[governance] FW: [IP] Why The Deep Web Has Washington Worried | TIME.com

Wed Nov 6 11:53:54 EST 2013

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From: David Farber [mailto:farber at gmail.com] 
Sent: Wednesday, November 06, 2013 8:29 AM
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Subject: [IP] Why The Deep Web Has Washington Worried | TIME.com

http://swampland.time.com/2013/10/31/the-deep-web-has-washington-worried/

Why The Deep Web Has Washington Worried

>From online drug bazaars to virtual currency tax shelters, the growing
anonymous web has many corners of Washington concerned

Washington has no idea what to make of the Dread Pirate Roberts.

As Lev Grossman and I write in this week's cover story, the Dread Pirate
Roberts allegedly ran the Silk Road, the world's most successful online drug
bazaar, until the feds caught him earlier this month. His real name,
according to a 39-page federal complaint against him, is Ross Ulbricht, 29.
He supposedly took the pseudonym from a character in the movie and book, The
Princess Bride. In the Silk Road, DPR, as his followers called him, created
a business model for anyone wanting to sell illicit items online using free
encryption software called Tor and the virtually anonymous crypto-currency
Bitcoin. Though the feds have taken Silk Road offline, there are plenty of
folks lining up to be the next Dread Pirate Roberts.

Lev and I examine the greater implications of the Deep Web, the massive and
growing anonymous area of the Internet. But from the perspective of
lawmakers and law enforcement in Washington, Silk Road presents a double
conundrum. It's a blueprint for criminals the world over at a time when FBI
resources are stretched thin and political will to empower government
snooping has cratered. And it has created a regulatory headache in figuring
how to deal with whole new currencies, tax havens and virtual online
markets.

While Tor is used by everyone from law enforcement to Syrian dissidents to
protect valuable information, it is a double-edged sword. Many experts warn
that groups ranging from the Russian mafia to international drug cartels are
looking closely at the lessons learned from the Silk Road. It took the FBI
more than two years of investigative work to find Ulbricht. They don't have
the resources to compete with Silicon Valley in hiring, or the tools-a
long-hoped for modernization of the law governing online wiretapping is on
ice in Congress thanks to Edward Snowden.

(

Developing technology to fight the Deep Web, or the anonymous non-searchable
web, "is not adequately funded-it's nowhere near adequately funded," says
Marcus Thomas, former assistant director of the FBI's technology division
and now on the advisory board Subsentio, which helps companies comply with
online warranted wiretaps. "Historically it was well funded, but recently
especially with sequestration, it's been hard hit. It's always been a
difficult thing to build cost benefit analysis for. How much money should
you spend building a technology you may not use for a year, if ever?"

Chester Wisnieski, a senior information technology security adviser at
Sophos, adds that the FBI doesn't have enough trained staff. "If you look at
the FBI-how many agents do they have in cyber? Less than 200," he said.
"There's been a very fast shift of traditional crimes moving online and
don't have skilled agents to deal with it."

The policy problem is compounded by Bitcoin, which represents another set of
jurisdictional tangles for Washington. The Senate Homeland Security
Committee, officials tell TIME, plans on holding hearings on Bitcoin within
the month. The committee sent letters to nine federal agencies in July
asking for their thoughts on Bitcoins and other virtual currencies in the
hopes of developing a holistic approach to the so-called cryptocurrency that
neither stifles the currency's potential nor enables criminals to abuse it.
"As with all emerging technologies, the federal government must make sure
that potential threats and risks are dealt with swiftly," Committee Chairman
Tom Carper, a Delaware Democrat, and the committee's top Republican, Tom
Coburn, wrote in the letters. "However, we must also ensure that rash or
uninformed actions don't stifle a potentially valuable technology."

Bitcoin can be a force for good. "We've grown used to the idea that virtual
transactions should be tracked because they can be; whereas Bitcoin brings
anonymity back into online commerce," says Sasha Meinrath, director of the
New America Foundation's Open Technology Institute. "It's amazing how scary
this notion is to law enforcement. But I see it as akin to trade in gold,
cash transactions, and barter: not something to be feared, but simply
another useful tool for commerce."

And yet, virtual currencies have a complex past. In recent years, Liberty
Reserve and e-Gold both ran afoul of the law, mostly for money laundering.
U.S. Immigration and Customs Enforcement seized funds from the world's
largest Bitcoin exchange, Mt. Gox, in May charging that the company was
operating an unlicensed money transmitting service. Mt. Gox has since moved
to put names to Bitcoin transfers and register with federal and state
governments. There is about $2 billion Bitcoin in existence today.
Authorities say Silk Road transactions amounted to $1.2 billion in Bitcoin.

Indeed, regulators have already taken an active interest in Bitcoin. The
Senate Finance Committee is looking at language to regulate virtual
currencies its tax code overhaul. They're also considering giving the IRS
more money to track virtual tax havens, Senate sources tell TIME. A
Government Accountability Office report in June warned that virtual
currencies like Bitcoin could be abused as tax havens. New York Financial
Services Superintendent Benjamin Lawsky sent subpoenas to 22 Bitcoin
businesses this summer saying it was considering new regulatory guidance on
virtual currencies. "If virtual currencies remain a virtual Wild west for
narcotraffickers and other criminals," he said announcing the subpoenas,
"that would not only threaten our country's national security, but also the
very existence of the virtual currency industry as a legitimate business
enterprise." A Commodities Futures Trading Commissioner said his agency is
looking into regulating Bitcoins as a commodity. And Treasury's Financial
Crimes Enforcement Network put out guidance in March saying Bitcoin brokers
would have to follow wire service regulations-a potentially onerous
requirement as each wire service must register state by state.

All of this means that no one is quite sure how to handle bitcoin: is it a
currency? A bond? A commodity? Should dealers be regulated like wire
services or brokers? Should profits be taxed as capital gains? Few in
Washington have even begun to consider these questions, and yet given the
rapid growth of Bitcoin, the Deep Web and websites like the Silk Road they
will surely be forced to soon.

Internet users are increasingly looking for anonymity as their preferences
and personal information are tracked and traded like pork belly futures. For
many, the Deep Web represents a haven from those prying eyes. But, as in
real life, when there's anonymity, there are dark alleys where people will
abuse it. In the physical world, should we choose it, we can live a
cash-based anonymous existence. Should we be able to do so online, even if
it means anyone can buy drugs, fake IDs or illicit weapons as well? These
are the questions Washington must grapple with as it looks at how to
regulate cyrpotcurrencies and police the Deep Web.

Click here to join TIME for as little as $2.99 to read Lev Grossman and Jay
Newton-Small's full cover story on the Deep Web.

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