Years later, the Marshals Service is still looking for help with seized crypto

Amid a surging number of criminal convictions involving cryptocurrency, the U.S. Marshals Service has been tasked with managing and disposing of bitcoin and other digital assets. Like other seized property, the law enforcement agency is in charge of taking custody of crypto through the Department of Justice’s Asset Forfeiture Program — and even periodically auctioning it off. 

But, at least from a software perspective, keeping track of crypto is a lot harder than selling a Chagall. For that reason, the law enforcement agency has spent the past few years trying to hire a private tech company to help. But despite settling on contracts with crypto companies, at least two agreements appear to have fallen through. Today, the Marshals Service is still maintaining seized crypto on its own. 

“As the seizure and forfeiture of cryptocurrency has become commonplace, the USMS has sought to create a contract with private industry, just as it does with nearly all other asset types,” a spokesperson for the DOJ’s Asset Forfeiture Division told FedScoop. “Currently there is no private company that manages USMS’s cryptocurrency portfolio.” 

The search for a contractor started several years ago, when the US Marshals Service requested information from companies about the prospect of managing the agency’s cryptocurrency. In April 2021, a company called Bitgo, a crypto security company based in California, won a $4.5 million contract.

But, then, BitGo lost the agreement a few months after the Small Business Administration flagged the company as being too big to meet the contract eligibility. (Back in May, a company called Galaxy Digital had announced it planned to spend $1.2 billion to acquire BitGo, though the deal fell apart afterward.) In July, the Marshals Service hired another company, Anchorage Digital, which is based in San Francisco and also offers cryptocurrency holding services. 

Now, though, the Anchorage Digital contract also appears to have collapsed. As with the BitGo contract, the federal procurement data system shows that a Marshal Service contract with Anchor Labs was “terminate[d] for convenience.” Anchorage Digital is a subsidiary of Anchor Labs, according to its website. The company appears to have taken down a Medium post touting the agreement.

“Both awards were subsequently stayed pending the outcome of protests filed with the U.S. Small Business Administration (SBA), challenging the companies’ business size,” the USMS spokesperson told FedScoop. “Ultimately, SBA determined that both companies were other than small business.”

The company did not respond to a request for comment, though it’s worth noting that the Comptroller of the Currency issued a consent order against the company, which has an OCC banking charter, in 2022.  The Small Business Administration did not provide a comment by the time of publication.

“Not all cryptocurrency seized for forfeiture by the federal government is transferred to the USMS for custody and liquidation,” added the DOJ spokesperson. “The USMS utilizes the best practices and services of private industry to most effectively and securely manage and liquidate all assets in its custody.” 

The USMS has struggled with handling crypto, as a DOJ Office of Inspector General report highlighted last summer. At the time of the report’s publication, the Marshals Service was using multiple spreadsheets to manage its crypto, primarily because digital assets like bitcoin aren’t easily tracked in a DOJ property management program called the Consolidated Asset Tracking System (CATS).

These documents, according to the inspector general, don’t have “inventory management controls” and “documented operating procedures.” Policies for handling, storing, and valuing crypto are also “inadequate or absent, and in some instances provide conflicting guidance.” 

“The USMS’s supplemental spreadsheets do not have the capability to track edits made to the cryptocurrency entries in the USMS’s inventory records,” warned the inspector general. “As a result, these inventory records could be edited or deleted without a record of such a change being made and without the knowledge of individuals responsible for maintaining the spreadsheets.”

In some circumstances, the Marshals Service was “not fully complying” with rules for tracking crypto in CATS, the reported added.

The inspector general also said that the Marshals Service needs to develop more fleshed-out crypto policies before beginning work with a private company, cautioning that “without properly documented policies and procedures, the USMS lacks an adequate foundation for building performance requirements for a cryptocurrency services contract.”