On 5 June, the Coinbase crypto currency exchange came under fire for its alleged efforts to sell crypto surveillance services to both the United States Drug Enforcement Administration and the Internal Revenue Service.
In the days since, Coinbase representatives have made it clear that the company’s analytical services do not share any personally identifiable information with law enforcement. They claim to get all the data from publicly available information.
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Big Brother has been watching for almost a decade
While Coinbase’s denial may contain some truth, a source who has worked with standards for crypt exchanges and ATM companies for Bitcoin Evolution revealed to Cointelegraph that multiple government entities have been actively monitoring users at nearly all centralized exchanges and crypt custody service providers for years.
Speaking on condition of anonymity, this source indicated that surveillance tactics towards the crypts date back to the early days of Bitcoin. They said that these practices became a much broader effort after the very famous Mt. Gox incident, in which 850,000 BTCs disappeared in late 2013 in what was then a popular cryptomoney exchange.
Our source explained:
„I’ve worked for crypt exchanges, bitcoin ATM companies, general crypt service providers, and more. They all participate in surveillance practices. They have no choice.“
When it comes to monitoring users, they said the U.S. government’s favorite methodology is called the Suspicious Activity Report, or SAR. While SARs are common in most money transmission businesses, SARs in crypts appear to operate by different standards. He stated that:
„In traditional institutions, a transaction must meet certain criteria in most cases to be considered suspicious. However, this is not always the case for Bitcoin and other cryptosystems. As far as the government is concerned, the threshold of ’suspicious‘ is reached as soon as cryptology is involved.
He said that:
„Custodial entities are required by law to file suspicious activity reports (SARs) for basically any [suspicious] cryptomoney-related transaction that exceeds $5,000, regardless of the user’s other activity. Many report lower amounts. Entities are prohibited by law from disclosing this notification data to users or any member of the public. We can’t tell you that we’ve filed a report on you, ever. And entities cannot refuse to comply with these reporting tactics because if they do, they will lose the licenses that allow them to operate. They could face fines or even prison.
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Who are they and what do they want to know?
When asked which agencies are most interested in users‘ crypto data, our source revealed that „reports are shared with FinCEN, the IRS, the FBI, several federal law enforcement agencies. This covers the whole range.
And it’s not just law enforcement agencies in the United States:
„It’s the US, China, Japan, Russia, the UK, others, I’m sure; it depends on where you’re located. But almost all world powers have legal methods for reviewing centralized user data.
Our source also revealed that the requested information is quite solid. The agencies want to know:
„What currencies you have, how often you trade, the initial source of funds used to buy crypts, the amount of profit you have made in a certain period of time. They can ask for anything, and they do. They also keep a record of where your coins are sent once they leave centralised custody. So if you keep your coins in a cold wallet, there’s a good chance that some office in one or more governments around the world will be aware of that wallet address. No matter where you move them, if a centralized exchange has ever stored those coins, they can track you.