TRM Talks Breaking News: The Bitfinex Arrests

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TRM Talks Breaking News: The Bitfinex Arrests

February 9, 2022

Watch: Experts weigh in

Today the U.S. Department of Justice (DOJ) announced that it has arrested and charged two individuals with laundering funds associated with the 2016 hack of cryptocurrency exchange Bitfinex. According to charges filed in federal court, the hacker stole 119,754 thousand BTC, which at the time of the breach, was worth around $71 million. Today that bitcoin is worth around $4.5 billion. The Bitfinex hack seizure was the largest seizure of funds in the history of the United States. Over the ensuing years, according to a statement of facts, the defendants moved the funds through an on-chain labyrinth of laundering techniques including the use of fictitious identities, automated transactions, the use of a variety of exchanges and darknet markets, mixing services, privacy coins and chain hopping. The defendants are charged with conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the United States, which carries a maximum sentence of five years in prison.

How did law enforcement build this case across years and blockchains? How does an on chain investigation using blockchain analytics tools lead to arrests? How will this case now proceed? What do these charges mean and what are the defendants likely to face over the coming weeks and months? What impact does this case have on the cryptocurrency space? For the answers to these questions, TRM Talks to former United States Attorney for the District of Columbia — the office that is prosecuting the Bitfinex case — Jessie K. Liu, now a partner at Skadden Arps, Former IRS-CI special agents Tigran Gambaryan and Matthew Price, both now at Binance leading intelligence and investigations respectively.

Read: Federal judge issues opinion on reliability of blockchain analytics in Bitfinex case

In the wake of yesterday’s arrests in the Bitfinex case, the United States District Court for the District of Columbia unsealed an opinion that, in its own words, “went down the crypto rabbit hole,” finding, for the first time, that blockchain analytics tools like TRM Labs are reliable for purposes of determining whether or not there is probable cause to allow a search or arrest to proceed. Coindesk covers the opinion here.

The opinion, issued by federal magistrate judge Zia Faruqui, was written in response to the government’s application in support of a search warrant related in the Bitfinex Hack case. The purpose of the opinion was to determine, first, whether or not the court had jurisdiction — it does — and then to decide whether the search warrant had a legal basis.

First, the Court determined that there is no expectation of privacy in transactions on the blockchain for 4th amendment purposes. In other words, a warrantless search of the bitcoin blockchain is a lawful search because “The point of [the blockchain] is that [it] can be viewed by others, meaning that [users] could not reasonably have expected [their transactions] to remain private.”

Next the Court explains that “[T]here are no published decisions analyzing the weight or reliability of blockchain evidence in a search warrant application. Not until now.” Citing Star Trek, the Court finds that “it is human nature to assess technological confidential sources with greater skepticism. Yet humans are “Flawed. Weak. Organic.” On the other hand, the Court found that blockchain analytics are overwhelmingly reliable - “with a perfect record in one case as corroborated by 50 search warrant returns, makes this clustering software one of the most reliable bases for a search ever.” This unprecedented record of success, “lack of incentive or capacity to lie, and incredible level of detail . . .” makes blockchain analytics software “a reliable foundation for probable cause that is beyond compare.” Judge Faruqui closes with a Big Lebowski shout out, “Cryptocurrency and related software analytics tools are “[t]he wave of the future, Dude. One hundred percent electronic.” Bonus points if you can spot the rock solid trailblazing basketball reference.

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