In November 2020, an individual recognized solely as “Individual X” by the US Department of Justice met with IRS agent Tigran Gambaryan along with prosecutors from the US Attorney’s office in San Francisco. This unnamed person entered a lengthy sequence of characters representing a Bitcoin private key on Gambaryan’s device, granting him the ability to transfer 69,370 bitcoins from Individual X’s wallet to one under the control of the US government.
Throughout the four years taken by the US government to solidify its legal claim over this enormous quantity of bitcoins—deemed by the IRS to be illicit gains from the Silk Road dark-web drug marketplace—the total value has skyrocketed to an astonishing $4.4 billion. The forfeiture of these assets appears to have been part of a negotiated agreement that kept Individual X from facing prison time, although the specifics of this arrangement have never been made public.
In a peculiar turn of events, it is Gambaryan, the IRS investigator who tracked down and confiscated this unparalleled amount of cryptocurrency, who finds himself imprisoned in Nigeria while those billions eventually belong to the US.
On Wednesday, the US Supreme Court rejected an appeal regarding a lower court’s decision affirming that the US government can confiscate Individual X’s nearly 70,000 bitcoins, which were reportedly taken from the Silk Road over a decade ago by leveraging a security flaw. This stolen drug money has been claimed by multiple parties, including a firm named Battle Born Investments, which attempted to contest the seizure ruling, asserting it had acquired the bitcoins via a bankruptcy process. However, with this appeal having ultimately failed, four years following the investigation spearheaded by Gambaryan within the IRS Criminal Investigations, the US government can officially claim ownership of the misappropriated bitcoins. These will likely be auctioned off for cash through the US Marshals Service, similar to how smaller amounts of confiscated cryptocurrencies have been handled in previous instances.
“The Supreme Court’s choice to not take on the case signifies that this will effectively be surrendered to the United States government,” states Will Frentzen, a US prosecutor involved with the Individual X case and now an attorney at Morrison Foerster. “This represents the largest forfeiture of cryptocurrency destined for the US Treasury.” In fact, due to Bitcoin’s significant price surge in recent years, this seems to be the most substantial criminal seizure of any funds to be incorporated into the US federal budget. (A seizure resulting from the theft of 120,000 bitcoins from the cryptocurrency exchange Bitfinex was even larger, but it will likely be returned to victims and creditors rather than retained by the government.)
During these same years, Gambaryan took an unexpected turn: In 2021, he transitioned from the IRS to become the head of investigations at Binance, the globe’s largest cryptocurrency exchange—a move widely perceived as Binance’s delayed effort to address its extensive utilization for money laundering, which resulted in the company paying a $4.3 billion criminal fine to the US government the previous year. After Nigeria followed this fine with allegations against Binance of similar criminal activities and devaluing its national currency, Gambaryan was invited to Abuja to negotiate with the Nigerian government earlier this year. Instead, he was detained by the Nigerian authorities, who confiscated his passport and have now held him in jail for over six months, accusing him of money laundering and tax evasion as a proxy for his employer.
“It’s incredibly strange. It feels like living in the Twilight Zone every day,” remarks Frentzen, who has since taken on Gambaryan’s case in Nigeria as part of his defense team. “His influence as a federal agent was so extensive and far-reaching that even three years after leaving the government, the American government and the public still benefit from his efforts. Meanwhile, he is suffering in a Nigerian prison on baseless charges. It’s truly inconceivable.”
Interest in Gambaryan’s situation has risen in recent months as lawmakers and US officials have increasingly urged the Nigerian government for his release on bail or for medical reasons. According to Frentzen, Gambaryan is suffering from an exacerbating herniated disc in his back that necessitates immediate surgery to avoid permanent damage. However, he has been denied medical care while incarcerated, and a video captured of him appearing in a courtroom in Abuja with a crutch suggests a security guard denied him assistance to walk or provide a wheelchair despite his requests.
In June, a group of 16 Congress members issued an open letter advocating for Gambaryan’s case to be treated like a hostage situation. Following this, a resolution was proposed in the House Foreign Affairs Committee in July, calling on the White House to exert influence over Nigeria to secure Gambaryan’s freedom. “I urge the State Department and I urge President Biden: Turn up the heat on Nigeria,” said Arkansas representative French Hill, who met Gambaryan in prison, during a hearing last month. “We must recognize that an American citizen has been taken by an allied nation and imprisoned unjustly.”
During his decade with IRS Criminal Investigations, Gambaryan was a trailblazer in the use of cryptocurrency tracing within federal law enforcement, achieving significant milestones: From 2014 to 2017, he exposed two federal agents who illicitly profited from cryptocurrency during the Silk Road investigation; assisted in recovering nearly half a billion dollars’ worth of bitcoins that had been stolen from the early crypto exchange Mt. Gox; contributed to the development of a covert crypto tracing technique that identified the server behind the AlphaBay dark-web crime operation; and played a pivotal role in dismantling the Welcome to Video child sexual abuse video network, which resulted in 337 arrests globally and the rescue of 23 children from exploitation.
Following these accomplishments, Gambaryan and fellow IRS agent Jeremy Haynie began tracking 69,370 bitcoins believed to have been stolen from the Silk Road during 2012 and 2013, which had remained largely untouched since. Utilizing blockchain analysis and information from seized servers of the BTC-e crypto exchange—the outcome of another investigation led by Gambaryan—the agents succeeded in identifying Individual X as the hacker responsible for the theft and sought the forfeiture of the stolen assets.
As these funds are deposited into federal accounts, Frentzen hopes that government officials, who are positioned to advocate for Gambaryan’s release from Nigeria, will be reminded of the origin of this considerable sum. “It should serve as a clear reminder of the impact he’s had for the American government and its citizens. It’s truly unsettling to have him imprisoned while the US Treasury collects $4.4 billion due to his contributions,” Frentzen remarks. “We call on the US government to intensify efforts to secure his swift release and encourage Nigerians to do the right thing and grant his freedom.”
