The former US s-Service (USMS) is responsible for managing assets seized by law enforcement during the course of criminal investigations, including real estate, cash, jewelry, bone ants, and vehicles.
They are also supposed to process cryptocurrency. For example, billions of dollars worth of Bitcoin (BTC) seized from DarkNet Marketplace Silk Road in 2013 by the Federal Bureau of Investigation (FBI).
However, USMS does not seem to know the current amount of ciphers. In fact, agents are struggling to come up with a rough estimate for Bitcoin Holdings.
That could be a problem in light of the announcement earlier this month by White House crypto Czar David Sacks. This means that the US government is actively studying the possibilities of composing national crypto preparations. Cryptocurrency purchase.
“When you start preparing, you need to be familiar with unique properties of your asset, such as forks, airdrops, and certain volatility,” says Les Borsai, co-founder of Wave Digital Assets, a company that provides asset management. He said. In an interview with Coindesk, he continues to fight over the service and USMS that he is not hired. “We need to deal with professionals who know how to fully educate the institution and help them achieve their goals.”
Managing and liquidating seized digital assets, especially since assets forfeitures are used to help fund the Department of Justice (DOJ); is an important role for the institution.
“As far as I know, USMS currently manages this with individual keystrokes in Excel spreadsheets,” he said, providing technical solutions to the US government and in charge of capture strategies and proposals for Addx Corporation, which was Vice President Chip Borman also told Coindesk that he was turned down due to the USMS contract. Bowman said he saw the USMS process happen in real time in 2023.
Cryptocurrency issues are nothing new. Timothy Clarke, CEO of Crypto Consulting company ECC Solutions, told Coindesk that over the years there has been a lot of frustration with USMS from both the public and private sectors.
In 2019, the agency “worked only a handful of cryptocurrency assets like the 8 and 10, so instead of USM doing their job and preventing seizures, all different US government agencies would have to do their own storage. It had to be,” Clark said. Former special agent of the Ministry of Finance.
Not only will USMS take weeks to provide a Bitcoin deposit address to an institution that just had a seizure, but the agency will share the email without any kind of encryption or verification process.
In other agencies, such as the IRS Criminal Investigation (IRS-CI), such confidential information is usually communicated over video calls or via a read-only, encrypted attachment with a password follow-up call. It will be done. Specialists do not come directly to the scene to handle the crypto wallet itself.
“It was very, very safe,” Clark said. “It’s shocking that nothing happened the year they did it.”
USMS declined to comment.
In 2022, the Inspector’s Office (OIG) warned that USMS struggled to manage and track its holdings.
“USMS did not have appropriate policies related to storage, quantification, evaluation and disposal of seized cryptocurrencies. In some cases, guidance was inconsistent,” OIG said.
For example, USMS did not have any measures to track forked assets. Think of the cryptocurrency created whenever a blockchain makes a split known as a hard fork – Bitcoin Cash (BCH) or Bitcoin Satoshi Vision (BSV). Both were kicked out of Bitcoin. “As a result, USMS is unable to identify and track forked assets, which could lead to the loss of the opportunity to sell those assets when they are confiscated,” OIG said. Ta.
The spreadsheets in which institutions relied on to track different crypto holdings also contained inaccuracies, OIG found.
In November 2022, five months after the OIG report was published, USMS (while looking for a contractor to help with crypto assets) lost control over two Ethereum wallets due to software updates. I’ve said that.
“It’s unclear whether the private key is incorrect or if the wallet is broken,” the agency said. “The contractor may identify the issue and open the wallet. If the wallet cannot be opened, USG will be provided with a document of the effort taken to unlock or open the wallet.”
Clarke told Coindesk it is unclear whether the Ethereum Wallets issue occurred before, during or after the OIG audit. The OIG report itself does not mention mismanaged Ethereum wallet or missing ether (ETH).
“At the very least we’ll talk about a lack of backup wallets and lack of competent storage, updates and processing steps,” Clark said.
“The perception that everything remains the same since the 2022 OIG survey,” ADDX chief operating officer John Millward told Coindsk in an interview.
Millward said the agency was not available to confirm such details, but he understood that there was a single employee who was managing the disposal of assets “currently in a retail account.” He said the task was not assigned to senior employees.
At a Bitcoin Conference in Nashville in July 2024, President Trump said he would instruct the federal government to suspend sales of seized Bitcoin if elected. It was the idea first promoted by Senator Cynthia Ramis (R-WY), one of the most vocal supporters in Congress, who introduced the law aimed at forming the National Bitcoin Reserve.
On January 15th, just days before Trump took office, Ramis wrote to Ronald L. Davis. Ronald L. Davis was still the director of USMS. He was engaged in the process of liquidating 69,370 Bitcoins (worth approximately $6.6 billion) seized from the Silk Road.
