A civil forfeiture action has been filed by the US Attorney’s Office to recover a big chunk of cryptocurrency linked to a darknet narcotics scheme in New Jersey.
The authorities had previously seized $54 million in cryptocurrency from the illegal drug distribution operation. This includes 30,000 Ether ($ETH), which is now worth around $53.5million, purchased in Ethereum’s July 2014 initial coin offering (ICO).
The cryptocurrency is allegedly derived from drug sales conducted by convicted drug trafficker Christopher Castelluzzo and his associates from 2010 to 2015. They had begun using darknet sites to sell narcotics in exchange for Bitcoin ($BTC) around 2013.
Castelluzzo invested some of the Bitcoin from drug sales into Ethereum during its ICO in July 2014. Along with acquiring 30,000 Ether during this time, he also received 30,000 Ethereum Classic ($ETC) in 2016. However, he soon used it to buy various other cryptocurrencies.
The latest filing ordered for the forfeiture of all cryptocurrency that Castelluzzo obtained through his narcotics sales. Talking about the case, US Attorney Philip R. Sellinger said: “The civil action we are taking today seeks to recover millions of dollars of cryptocurrency, which the defendant allegedly obtained from drug sales. Whether it’s as simple as bags of cash or as sophisticated as cryptocurrency, we will take the steps necessary to seize financial gains defendants obtain from criminal activity.”
Castelluzzo is currently serving 20-year concurrent federal and state prison sentences for drug distribution. While in prison, he also attempted to launder the cryptocurrency and move it outside the United States in order to evade taxes.
However, he was faced with government intervention when the authorities intercepted Castelluzzo’s plans through recorded prison phone calls in 2021 and seized his cryptocurrency holdings that were traceable to his drug trafficking activities.
The successful operation involved multiple law enforcement agencies, including the FBI’s Virtual Assets Unit, FBI Newark Atlantic City Resident Agency, FBI-Denver Field division, Homeland Security Investigations Newark, the New Jersey Attorney General’s Office, the New Jersey Special Investigation Division, and the Colorado Springs Police Department.
According to the Attorney’s Office, Castelluzzo’s holdings were part of a broader strategy to diversify his illicit profits into various cryptocurrencies.
The government’s legal team includes Assistant US Attorneys from various units such as the Organized Crime and Gangs Unit, the Health Care Fraud Unit, and the Asset Recovery and Money Laundering Unit. Its official press release also featured a comment from FBI Newark Special Agent in Charge, James E. Dennehy-
“Many criminals use cryptocurrency on the darknet to operate away from the prying eyes of law enforcement. Our forfeiture action of $54 million should serve as a lesson to those who mistakenly believe we can’t trace their illicit behavior or their ill-gotten proceeds. We will successfully hold all criminals responsible in the open, with real world consequences.”
In July this year, US law enforcement agencies set up a ‘Darknet Marketplace and Digital Currency Crimes Task Force’ to tackle “cryptocurrency-enabled crimes”. The group focuses on child exploitation, drug trafficking, money laundering, and ID theft.
The force comprises of Homeland Security Investigations (HSI) Arizona, the office of US Attorney Gary M. Restaino, IRS Criminal Investigation, the US Drug Enforcement Administration, and Postal Inspection Service.
It seeks to “provide increased collaboration, enhance resources, and disrupt and dismantle criminal organizations that use these new and emerging technologies”. Their official statement read-
“Ever-evolving technology has allowed drug traffickers and other criminal actors to expand into the digital world and use the darknet to engage in their illegal activity. Criminals have long sought to launder the proceeds of their illegal activity through various means, and technology has facilitated this on a grand scale. As these criminal activities and enterprises have become more sophisticated, law enforcement tools, resources and intelligence have had to adapt.”
