Darknet market link provider claims its Bitcoin donors’ accounts were frozen

The admin of a well-known darknet market link provider claims its donation address was flagged as suspicious after it criticized Chainalysis’ KYT flagging system.

The administrator of dark.fail, a website providing verified links to darknet markets, claims that exchanges are unfairly closing accounts donating Bitcoin to the service after implementing a Chainalysis transaction flagging system.

The admin alleged in a tweet that two donors of Bitcoin to the website had their accounts blocked by exchanges that recently implemented Chainalysis’ new KYT — or Know Your Transaction — blockchain monitoring service.

The admin believes there is a connection between the account closures and its staunch and vocal criticism of Chainalysis, however the accounts may simply have been flagged automatically due to links to the darknet. While the site can be viewed as a gateway to the darknet, dark.fail’s Twitter bio classifies the account as an: “Anonymous journalist researching Tor: the uncensored internet.”

Dark.fail is a long standing critic of Chainalysis KYT flagging accounts as suspicious with no avenue for appeal. In Jan. 2020, the admin accused the blockchain analytics company of enabling the “theft” of customer funds that had been marked as suspicious by hidden KYT processes.

One of dark.fail’s BTC donation addresses, listed on the website home page recently as Dec. 2, 2020, contains nearly 40 transactions. The BTC donation option has since been removed from the website, which now only accepts contributions in the form of privacy coin Monero.

Chainalysis describes KYT as “an automated, real-time cryptocurrency transaction monitoring and compliance solution” which is used to detect patterns indicating “risky activity.” It is currently used by over 150 companies in 40 different countries. Chainalysis has also assisted government-led investigations in the past, helping to break up a notorious ransomware network last month.

While dark.fail’s status as an “anonymous journalist” is debatable, the report comes amid an atmosphere where journalist practices can be labeled as criminal activities. On Monday, a letter signed by the ACLU and other civil right defense groups called for the U.S. Department of Justice to drop charges against WikiLeaks founder Julian Assange, likening his indictment to “a grave threat to press freedom.”

In May 2019, one of the oldest websites about darknet related subjects, DeepDotWeb, was seized by law enforcement after its administrators were arrested on money laundering conspiracy charges. The two admins are suspected of taking millions in cryptocurrency kickbacks from darknet markets listed on their website.

According to stats provided by alexa.com, dark.fail is one of the most popular darknet market link providers on the internet, ranked #52,345 globally in terms of website traffic.

Cointelegraph has contacted Chainalysis for comment and will update this story with their response.

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Chainalysis Launches Program to Store and Sell Seized Crypto Assets for Governments

Chainalysis Launches Program to Store and Sell Seized Crypto Assets for GovernmentsThe blockchain intelligence and surveillance company Chainalysis revealed the launch of a new program that aims to help governments and insolvency practitioners sell seized cryptocurrencies. The news follows the recent U.S. government seizure of more than 69,000 BTC worth over $1 billion on November 3. Blockchain surveillance firm Chainalysis announced the launch of a new […]

The post Chainalysis Launches Program to Store and Sell Seized Crypto Assets for Governments appeared first on Bitcoin News.

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Brazilian gov’t gets help from US Justice Department to seize $24M in crypto

The government of Brazil requested assistance from US authorities regarding a crypto fraud scheme called “Operation Egypto.”

According to a Wednesday filing, the U.S. Justice Department seized $24 million in virtual currency pursuant to an official request from the Brazilian government.

The Department of Justice, or DoJ, said that the government of Brazil requested its assistance in connection to a crypto fraud scheme called “Operation Egypto.” Authorities in the South American nation reported that more than 10,000 Brazilians may have been defrauded from the scheme, in losses estimated at roughly $200 million.

The department seized funds connected to Brazilian national Marcos Antonio Fagundes, one of the individuals allegedly involved in the case. According to information that Brazilian authorities provided to the DoJ, Fagundes is charged with the operation of a financial institution without legal authorization, fraudulent management of a financial institution, misappropriation of funds, money laundering, and securities law violations. He and his conspirators allegedly operated an unregistered financial institution to hold crypto assets he obtained from victims by making “false and inconsistent promises” about the way the funds were invested and exaggerated the rates of return.

The funds were purportedly held on a U.S.-based crypto exchange. The DoJ said that a cryptocurrency firm holding the accounts complied with the seizure order, implying it was a company within its jurisdiction.

