother or stop a new technology, but rather to protect people by understanding how to approach them,” he added.

Hsu gave a casual shout-out to the Uniform Commercial Code amendments in Article 12, which many legal scholars view as giving the best self-custody protection for Bitcoin in state law. This simple change to commercial law would recognize custody of private keys in contracts, helping guard Bitcoin in any business contract. It would provide legal status to bitcoin in commercial arrangements, as well as grant a framework for ownership of keys, which doesn’t currently exist in federal law.

As the chief banking regulator, these words may sound hollow to untrained ears, but it revealed that there are still many agencies who do not find they have the legal remit to accurately assess Bitcoin’s protocol and the technologies that surround it. Most Bitcoiners eschew the notion that regulatory clarity is necessary, but if we’ve learned anything from the DOJ’s ongoing crypto crackdown, it’s that regulators and agencies need a guide book. Otherwise, actions on Bitcoin and cryptocurrencies will be captured by ideological interests who oppose them.

But it wasn’t just agency heads or advisors who feigned some caution on the government’s war against cryptocurrencies.

IRS Cybercrime Director Says Crypto Crime Allegations Are Overblown

For his part, Jarod Koopman, Director of Cybercrime at IRS Criminal division, who led the teams involved in the case against Roman Sterlingov and the arrest of Roger Ver, also aimed to soften the harsh rhetoric.

“Maybe just 1-2% of all crypto on-chain activity is criminal,” he said. “Criminal use of cryptocurrencies are really more publicized than they should be, because we know most of the crime happens with traditional banking tools. The use of any crypto is only a small tool that has nothing to do with the underlying crime.”

Koopman, essentially the chief digital money trail IRS analyst who carries a gun, is renowned as one of the most talented snoops and spooks in the government who understand Bitcoin and cryptocurrency. 

Speaking to the Sterlingov case, Koopman said that “we have very specific rules about what counts as evidence and how we can arrive at a conclusion and even get a warrant,” he said, when I asked about whether the government relied too heavily on the black-boxed technology of the firm Chainanalysis. “We’re only allowed to file the warrant once we get that direct evidence. We had enough to grab him based on the other evidence we had, namely from the exchanges,” he added.

When I probed him on whether Bitcoiners could ever reasonably expect privacy, he said the IRS itself was supportive of privacy generally. “We just need the exchanges to flag the fraud or illegal behavior,” he said. When I asked him about recent Senate proposals to lower the amounts for the filing of Suspicious Activity Reports related to crypto transactions, he dismissed it outhand.

“We shouldn’t criminalize ordinary people while ordinary criminals are allowed to skate by,” he said.

On a whim, I asked him about Monero and whether the IRS and other agencies have a way of tracking it or if they’re left without tools. “Well, I wouldn’t say that. We’re trying,” he said.

Comments from the event may have left many vexed as to what we can expect for Bitcoin privacy and self-custody.

It’s clear that most of the government apparatus must succumb to the wishes of the political leaders who craft policies, whether that’s on money transmission regulations, criminal prosecutions, or otherwise. Regardless, it means that we have a fighting chance if we want these tools and technologies to survive.

We just need to ensure we use our own resources and might to make that happen.