In November of 2020, a person identified by the US Department of Justice only as “Individual X” sat down with an IRS agent named Tigran Gambaryan and prosecutors at the US Attorney’s office in San Francisco. That unnamed individual typed out the long string of characters of a Bitcoin private key on Gambaryan’s laptop, allowing Gambaryan to move 69,370 bitcoins from Individual X’s bitcoin address to one controlled by the US government.
Over the four years that it has taken the US government to establish legal ownership of that massive sum of bitcoins—identified by the IRS as stolen proceeds of the Silk Road dark-web drug market—its value has grown to a staggering $4.4 billion dollars. The money’s forfeiture appears to have been part of a deal that kept Individual X out of prison, though the terms of that deal have never been publicly disclosed.
Instead, in a bizarre twist of fate, it’s Gambaryan, the IRS criminal investigator who traced and seized that record-breaking sum of cryptocurrency, who is sitting in a Nigerian jail as those billions finally end up in US coffers.
On Wednesday, the US Supreme Court declined to hear an appeal to a lower court ruling that the US government can seize Individual X’s nearly 70,000 bitcoins, which the person allegedly took from the Silk Road more than a decade ago by exploiting a security vulnerability in the market. That stolen drug money has since been claimed by various parties, most recently by a company called Battle Born Investments that sought to appeal the seizure ruling and claimed to have purchased the Silk Road bitcoins through a bankruptcy proceeding. Only now that this appeal has fizzled, four years after the stolen money was tracked down in an investigation led by Gambaryan at IRS Criminal Investigations, can the US government finally take official possession of the wayward bitcoins, which will likely be auctioned off for dollars by the US Marshals Service, as smaller sums of seized cryptocurrency have in the past.
“The Supreme Court’s decision not to hear the case means that this is now is going to be forfeited to the United States government,” says Will Frentzen, one of the US prosecutors who handled the Individual X case and is now an attorney at the legal firm Morrison Foerster. “This is the largest ever forfeiture of crypto that will go to the US Treasury.” In fact, thanks to Bitcoin’s wild appreciation in recent years, it appears to be the largest ever criminal seizure of money of any kind to be added to the US federal budget. (A seizure following the theft of 120,000 bitcoins from the cryptocurrency exchange Bitfinex was even larger but will likely be repaid to victims and creditors rather than kept by the government.)
Over those same years, however, Gambaryan has taken an even more unlikely path: In 2021, he left the IRS to take a job as the head of investigations at Binance, the world’s largest cryptocurrency exchange—a move seen widely as driven by Binance’s belated attempt to clean up its own widespread use for money laundering, which led the company to pay a $4.3 billion criminal fine to the US government last year. When Nigeria followed that fine by accusing Binance of similar criminal misconduct and devaluing the country’s national currency, it was Gambaryan who was invited to Abuja to negotiate with the Nigerian government earlier this year. Instead, the Nigerian government detained Gambaryan, took his passport, and has now jailed him for over six months, charging him with money laundering and tax evasion as a proxy for his employer.
“It’s beyond bizarre. It’s Twilight Zone every day,” says Frentzen, who now has taken on Gambaryan’s case in Nigeria as one of his defense attorneys. “His impact as a federal agent was so extensive and so far reaching that he’s been out of the government for three years and yet the American government and the American public are still benefiting from his hard work. And he’s languishing in a Nigerian jail cell on trumped-up charges. It’s really unfathomable.”
Attention to Gambaryan’s case has grown in recent months as lawmakers and US officials have increasingly appealed to the Nigerian government to release him on bail or on medical grounds. Gambaryan has suffered from a worsening herniated disc in his back that requires immediate surgery to prevent permanent injury, according to Frentzen. Yet he’s been denied medical care in jail, and a video of him entering a courtroom in Abuja with a crutch seems to show a security guard refusing to help Gambaryan walk or to provide him with a wheelchair despite his pleas.
In June, 16 members of Congress called in an open letter for Gambaryan’s case to be treated as a hostage situation, and a resolution introduced in the House Foreign Affairs Committee in July urged the White House to apply pressure to Nigeria to free Gambaryan. “I urge the State Department and I urge President Biden: Turn up the heat on Nigeria,” Arkansas representative French Hill, who visited Gambaryan in jail, said in a hearing last month. “Honor the fact that an American citizen has been snatched by a friendly government and put in prison over something he had no responsibility for.”
Over his 10 years at IRS Criminal Investigations, Gambaryan pioneered federal law enforcement’s use of cryptocurrency tracing as an investigative technique, with landmark results: From 2014 to 2017, Gambaryan identified two corrupt federal agents who had enriched themselves with cryptocurrency during their investigation of the Silk Road; helped to track down half a billion dollars worth of bitcoins stolen from early crypto exchange Mt. Gox; had a hand in developing a secret crypto tracing method that located the server hosting the massive AlphaBay dark-web crime market; and helped to take down the Welcome to Video crypto-funded child sexual abuse video network, a case that led to 337 arrests around the world and the rescue of 23 children from exploitative situations.
In the wake of that string of cases, Gambaryan and another IRS Criminal Investigations agent, Jeremy Haynie, began in 2017 to trace the 69,370 bitcoins that appeared to have been stolen from the Silk Road in 2012 and 2013 and had sat almost entirely unmoved in the years since. With the help of blockchain analysis and data from seized servers of the criminal BTC-e crypto exchange—the fruits of another of Gambaryan’s investigations—the agents were able to identify Individual X as a hacker who had taken the Silk Road’s funds and demand that they forfeit them.
As those funds flow into the federal government’s accounts, Frentzen hopes that federal officials who have the power to pressure Nigeria to free Gambaryan will remember where that record sum of money came from. “It should be a crystal-clear reminder of the impact that he’s had for the American government and for the American people. To have him locked up while the US Treasury is collecting $4.4 billion because of his work, it’s really twisted,” Frentzen says. “We urge the US government to continue to work to secure his release and to do so as fast as possible. And we encourage the Nigerians to do the right thing and release him.”
Source : Wired