According to the Treaty on Mutual Legal Assistance in Criminal Matters between the United States and Brazil that has been in effect since 2001, either government can make a request regarding “proceeds or instrumentalities of offenses” subject to seizure located in the other’s territory. A Brazilian court issued an order calling for the seizure of any virtual currency Fagundes controlled or owned in the United States, which preceded the government filing an application to enforce the order in U.S. District Court for the District of Columbia.

The DoJ currently has the authority to confiscate cryptocurrency in connection with legal cases in the United States and later auction off the funds. In February, the government body announced that it would be selling roughly 4,040 Bitcoin (BTC), when the price was $9,200. Assuming the anonymous buyers purchased the funds at roughly market price, they could be looking at a 63% return with BTC’s rise to $15,000 today.

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Data encryption a threat to fighting child sexual abuse, says DOJ

The department, along with other international agencies, alleged end-to-end encryption can create “severe risks to public safety.”

The U.S. Department of Justice has released an international statement claiming that end-to-end encryption “poses significant challenges to public safety,” including sexually exploited children. 

In an Oct. 11 statement from the DoJ, the agency called on technology companies to work with the government to find a solution for strong data encryption with the means to allow the investigation of illegal activity and content. The department stated end-to-end encryption that hindered law enforcement from accessing certain content creates “severe risks to public safety.”

The statement was signed by the DoJ, the Home Department of the United Kingdom, the Australian Minister for Home Affairs, India, Japan, a New Zealand Member of Parliament and the Minister of Public Safety and Emergency Preparedness of Canada.

In particular, the DoJ stated such encryption — in which only the senders and receivers can access the data being sent — undermined law enforcement from “investigating serious crimes” and “protecting national security.” In addition, a tech company’s ability to identify and respond to child sexual exploitation and abuse, violent crime, and terrorist propaganda may be compromised, claimed the department.

Citing a 2019 report from the National Center for Missing and Exploited Children (NCMEC), the government agency implied end-to-end encryption needed to be implemented with a solution to safeguard children, or it would undermine the current system of reporting such exploitation.

“In 2018, Facebook Messenger was responsible for nearly 12 million of the 18.4 million worldwide reports of CSAM [child sexual abuse material to the NCMEC],” the DoJ said, citing a 2019 statement from the WePROTECT Global Alliance. “These reports risk disappearing if end-to-end encryption is implemented by default, since current tools used to detect CSAM do not work in end-to-end encrypted environments.”

Elected officials in the United States have already acted to seek a legislative solution to investigating the illicit activities to which the DoJ referred.

In June, three Republican senators put forth a bill that would outlaw end-to-end encryption for technology companies, requiring device manufacturers and service providers to assist law enforcement by providing access to encrypted data. The bill, named The Lawful Access to Encrypted Data Act, is currently under review in the Committee on the Judiciary. There is also the EARN IT Act, a proposed bill that would require digital messages to first pass through government-approved scanning software in order to monitor for malicious criminal activity.

Proponents of both bills have claimed their purpose would include protecting children from sexual abuse. However, many privacy advocates have heavily criticized the bills’ sponsors for what they perceive as the government encroaching on personal freedoms.

Though its statement focused on end-to-end encryption, the DoJ stated it would extend its efforts to “device encryption, custom encrypted applications and encryption across integrated platforms.” The government agency claimed it would hold a “respect for privacy” at the forefront of any legal framework.

“We challenge the assertion that public safety cannot be protected without compromising privacy or cyber security,” the DoJ stated.

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Law Decoded: Police and thieves on their screens, Oct 2–9

The Department of Justice made headlines in crypto and elsewhere, leading a week of law enforcement locking down around the world.

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor’s note

Historians typically date the birth of international policing as we know it today to the 1800s, a response to the explosion in nationalist movements and non-governmental political radicalism in Europe. Just as new linking technologies like the telegraph and the steam engine aided and abetted new networks of political deplorables and any number of Sherlock Holmes plots, the explosion of communications tech of the last quarter-century has brought about new forms of crime. 

Which is, y’know, something everyone passively knows. In crypto, association with crime is a familiar reputational issue that is present but certainly not unique. New technology giveth and taketh away. Law enforcement’s interest in controlling new networks also grows. Paranational organizations like drug cartels and terrorist cells come to mind.

