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Exclusive: Silk Road Agent Gave Bitcoin Tax Advice Prior to Arrest

(@pete_rizzo_) | Published on March 31, 2015 at 18:50 BST
Feature

"I’m a proponent of bitcoin and hope it does succeed and take over the monetary system of the world."

Months after the closure of the infamous online black market Silk Road and the arrest of Ross Ulbricht, it seems bitcoin still held the attention of former Drug Enforcement Administration (DEA) special agent Carl Mark Force IV.

Overnight, Force has become a sensation in the bitcoin world for his alleged improprieties while serving with the US federal agency. Along with Shaun Bridges, a former US Secret Service agent, Force has been charged with money laundering and fraud, while separately being slapped with allegations that he stole government property while undercover.

In court documents unsealed yesterday, the duo are said to have misused hundreds of thousands of dollars in funds as part of the Baltimore-based investigation to apprehend Dread Pirate Roberts (DPR), the leader of Silk Road later determined to be Ulbricht.

However, evidence suggests Force, who was employed as a DEA special agent for 15 years until his resignation in May 2014, continued to interact with the bitcoin community after the black market was closed.

Force opened up to CoinDesk contributor Carrie Kirby in a conversation that took place in 2014. Kirby described Force as surprisingly chatty (using emoticons frequently) and willing to disclose information despite his role as an undercover DEA.

It was on this subject that Force made his expertise available to CoinDesk, something he also did to the wider bitcoin community through posts on Bitcoin Talk – a widely trafficked forum where he offered tax help services.

"I work full-time for the DEA ... but also I'm a CPA," Force explained. "I've developed quite a knowledge of bitcoin. I was just throwing it out there to see if people needed help with it."

Though he began his career with the DEA in September 1999 and served in its Denver, Puerto Rico and Baltimore offices, Force was also a certified public accountant (CPA) in Baltimore, online records show.

Force attested that while he didn't have clients as a CPA, he did freely give guidance to about 10 potential customers in the community, something he seemed opened to parlaying into profit-making opportunities. "It could turn into that," he added.

Fear and money laundering

Force's comments are not without a certain irony given his recent high-profile arrest, as he openly discussed his belief that bitcoin-to-bitcoin transactions were harder for US authorities to trace, among other topics.

The former DEA agent seemed to believe that the real problems would arise once bitcoin was brought into "the world of the central banking authority and central government".

Force spoke about the confusion surrounding the digital currency, stating:

"The concern from law enforcement is that they’re very uninformed about it and they think this is only used by crooks for money laundering and drug dealers because of Silk Road."

Remaining seemingly positive, Force then went on to speak against this narrative. "That’s not true. It’s becoming more accepted and gaining more media attention," he said.

Still, he discussed the environment of uncertainty around the topic.

"The average american will want to comply, partly out of fear," he concluded.

Lack of guidance

On Bitcoin Talk, Force was open about his work, sharing his personal information to those who wished to contact him and proposing a 1 BTC fee per session.

Most of his prospective clients, he said, were early bitcoin investors.

"There are so many people who mined from the beginning and accumulated a substantial amount. People started saying 'What am I going to do with it?' There’s so little guidance, from so many different countries. I don’t think the IRS [Internal Revenue Service] has offered any kind of guidance."

In terms of advising how these individuals should proceed, Force suggested they could be careful or aggressive depending on their risk appetite.

"There are a lot of gray areas," he explained. "Of course, maybe you are going to get audited. But you have arguments if you’re going to be aggressive. Some people want to make sure that they’re not going to have any problems at all, that they report everything and report all gains to the IRS."

Force implied that more aggressive actions, such as withholding information from the federal tax collection agency, were not recommendable . Here again, he talked about the pitfalls that could arise when transferring funds between bitcoin and fiat.

“You’ve involved the US government, now you’re trading in their currency. If you make a large transfer from Bitstamp or whatever that could get flagged. If you’re going to do that you’re going to have to put that on there, that it’s not a currency it’s more of a commodity," Force said.

The comments are notable given Force's own difficulties with the European-based bitcoin exchange, which flagged his account repeatedly on suspicions relating to his activities with allegedly ill-gotten funds.

Profit potential

Force also spoke at length about the subject of bitcoin's ability to generate financial returns.

"Nothing is matching the returns bitcoin is giving right now," he said, adding that due to this factor, taxpayers would be wise to cite bitcoin as the reason for their increase in income.

"They know there are no stocks out there that are crushing it at that level. My advice there would be to tell them this is bitcoin. I would write that right on the form," he continued.

Force discussed whether bitcoin spending could be taxable, and suggested he believed Overstock was keeping records of its spending.

"You could make an argument that you had appreciation on this you have to recognize capital gains tax," he said in what amounts to a prediction of actions taken by the IRS in March 2014.

The issue, he said, was that in the beginning, many bitcoin users didn't keep detailed records of their transactions. Further, he questioned how much of this information was recoverable.

Ultimately, he suggested that he suspected many US citizens wouldn't report this income at all, recalling his now-apparent history and expertise with dark markets.

"If you're gonna go on Tor, the black Internet, the people on there are not going to be asking advice on how to file their taxes," he said, concluding:

"Your crooks and drug dealers are not going to comply at all."

Force, the affidavit alleges, was blocked from bitcoin exchange Bitstamp after his use of Tor was flagged by the company's AML procedures.

Though a firm total was not given for Force's alleged illicit haul, investigators suggest he paid off his mortgage, wrote lavish checks and "wired hundreds of thousands of dollars" as evidence of the extent of his improper actions.

Correction: A previous version of this article incorrectly stated the conversations contained in this interview occurred over multiple sessions.

Force was contacted for comment but no response has been received at press time.

Carrie Kirby co-authored this report.

Additional reporting contributed by Yessi Bello Perez.

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