69,000 Bitcoins Are Going to the US Treasury—As the Agent Who Took Them Is Behind Bars
The $4.4 billion in cryptocurrency is poised to become the biggest amount of criminal profits ever auctioned by the US. The ex-IRS agent who confiscated the record-setting amount now sits in a Nigerian prison cell.
IN NOVEMBER 2020, an individual referred to by the US Department of Justice as “Individual X” met with an IRS agent named Tigran Gambaryan and lawyers at the US Attorney’s office in San Francisco. The unidentified person entered the lengthy sequence of characters for a Bitcoin private key on Gambaryan’s laptop, enabling Gambaryan to transfer 69,370 bitcoins from Individual X’s bitcoin address to one managed by the US government.
During the four years that the US government has worked to secure legal ownership of that vast amount of bitcoins—recognized by the IRS as illicit gains from the Silk Road dark-web drug trade—its worth has surged to an astonishing $4.4 billion. The forfeiture of the money seems to have been involved in an arrangement that spared Individual X from incarceration, although the specifics of that arrangement have never been revealed to the public.
In a strange turn of events, it’s Gambaryan, the IRS criminal investigator who tracked down and confiscated that unprecedented amount of cryptocurrency, who finds himself in a Nigerian prison while those billions ultimately flow into US coffers.
On Wednesday, the US Supreme Court opted not to consider an appeal regarding a lower court decision that permits the US government to confiscate Individual X’s nearly 70,000 bitcoins, which the individual purportedly acquired from the Silk Road over ten years ago by taking advantage of a security flaw in the marketplace. The stolen drug money has since been sought by different parties, most recently by a firm named Battle Born Investments, which aimed to contest the seizure decision and asserted it had acquired the Silk Road bitcoins via a bankruptcy process. Now that this appeal has dissipated, four years after the misappropriated funds were discovered in an inquiry led by Gambaryan at IRS Criminal Investigations, the US government can officially claim the misplaced bitcoins, which the US Marshals Service will likely auction for dollars, similar to smaller amounts of seized cryptocurrency previously.
Will Frentzen, an attorney at Morrison Foerster and one of the US prosecutors from the Individual X case, states, “The Supreme Court’s choice to decline the case signifies that this will now be surrendered to the United States government.” “This represents the largest crypto forfeiture ever to be allocated to the US Treasury.” Indeed, due to Bitcoin’s extreme rise in value over the last few years, it seems to represent the biggest criminal cash seizure of any kind ever included in the US federal budget. A seizure after the theft of 120,000 bitcoins from the cryptocurrency exchange Bitfinex was even bigger, but it is expected to be returned to the victims and creditors instead of being retained by the government.
During those years, Gambaryan has chosen an even more unexpected route: In 2021, he departed from the IRS to assume the role of investigations chief at Binance, the largest cryptocurrency exchange globally—a decision largely viewed as a response to Binance’s delayed effort to address its extensive money laundering activities, resulting in the company paying a $4.3 billion criminal penalty to the US government last year. When Nigeria reacted by accusing Binance of committing similar criminal acts and depreciating the nation’s currency, it was Gambaryan who received an invitation to Abuja to engage in negotiations with the Nigerian government earlier this year. Rather, the Nigerian authorities arrested Gambaryan, confiscated his passport, and have now imprisoned him for more than six months, accusing him of money laundering and tax evasion on behalf of his employer.
“It’s exceedingly strange.” “It’s like the Twilight Zone every day,” states Frentzen, who has now assumed Gambaryan’s defense case in Nigeria as one of his attorneys. His influence as a federal agent was so significant and widespread that even after three years out of the government, both the American government and the public continue to reap the rewards of his dedication. And he’s suffering in a Nigerian prison cell due to fabricated charges. “It’s truly incomprehensible.”
Interest in Gambaryan’s situation has increased lately as legislators and US officials have repeatedly urged the Nigerian government to free him on bail or for medical reasons. Frentzen stated that Gambaryan is dealing with a deteriorating herniated disc in his back that necessitates urgent surgery to avert lasting damage. However, he has been refused medical attention in prison, and footage of him entering a courtroom in Abuja with a crutch appears to show a security guard not assisting Gambaryan in walking or offering him a wheelchair despite his requests.
In June, 16 congressional members released an open letter requesting that Gambaryan’s situation be considered a hostage scenario, while a resolution put forth in the House Foreign Affairs Committee in July encouraged the White House to exert pressure on Nigeria for Gambaryan’s release. “I implore the State Department and President Biden: Increase the pressure on Nigeria,” said Arkansas representative French Hill, who met with Gambaryan in prison, during a hearing last month. “Recognize the situation where an American citizen has been taken by a friendly government and incarcerated for something he didn’t cause.”
During his decade at IRS Criminal Investigations, Gambaryan was a trailblazer in federal law enforcement’s implementation of cryptocurrency tracing as an investigative method, achieving significant outcomes: Between 2014 and 2017, Gambaryan discovered two dishonest federal agents who had profited from cryptocurrency while investigating the Silk Road; he also assisted in recovering half a billion dollars in bitcoins stolen from the original crypto exchange Mt. Gox contributed to the creation of a covert crypto tracing technique that pinpointed the server running the extensive AlphaBay dark-web criminal marketplace; and assisted in dismantling the Welcome to Video crypto-financed child sexual abuse video network, a case resulting in 337 arrests globally and the rescue of 23 children from abusive circumstances.
Following that series of cases, Gambaryan and another IRS Criminal Investigations agent, Jeremy Haynie, started in 2017 to track the 69,370 bitcoins that seemed to have been taken from the Silk Road in 2012 and 2013, which had remained largely untouched in the years that followed. Utilizing blockchain analysis and information from confiscated servers of the criminal BTC-e crypto exchange—results from another of Gambaryan’s inquiries—the agents managed to pinpoint Individual X as a hacker who had stolen funds from the Silk Road and insisted that they relinquish them. As the funds are deposited into the federal government’s accounts, Frentzen hopes that federal officials capable of urging Nigeria to release Gambaryan will recall the source of that substantial amount of money. “It ought to serve as a clear reminder of the influence he has had on the U.S. government and its citizens.” Frentzen states, “To have him imprisoned while the US Treasury is amassing $4.4 billion due to his efforts is truly distorted.” “We encourage the US government to keep striving for his release and to expedite the process as much as possible.” “We urge the Nigerians to act appropriately and set him free.”
