The Role of the U.S. Marshals Service
The U.S. Marshals Service (USMS) has a crucial responsibility: managing assets seized by law enforcement during criminal investigations. These assets can range from real estate and cash to jewelry, antiques, and vehicles. Increasingly, the agency is also tasked with handling cryptocurrencies, including substantial amounts of Bitcoin (BTC) confiscated during high-profile operations, such as the billions taken from the Silk Road darknet marketplace by the FBI in 2013.
However, the USMS currently faces significant challenges in accurately assessing its cryptocurrency holdings. Reports indicate that the agency struggles to provide even a rough estimate of its Bitcoin assets, a situation that complicates ongoing discussions about establishing a national cryptocurrency reserve.
The Implications of a National Crypto Reserve
In early October, White House Crypto Czar David Sacks announced that the U.S. government is exploring the possibility of creating a national cryptocurrency reserve. This initiative may lead to a shift in how the government manages seized cryptocurrencies, potentially stopping the liquidation of these digital assets and even allowing for future crypto purchases.
Les Borsai, co-founder of Wave Digital Assets, emphasizes the need for the USMS and other agencies to grasp the unique characteristics of digital assets, such as forks, airdrops, and volatility. He argues that understanding these elements is vital for effectively managing a reserve. “Without proper education and professional guidance, the agency may struggle to achieve its goals,” Borsai remarked.
Even if the concept of a national crypto reserve does not materialize, managing and liquidating seized digital assets remains essential for the USMS, especially as asset forfeiture contributes funding to the Department of Justice (DOJ).
Current Management Practices Raise Concerns
Reports indicate that the USMS currently manages its cryptocurrency assets using basic methods, such as tracking them in an Excel spreadsheet. Chip Borman, a vice president at Addx Corporation, pointed out that this approach is dangerously inadequate. “They’re one bad day away from a billion-dollar mistake,” he noted.
The USMS’s history with cryptocurrency management has been fraught with issues. Timothy Clarke, CEO of ECC Solutions, highlights a long-standing frustration among both public and private sectors regarding the agency’s handling of digital assets. In 2019, the USMS was reportedly only managing a handful of cryptocurrency assets, leading other agencies to take on the responsibility of storage.
Security Concerns and Inefficiencies
Clarke recalls that the USMS would take weeks to provide Bitcoin deposit addresses to other agencies after a seizure, often sharing this sensitive information over unsecure email channels. In contrast, agencies like the IRS Criminal Investigation (IRS-CI) use secure methods such as encrypted attachments and video calls for such communications.
In its 2022 report, the Office of the Inspector General (OIG) warned that the USMS lacked adequate policies for managing seized cryptocurrencies. The agency was found to have conflicting guidance regarding storage, quantification, valuation, and disposal of these assets. For instance, the USMS did not have a system to track forked assets—cryptocurrencies created during blockchain splits—which could lead to missed sales opportunities.
In November 2022, the USMS announced that it had lost control of two Ethereum wallets following a software update, raising further concerns about its management practices. The agency acknowledged that it was unclear whether the issue stemmed from an incorrect private key or a malfunction.
Liquidation Plans in the Spotlight
As discussions about a national crypto reserve continue, the USMS finds itself in a delicate position regarding the liquidation of seized assets. In July 2024, President Trump indicated that, if elected, he would instruct the federal government to cease selling seized Bitcoin. This idea was initially championed by Senator Cynthia Lummis (R-WY), who introduced legislation promoting the establishment of a national Bitcoin reserve.
In January 2023, Lummis expressed concern over the DOJ’s plans to expedite the liquidation of 69,370 Bitcoin, worth approximately $6.6 billion, seized from Silk Road. She questioned the urgency of these actions amid pending legal challenges and requested clarity from the USMS regarding its total Bitcoin holdings and management practices. However, the agency has yet to provide a formal response to her inquiries.
Procurement Challenges and Controversies
The OIG noted that the USMS has been attempting to improve its management practices by enlisting private sector assistance. However, the agency has faced delays in awarding contracts. After initially awarding a contract to crypto exchange Bitgo in 2021, the USMS ultimately shifted to Anchorage Digital, which also did not meet small business criteria.
In 2024, the USMS awarded contracts for managing different classes of cryptocurrencies. Coinbase received the Class 1 contract, while Command Services & Support (CMDSS) was awarded the Class 2-4 contract. Both awards have faced legal challenges, with ongoing disputes regarding CMDSS’s licensing and potential conflicts of interest.
Critics of the USMS argue that the agency lacks a sufficient understanding of digital assets. Borsai pointed out that the USMS treats cryptocurrencies similarly to physical assets, such as boats or real estate, which undermines its ability to accurately assess its holdings.
The Path Forward for USMS
To effectively navigate the complexities of digital asset management, the USMS must adopt a more sophisticated and secure approach. This includes understanding the nuances of different cryptocurrencies and implementing robust tracking and management systems. Without these improvements, the agency risks continued inefficiencies and potential financial missteps as it steers through the evolving landscape of cryptocurrency regulation and management.
