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US Government Uses Blockchain to Identify Drug Smuggling with Cryptocurrency

Bank of Canada Test Shows Blockchain Can Settle Equities

The U.S. Immigration and Customs Enforcement (ICE) Homeland Security Investigations will use blockchain technology to expose digital currency transactions made by illegal drug traffickers.

In a written testimony, ICE outlined the use of digital currencies as a form of payment for the illicit drug Fentanyl. “On darknet marketplaces and other unindexed websites, purchases are often paid for with cryptocurrencies such as Bitcoin or Monero, among many others,” said Greg Nevano, Finance deputy assistant director of ICE Homeland Security.

To combat the Opioid Crisis, ICE plans to leverage blockchain technology to track and analyze digital currency transactions, identify transactors and those who support dark web marketplaces.

For long-term strategies to hold, ICE will train investigators from national and international agencies in digital currencies and peer-to-peer technology to deter and prevent illegal purchases of fentanyl, opioids or other illicit substances via digital currencies.

Growth of Fentanyl

The United States is currently facing a Fentanyl epidemic. Fentanyl is a schedule II synthetic opioid and is 50 to 100 times more potent than morphine. Unfortunately, Fentanyl can be easily purchased online and directly shipped to the United States.

“ICE has seen a substantial increase in cases in which private parties are acting as money service businesses to exchange digital currencies into fiat currency to enjoy the illicit proceeds of narcotics smuggling,” said Matthew Allen, an assistant director for one of the Department of Homeland Security’s investigative arms, speaking during a House of Representatives hearing on Opioid abuse.

Digital currencies are therefore highly appealing in the drug market. The Department of Homeland security believes that with digital currencies, “value can be transferred much more rapidly and cheaply (especially internationally) than through traditional banking payment systems, and often with greater anonymity and reduced oversight.”

ICE believes that by disrupting the payment systems, they can dismantle networks that smuggle Fentanyl into the United States.

Digital currencies and the online drug market

The relationship between digital currencies and the online drug market has existed for a while. In 2013, the Department of Homeland Security “recognized the potential for criminal exploitation and the money laundering threat posed by virtual currency. ICE has, therefore, [in 2013] strategically deployed a multi-prong investigative strategy designed to target illicit virtual currency platforms, currency exchangers, and underground black markets.”

In the same year, regulators shut down online black market Silk Road. With the growing number of darknet markets like Alphabay, a black marketplace for the illegal sale of drugs, Dream Market and Wall Street Market, US authorities have recognized the growing threat of digital currencies.

The FBI also expressed concerns with digital currencies and online criminal behaviour, including online drug crimes. In a budget request for the fiscal year 2018, the FBI requested for $41.5 million to enhance cyber investigative capabilities. “There is a real and growing gap between law enforcement’s legal authority to access digital information and its technical ability to do so,” said Andrew McCabe, acting director of the FBI.  

It’s not a surprise to see ICE implementing blockchain technology considering the quick growth of digital currencies and their relationship with the online drug market.

ICE’s use of blockchain technology

ICE recognizes that there is no single solution that can stop the flow of Fentanyl into the US. However, they understand the requirement for a comprehensive view of digital currencies and blockchain technology.

“In support of its diverse financial investigative efforts ICE uses undercover techniques to infiltrate and exploit peer-to-peer cryptocurrency exchangers who typically launder proceeds for criminal networks engaged in or supporting darknet marketplaces,” said Nevano

Although the ICE is open to blockchain technology, it is not the first time, the Department of Homeland Security (DHS) has expressed interest. In May 2017, DHS injected $2.25 million into blockchain-based projects.

With the growing influence and spread of the dark web, ICE’s use of blockchain technology may have a significant impact on dismantling networks that smuggle Fentanyl into the United States.


Image credit: Wikimedia Commons


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