Cryptocurrency is still nascent and the global regulatory environment is always changing. Because of the nature of our business, ShapeShift regularly receives requests from various law enforcement agencies. In the traditional financial world, this request process is typically opaque. Recently, Kraken began an initiative to bring more transparency to these types of requests in the cryptocurrency realm, and we want to do the same.
In 2018, ShapeShift assisted with 60 law enforcement inquiries from around the world. Below you’ll find a detailed look from our legal and compliance team concerning legal requests for information over the past year.
Let’s Walk through the Data and Break Down what it all Means
What you’re seeing above is a compilation of all verified legal requests for assistance that ShapeShift received from various government entities around the world in 2018. These law enforcement requests come in various forms. In the United States, they often take the form of subpoenas from a court or other government agency, but each country has its own formal legal process.
What is a Subpoena?
If most of your knowledge of the legal system comes from watching Law and Order, the thought of being subpoenaed can seem terrifying. However, for heavily regulated industries, like finance, getting subpoena requests happens often. In fact, in relation to how many inquiries law enforcement sends annually, requests related to cryptocurrency transactions are miniscule.
Basically, a subpoena is a court-ordered request compelling a person or company to take some sort of action. There are two types of subpoenas in the U.S. The first kind requires testimony before the court or a legal authority. The second type is a request for documents, materials or other types of evidence (these are the types of subpoenas that ShapeShift regularly receives).
What Does the Subpoena Process Look Like?
It starts with law enforcement entities identifying that ShapeShift might have documentation that could assist with an investigation. This could be because the investigators are savvy in crypto and understand how to look up transactions through block explorers and have identified funds that have been sent to one of our Master addresses. They’re able to do this because in the interest of transparency, ShapeShift has always made all transactions through our system public – unlike any bank or traditional financial company. Upon the completion of any customer order, the transaction details are published on our website and via our APIs. On the website, these transaction details include the payment asset type and amount, the requested asset type and amount, and the time of the transaction.
In other instances, it could be because the victims or other parties involved have identified that their funds related to the incident may have reached ShapeShift. Regardless, it results in law enforcement sending a subpoena.
Once ShapeShift receives a subpoena from law enforcement (we only respond to official legal requests), our legal and compliance teams get to work. When we receive these requests, we usually don’t know anything about the details of the investigations or what the information is being used for, just what information is required by the subpoena. Most investigations are confidential, meaning that we’re not at liberty to discuss any specifics of the investigations with any third parties.
The requested information can vary wildly. It could be something as simple as a crypto address (in or out of our system), transaction IDs, or it could include names, emails, IP addresses, coins/asset information and more.
While the timeline for the response process can vary, depending on the number of requests and employee resources, we’re usually able to provide whatever relevant information we have available in 1-2 weeks time. We responded to every verified request we received last year.
Reading the Numbers
In our Compliance Transparency report, the requests are broken down in a few ways. The first graph shows the number of requests by month. You’ll see an uptick in the final months of 2018, which mirrors what other crypto companies have also seen.
Next, the requests are grouped by country of origin. What probably won’t come as a surprise is that the United States makes up the largest number of these requests. The third graph details the requests from the U.S. and what specific agencies have contacted us.
The Biggest Takeaway
Is ShapeShift’s annual number of requests high or unusual? The short answer is no. Requests of this type, especially in the cryptocurrency industry, are common, and based on our number of transactions and user volumes, this seems to be pretty typical. When asked by CNBC about a subpoena his cryptofund received in 2018, TechCrunch Founder Michael Arrington stated, “We received a subpoena. Every [crypto]fund I’ve talked to has received one…”
There’s a lot of scrutiny on cryptocurrencies as the technology and use evolves. ShapeShift has always held financial transparency as a core principle, and for this reason, we felt the world should know that these types of law enforcement requests happen – almost continuously.