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Warrant Filed in Federal Court Reveals Details of Bitcoin Seizure

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August 20, 2013

Warrant Filed in Federal Court Reveals Details of Bitcoin Seizure

By Christopher Mohr
TMCnet Contributing Writer

A May seizure warrant filed in federal court Monday revealed details of the U.S. Department of Homeland Security’s (DHS) seizure of funds used in a Bitcoin exchange.

Over $2.9 million was seized from a credit union account belonging to Mutum Sigillium LLC, an American subsidiary of Mt. Gox, a Tokyo-based exchange for trading Bitcoins. Bitcoin payments from the exchange were processed through Dwolla, a Des Moines, IA-based company that facilitates payments in Bitcoins and U.S. dollars.

According to an application and affidavit for seizure warrant filed by DHS, “Mutum Sigillium LLC is engaged in a money transmitting business, but is not registered as required with FinCEN.” 

This subjected the funds in the account to seizure. FinCEN is the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury.

Bitcoins are acquired typically in one of two ways: either you purchase them through an exchange like stocks or commodities using cash, or you mine for them.

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Mining for Bitcoins simulates mining for gold in the sense that lots of hard work has to be performed to acquire anything of value. In Bitcoin mining, miners solve complex math problems. Theoretically, once they have solved enough problems, they earn a Bitcoin.

In practice, Bitcoin mining is not practical for single end users unless they have a special Bitcoin mining machine that solves math problems much faster than a typical PC could. The only other practical way is to join a pool of users who share computing power and any subsequent proceeds.

FinCEN published rules stating that Bitcoin exchanges and miners should register as Money Service Businesses (MSB) to avoid the risk of violating money-laundering laws.

Previous attempts to create alternative financial businesses have run into a legal buzz saw. E-gold, an online precious metal currency started in the mid-1990s, became a magnet for criminal transactions and was redefined as a money transmitter under the newly-passed Patriot (News - Alert) Act. The company went out of business and only exists on the web to facilitate the return of funds to past account holders.

In the early 2000s, PayPal (News - Alert) also had problems with fraud, coming from fraudulent transactions from organized crime and hackers. State regulators stepped in to investigate PayPal, forcing the company to tighten security.

It’s inevitable that any financial venture processing money or creating an alternate currency will attract fraud, theft, government regulators or both if it becomes big enough. The notion that large volumes of transactions can be done privately without any regulating body knowing about it is unrealistic. After recent revelations about how extensive NSA surveillance has become, why anyone still thinks money or currency alternatives will flourish with little or no regulation is a huge mystery.

Edited by Alisen Downey

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