The law enforcement arm of the US Postal Service has been using and confiscating cryptocurrencies since 2017. But a lack of proper oversight, training and procedures has led to significant policy violations and could lead to serious fraud or waste if it is not controlled.
Postal inspectors need access to cryptocurrency to go underground, according to a recent review by the agency’s inspector general. However, these transactions must be closely monitored to avoid waste, fraud or abuse.
“The anonymity of cryptocurrency transactions and large fluctuations in the value of the cryptocurrency create opportunities for abuse or theft when used in law enforcement activities,” wrote the IG.
To limit the risk of abuse, the agency has developed an application for managing the inspectors’ cryptocurrency portfolios.
In the app, postal inspectors submit requests for cryptocurrency for investigation, which include information about the cryptocurrency exchange account and the inspector’s wallet that will be used for the investigation. ‘case,’ the report explains. “The app tracks all cryptocurrency activity associated with an inspector’s trading account by crossing the public blockchain on a daily basis. The activity monitored includes disbursements of funds to postal inspectors from the national program portfolio and purchases made on online marketplaces.
In fiscal 2019 and 2020, postal inspectors closed nine instances in which officers used cryptocurrencies to purchase illicit goods and services, such as illegal drugs. Inspectors working on these cases are supposed to obtain and track cryptocurrency usage through the agency’s cryptocurrency fund program, which includes an app to request digital currencies.
However, the program currently only supports a limited number of cryptocurrencies – drafted in the IG report – and inspectors must use the appropriate currency for the bite they are operating.
“When an inspector does not use one of the … crypto-currencies[ies] managed under the program, funds are requested through the traditional process of investigative funds, ”the report said. “In these cases, it is the team leader’s responsibility to inform the cryptocurrency fund program manager that another type of cryptocurrency is being used for investigation.”
But this is not a strict requirement and therefore is not always met, leaving CFP managers with an incomplete view of how digital currencies are used.
A basic keyword search of the Post Inspector’s Case Management System returned 1,064 individual cases that could have used cryptocurrencies but were not reported to the CFP official, “each of them. them to be reviewed manually, ”the report adds.
IG’s audit also found that the app’s primary reporting function, the Transaction Review Report, was unreliable.
“Due to the way the report obtains information from the application, the report contains duplicate transactions and transactions unrelated to the queried case,” the IG report states. “Due to these data integrity issues, the Transaction Review Report cannot be used to accurately track and manage cryptocurrency transactions or to help validate the final fund balance for each case. “
Some 44% of the transactions examined were found to be duplicates, although each had its own unique payment identification number.
One problem compounding all the others is the lack of training of postal inspectors.
“Internal guidelines state that postal inspectors must be approved to conduct undercover operations and that training must be completed before applying for cryptocurrency funds,” according to the IG. “However, the guidelines do not specify which training courses should be taken or how often refresher training is required.”
This has led to significant policy violations, such as inspectors transferring currency to other inspectors in direct violation of agency policy.
Inspectors also confiscated digital currencies as part of investigations, including four evidence seizures in 2019 and 2020 involving cryptocurrencies.
The Postal Service’s handling of these seized assets has been largely above advice, the IG said, with the office “sufficiently managing the seized cryptocurrency by recording the seized assets and collecting the proceeds of the sale.” .
The IG made four recommendations to improve the program:
- Make sure that the cryptocurrency fund program has the necessary information to monitor the cryptocurrency’s survey use.
- Modify the [application] to ensure that duplicates and unrelated transactions are not included in the transaction review report and that the report provides enough information to differentiate transactions.
- Develop a comprehensive cryptocurrency training program.
- Develop written procedures for the management and monitoring of the national portfolio and its associated foreign exchange account.
The Post Inspector’s management agreed with all four recommendations, although they disagreed that the PCP was not a useful tool for managing cryptocurrencies or mitigating risk. That said, they agreed that the CFP manager should have full visibility into all investigations using cryptocurrencies.