“Recent court filings from the beginning of this month show that the Department of Justice is citing Bitcoin price volatility to justify the rapid sale of these assets,” she wrote. Masu.
“More troublesome, the department is proactive in liquidation plans despite the unusual urgency to dispose of these assets despite the legal challenges being held back. We continue to promote it,” she added. “This rushing approach that arises during the presidential transition is directly inconsistent with the policy goals stated by the new administration regarding the establishment of the National Bitcoin Stockpile.”
Lummis asks USMS (which handles seized assets but does not make decisions regarding liquidation) to share the total amount of Bitcoin it currently holds, and the information can be easily used in a public manner. We will explain and explain why we are able to do it. its tracking and management procedures. According to sources familiar with the issue, the agency was given to answer until January 31st, but has not yet officially responded.
USMS contacted Lummis’ office twice since the letter was issued, sources said, but the agency was unable to answer the amount of bitcoin under its control, and it was caused by a change in the administration. He criticized the up. Lummis’ office declined to comment.
It appears that a significant amount of Bitcoin is being held by various institutions across the administration, including the DOJ and the Treasury Department, and USMS does not have a settlement process to figure out where everything is, sources say I said that.
OIG noted in 2022 that USMS was taking aggressive steps to strengthen its management procedures by attempting to register the private sector. The move “helps USMS address some of the issues identified,” OIG said.
However, it takes a long time for agents to award these contracts, and the decision has been questioned by some involved.
USMS began considering procurement in 2018 and first awarded the contract with Crypto Exchange Bitgo in April 2021. However, the exchange was determined to not meet the definition of “small and medium-sized enterprises” (this was one of the requirements of the contract). The award was then carried over to Crypto Custody Firm’s Anchorage Digital in July 2021, but Anchorage also proved to be too big to meet the standards for small business.
The agency switched gears in 2024 and awarded two different contracts: the so-called Class 1 cryptocurrency management (coins supported by central exchange and cold storage wallets) and Class 2-4 cryptocurrency (coins) (Do not meet the requirements of first contract class 1 for the management of the second coin of coins).
Crypto Exchange Coinbase won a Class 1 award in July, while the Class 2-4 contract was awarded in October to Command Services & Support (CMDSS), a technology service provider with experience with DOJ.
Both of these awards were contested in court. Anchorage’s protest against Coinbase has been rejected, but it is unclear whether the company has filed another protest. The US Government Expenditure website suggests that Coinbase has not yet received payments for the contract. (Anchorage declined to comment. Coinbase did not respond to requests for comment.)
Meanwhile, the Class 2-4 awards are the subject of ongoing protests by Wave, who claims CMDSS lacks a proper license to the contract. CMDSS claims it is not approved by Securities and Exchange Commission (SEC) or financial industry regulations. Authorities (FINRA) – and agencies have not been able to properly investigate conflicts of interest from CMDSS, which has access to non-public information and employ previous USMS personnel.
USMS states that in some of its cases, bidders do not need to obtain a SEC or FINRA license in the first place. The agency also claims it has properly investigated conflicts of interest related to former USMS employees.
“What do you do if you don’t mind the basics that are licensed to handle securities, the most basic understanding of digital assets, what are you doing? That’s how much they know about the process It’s just showing you if you’re doing it,” Bosai said. CMDSS did not respond to requests for comment.
ADDX competed with Wave and CMDSS for the contract. Nonetheless, Millward said it makes more sense for Wave to win the awards than CMDSS. Because the company owns technical advantages and offers to work at a lower price.
“I think there is a lot of personal trust in the leadership of the awarded entities to ensure that USMS doesn’t look bad,” Millward said.
The central theme of USMS critics is that agents do not fully understand digital assets.
“They treat cryptography like a boat or real estate,” Bosai said. “USMS couldn’t understand what they’re holding if they didn’t understand their assets. …Unless they’re all in with a multi-agency sharing system, they’ll never get the exact numbers.”
Millward and Borman said USMS manage a certain number of classes 2-4 coins, regardless of whether the token is worth billions of dollars or just a cent, and the custody company has the same amount of custody. He said it was difficult to understand that it requires resources.
The agency had suggested to Addx that if they received the award, they would ultimately end up managing it rather than a flat rate. The agency seemed surprised when Addx explained how expensive the custody solution was.
“They said, ‘I don’t expect it to be worth more than $500 at any time,” Bowman said. “They don’t understand that, by order of the judge, they need to track and analyze FOBs containing 20 cents worth of Bitcoin. And destroying 20 cents of fellows would be a factor in the reservoir. It’s as bad as crashing a Lamborghini on the way there.”