This week saw the U.S. Department of Justice press criminal charges against ISIS agents behind American deaths including James Foley’s, a move that expands their power to prosecute foreign agents as criminals under U.S. law. The FBI also busted up a home-grown far-right conspiracy to kidnap the governor of my home state of Michigan. In crypto, several jurisdictions have laid claim to new authority, with the DoJ in particular making a number of moves to expand its jurisdiction.

DoJ vs. everybody

The Justice Department’s new “Cryptocurrency Enforcement Framework” laid claim to a whole host of powers over crypto businesses that had previously been in limbo. Most notable is the generosity of what the DoJ is calling its own jurisdiction — basically anything that touches a U.S. server.

The new framework heralds a new era in the department’s crypto authority, but it’s just the clearest summary of a growing body of precedent that U.S. regulators from the SEC to the IRS have been building out for years.

The DoJ’s criminal charges against Seychelles-registered BitMEX’s leadership last week in some ways telegraphed their particular interest in combatting crime in crypto wherever in the world it may be. Most earlier involvement in crypto-linked prosecutions abroad had been focused on networks the DoJ saw as being primarily designed to finance terrorism or funnel money to sanctioned individuals. While the DoJ accused BitMEX of being a means for such action, the allegations against the leadership are not really accusing them of ideological or political illegality, but rather old-fashioned greed.

Distressing for the crypto community is, as always, the association with criminal activity. The DoJ’s report pays lip service to blockchain technology’s ability to revolutionize payments, finance, international trade, shipping, trust, consensus et al — I assume that this readership is familiar with the myriad use cases — but the report pivots compulsively to crime. From the DoJ’s side of things, that is their trade, so it makes sense, but it also adds to the unfair stigma against a technology.

Another cause for concern is that tech-savvy people in the U.S. can get around the barriers by really any crypto company, given enough time and potential profit. So as with the general trends of the last year, U.S. authorities really do seem to be building out the legal framework to give themselves jurisdiction over crypto basically anywhere. World Police indeed.

UK shuts door on whole genre of crypto investment

The United Kingdom’s Financial Conduct Authority nixed trading of crypto-based derivatives — including futures, options and swaps — for all retail investors starting in January.

While the FCA may not be as globally hawkish on crypto as its U.S. analogues, London remains Europe’s financial center. Much like Brexit itself, the predicted exodus from London has seen delays that seem to mock all bold predictions.

With its focus on retail investors, however, the FCA has obviously designed its new ban to be more of a protective maneuver for regular Britons rather than a handicap on the reigning heavyweight champs of the London Stock Exchange.

Nonetheless, as the UK’s position within both Europe and the global economy is vulnerable, implementing a stringent ban on a new asset class seems like yet another way of recusing itself from the financial future. As mentioned earlier, determined UK crypto investors will almost certainly be able to get around the new ban to access offshore exchanges with less legal accountability to the UK and more extravagant and risky leveraged offerings. 

But maybe a somewhat built-in assumption is that, while the technological implementation of any ban is going to be slow and imperfect, a retail investor capable of working around it is not exactly the person the FCA is most worried about protecting.

DoJ vs. the elusive Mr. McAfee

After decades of intercontinental outrageousness, John McAfee was arrested in Spain for tax evasion. He also faces a suit from the SEC for fraudulent ICO promotion.

McAfee first found success in the 80s at the head of the firm that produces the antivirus software that still bears his name. He left the company in the 90s and has been bouncing around the world more or less ever since, racking up guns, substance addictions, and allegations of sexual assault and murder. Also not paying his taxes, allegedly. He was posted up in Cuba out of the reach of U.S. authorities for a while.

Despite his early successes in technology, McAfee has for decades built a personal brand on foundations of infamy. The SEC’s allegations suggest that he managed to translate that megaphone into millions of dollars by plugging into the curious hypedraulic mechanics of the ICO boom. Earlier this year, he tried to launch a privacy token that he admitted was largely taken from another project. McAfee is hardly what you would call a builder. While everyone is innocent until proven guilty, McAfee’s absence from the crypto scene would be a blessing for the industry’s reputation.

Further reads

The Bank for International Settlements put out a new and extensive report on Central Bank Digital Currencies and the associated risks and prospects.

Tax attorney Jason Freeman runs down the latest memorandum from the IRS on how to get your taxes on virtual assets in order.

Writing for the Electronic Frontier Foundation, Rainey Reitman talks problems with the extradition hearings for Wikileaks founder Julian Assange.

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