Matthew Phan, a 30-year-old drug dealer in Canada, is now seeking to keep about half of the Bitcoins seized from his crypto wallet.
Phan was arrested last year after his drug dealing operations on the dark web were unearthed by police. He argues that only half of the Bitcoins in his wallet were proceeds of the drug trade.
Phan has already pleaded guilty to possession of large quantities of illegal drugs, purchase of an illegal firearm and purchase of a gun silencer.
He was caught after a joint investigative operation by U.S. and Canadian authorities. They tracked his dark web activities and transactions.
This is the first time Canadian authorities have been able to track an offender through their cryptocurrency transactions, and in the end, seize the funds.
The evidence against Phan is significant, and there is no doubt that he was dealing arms and drugs on the dark web using his crypto holdings.
A trail of his transactions reveals that not all of his funds were proceeds of illegal trade though.
According to the Toronto Star, Phan is fighting for the court to allow him to keep half of his Bitcoin holdings.
His crypto holdings, estimated to be worth up to 144 BTC or CAD $1.4 million, were seized last year after his arrest.
Investigations and Arrest
Phan first fell on the radar of the U.S. Department of Homeland Security, who alerted Canadian authorities about his operations.
The U.S. authorities had been tracking Phan’s activities on the dark web for a while, and they provided a lead to the local Canadian police.
Upon receiving the tip from the U.S authorities, the Canadian authorities formed a special unit which would keep a close eye on Phan.
A police report revealed that the unit was investigating a transaction in which he was supposed to receive and pay for a Glock action-gun via the dark web.
The unit would then secure a search warrant to go through Phan’s condo. According to lead prosecutor Erin Pancer, the investigating team found illegal drugs and an online wallet holding 288 BTC.
Among the drugs seized during the search were cocaine, marijuana, ketamine and MDMA. There was a couple of thousands of grams of each type of drug.
The amounts were too much to be perceived as just for personal use. At the time, 288 BTC was worth up to CAD $2.8 million.
Dwayne King, the officer who found the digital wallet, immediately seized it to ensure that the funds in it could not be liquidated.
Often times, suspects will immediately liquidate their crypto funds and hide the physical cash when they realize the authorities are about to catch them.
King said that in the recent past, criminal have been hiding their ill-gotten money in closets and under mattresses.
He opined that cryptocurrencies had revolutionized the way criminals hid their illegally obtained money, and it was becoming rather difficult for authorities to get a hold of it.
The Canadian authorities also revealed that they had to bring on board a private firm to help them in prosecuting Phan. The firm’s name could not be disclosed.
David Jevans, the CEO of CipherTrace, also appeared in court and gave his testimony on Phan’s activities.
CipherTrace is a cryptocurrency intelligence firm that works with law enforcement to help investigate cryptocurrency transactions and gather evidence from them.
Following a cryptocurrency transactions trail has always proven to be a daunting task for law enforcement.
The evidence produced by the prosecution during the trial revealed Phan was involved in a variety of drug trade transactions.
A report by the prosecution showed that he carried out most of his transactions on darknet markets, namely Evolution and Agora.
Speaking about the inclusion of private firms in the investigation, King said that the authorities were forced to find a way of investigating the trail of cryptocurrency funds.
He said that many agencies in the country were not ready or able to follow cryptocurrency trails properly.
Phan Pleads Guilty, but Wants His Bitcoins Back
Phan, who is a university dropout, has already pleaded guilty to three charges. He had been charged with illegal purchase of a firearm, purchase of a gun silencer, and possession of large amounts of illegal drugs.
The bone of contention now remains in whether he should be allowed to retain some of his seized funds.
Phan wants to be allowed to keep half of his crypto funds, claiming they are not proceeds from drug sales.
Instead, he claimed most of his crypto funds were earned from gold trading.
Investigations into the trail of his transactions indeed reveal that all his crypto funds are not from drug operations on the dark web.
That does not mean they cannot be payments for illegal operations, though.
Prosecutors have brushed off Phan’s claim and asserted that all the crypto holdings had been attached to his illegal drug and arms deals in one way or the other.
Prosecutors had a list of Phan’s illegal deals over a period of 12 months. The presiding judge did agree that some of Phan’s crypto transactions were legitimate, and could not be proven to be connected to illegal trade.
A ruling on the case has been set for April 4. This case is notable because it is the first one in which Canadian authorities have been able to track, trap and arrest a dark web criminal and seize their crypto-funds.
The case has inspired Canadian law enforcement agencies to launch renewed efforts to combat cybercrime within technologies that had previously been free from regulation, such as cryptocurrencies.
Phan’s case seems to have set a new precedent for law enforcement agencies in Canada, as far as dealing with cryptocurrency-related crime is concerned.
Previous investigations into digitally held proceeds of crime have often fallen short of yielding significant results.
Many criminals have managed to keep their illegally obtained crypto funds even after thorough investigations.
The use of cryptocurrency is not illegal in Canada, but the government does not recognize it as legal tender