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Australian Police Seize $8.3m in Cryptocurrency from former Silk Road Vendor

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They were “quite unremarkable in every way”, police said, living normal lives in the community having never before come to the attention of authorities.

But behind closed doors, the two Victorians had quietly amassed a wealth that police now believe to be connected to Silk Road, an infamous dark web marketplace which was shut down by US authorities almost a decade ago.

Silk Road, the first major online black market hosted on the dark web and used predominantly to buy and sell illegal drugs, was shut down in 2013 as part of a massive operation by the US authorities. University of Texas physics graduate Ross Ulbricht, its creator, was arrested and is now serving a life sentence in jail.

Data from the investigation was shared with police across the world, and authorities have continued to make arrests related to the now-defunct site.

This week, information provided to police in Victoria by the US Federal Bureau of Investigation (FBI) has led to the largest ever cryptocurrency seizure by law enforcement in Australia.

A record $8.49 million in cryptocurrency, understood to be Bitcoin, was seized during raids carried out at properties across metro and regional Victoria on Thursday, part of an estimated $13.1 million worth of assets restrained by police.

Two arrests were also made. A 31-year-old woman from Kinglake, north of Melbourne, and a 30-year-old man from Preston were interviewed by police and released pending further inquiries. The woman was charged with possessing cannabis and bailed to appear before court in March.

Police, who say the pair are “associates”, are now investigating their use of the Silk Road website and what activities in the eight years since have led the pair to amass significant wealth.

Raids on Thursday in Kinglake, Preston, Prahran, South Yarra and Dollar in South Gippsland saw drugs believed to be cannabis, psilocin (magic mushrooms), MDMA, prescription medication and white powder and crystals seized.

Two properties in Kinglake and Dollar valued at about $2 million were also seized, as well as vehicles including a Toyota Prado and VW T-Cross valued at about $100,000, and about $2.6 million in banked cash.

Commander Mick Frewen, part of Victoria Police’s crime command, told The Age the pair arrested were unassuming and “completely nondescript”.

“These people have not come to police notice at all. They’ve amassed extensive wealth all from the keyboard in their own living room,” he said.

“They are just completely anonymous individuals in the community … I would describe them as quite unremarkable in every way. They don’t ordinarily get associated with overt displays of wealth, [or have a] connection to any organised crime gang or network.”

The investigation into their activities could take time, Commander Frewen said, given the different jurisdictions and platforms involved. The pair could face serious money laundering or proceeds of crime offences, which can carry upwards of 10 years in jail.

“With regard to their contemporary offending, we did locate some drugs at a couple of addresses yesterday, we’re still working through what that means with regard to their online exposure to drug trafficking,” he said.

“They were surprised [to see police], but like everything BitCoin has enjoyed a huge surge in value and it would probably not have been contemplated even by them when they were online in 2012 that it would have grown in value so much.”

‘The changing face of money laundering and organised crime’

The dark web and cryptocurrency provide “fertile opportunities” for organised crime and serious criminal activity to take place, Commander Frewen said.

Secure and anonymous, many platforms can be used to quickly move money around the world and new dark web sites used to buy drugs, guns and launder money pop up every day.

“Cash used to be king, as we all know, but again with different cryptocurrencies, different ways of laundering money via online opportunity … a multinational syndicated drug network, or with two people operating out of their living room in suburban Melbourne – in many respects they assume many similarities.”

“Not only is the user not needing to leave their lounge chair, neither is the offender. Whether they are operating in Melbourne, or Chicago or southeast Asia, it actually doesn’t matter. Their reach and ability to syndicate, or distribute drugs across Australia, internationally, is really, really efficient. And equally, we’ve adapted our investigative models to accommodate and exploit vulnerabilities as we see them.”

He said it was difficult to explain simply how Bitcoin is seized by police.

“Cryptocurrency is available to be seen on the blockchain, which is a publicly available ledger,” he said. “That’s the start point, but far from the end point and obviously plugged into each of those ends is a whole lot of other data analytics, intelligence that law enforcement rely on.”

A manual about the detection and investigation of proceeds of crime involving virtual currencies by the United Nations Office on Drugs and Crime says one way cryptocurrencies can be seized is by finding and taking control of the virtual wallet being used to store the Bitcoin, and transferring it into the account of the law enforcement authority.

Electronic wallets can be found on desktop or mobile apps, accessed through internet websites or on an external hard drive.

Bitcoin was first seized by Victoria Police in 2013, following the arrest of Warrandyte drug trafficker Richard Pollard. Police later found three electronic wallets containing 24,518 bitcoins.

They were worth $700,000 when he was arrested at the end of 2012, but by mid-2015 were worth $7.3 million. Authorities at the time said they were expected to be sold a public auction with the proceeds to go to the state’s consolidated revenue.

Commander Frewen said that this week’s investigation highlighted the changing face of money laundering and organised crime.

“People are looking to hide or launder wealth through other means [than cash]. Real estate, cryptocurrency, and cryptocurrency by virtue of its anonymity and some extent its security, money have leave to an offshore entity or vice versa really, really quickly.”

Victoria Police will soon announce the creation of a Cyber Crime division, which will have squads dedicated to areas such as cryptocurrency.

“Traditionally, if we’re going to use the analogy, Victoria Police, like the retail sector are no longer bricks and mortar traders. We also operate in the digital space. We have an extensive digital footprint.”

Silk Road allowed users to use Bitcoin to anonymously buy drugs to be delivered in the post straight to their door. It was taken offline in October 2013 after more than two years in operation.

Authorities said Silk Road founder Ross Ulbricht, who went by the pseudonym Dread Pirate Roberts, amassed $US13 million ($17 million) in commissions by making the purchase of heroin, cocaine and crystal meth as easy as shopping online at eBay or Amazon.

There have since been arrests all over the world. Roger Thomas Clark, a Canadian man who authorities said went by the online moniker “Variety Jones”, was arrested in Thailand in 2015 for his alleged role as a senior adviser to the creator of Silk Road.

Peter Nash, an Australian man who moderated the discussion forums on Silk Road, was sentenced to time served in 2015 after already being in custody for 17 months.

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Written by L Walker

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