On March 27, 2018, GovTribe – an aggregator of federal contracting information – published a "notification of the SEC's intent to award a single source purchase order to CipherTrade Inc," a blockchain security, compliance, and enforcement solutions firm.
According to a document drafted by the SEC's Office of Acquisitions, the agency hopes to hire CipherTrace to "provide specialized analytical support to SEC staff for investigations that involve tracing cryptocurrency transactions [and] to continue activities associated with the Cryptocurrency Tracing Project, via an MOU [memorandum of understanding] with the Department of Homeland Security's (DHS) Homeland Security Advanced Research Projects Agency (HSARPA)."
How will CipherTrace uniquely help the SEC? The agency's justification and approval document lists CipherTrace's responsibilities:
- Trace individual addresses, wallets, and contracts provided by SEC staff.
- Provide support services for the use of the proprietary CipherTrace software tool, not available to SEC staff under the MOU, to assist the SEC with performing cryptocurrency tracing and analysis.
- Provide SEC staff with on-demand access to tracing capabilities at the request of the SEC.
- Provide management support.
The SEC's deal with CipherTrace could last up to nine months (the agency proposed a three-month base period with two three-month option periods) and GovTribe anticipated that the purchase order will be awarded "on or about April 4, 2018." The contract is for $26,550.45.
Long-time readers may remember that the SEC previously employed investigative blockchain firm Chainalysis, so the forthcoming SEC-CipherTrade partnership should come as no surprise.
Today, ETHNews spoke with CipherTrace CEO Dave Jevans, a long-time cybersecurity expert.
Although he declined to comment on CipherTrace's prospective relationship with the SEC, Jevans discussed his company's work at large and offered his perspective on recent cryptocurrency-related announcements by the US government.
As is typical of government contractors, Jevans was tight-lipped about his clientele. He told ETHNews that CipherTrace offers its services to exchanges, banks, hedge funds, agencies, and researchers among others. For instance, he said, CipherTrace provides application programming interfaces (APIs) to cryptocurrency exchanges to assist with compliance.
In particular, it sounds like the company cross-references databases of sanctioned individuals or groups to make sure that everything is legally sound, and ensures that digital asset platforms possess the licenses legally required to operate. As we well know, licensing has been a thorn in the side of cryptocurrency exchanges based in the United States.
Last month, a 132-page report by the Government Accountability Office (GAO) stated, "The complex U.S. financial regulatory structure can complicate fintech firms' ability to identify the laws with which they must comply and clarify the regulatory status of their activities."
While Jevans would not confirm or deny CipherTrace's partnership with the SEC, independent research shows that the company has previously been tied to government agencies. In fact, according to listings on the Small Business Innovation Research program website, CipherTrace was awarded $140,906.16 for phase I of a project to design a blockchain-based secure messaging platform for the Defense Advanced Research Projects Agency (DARPA).
This is also supported by a biography in an old brochure for the company, which states, "CipherTrace was funded by DHS Science and Technology and DARPA to develop their cryptocurrency tracing capabilities."
ETHNews reported on DHS-funded blockchain projects in May 2017. It's not clear whether CipherTrace's DARPA project proceeded to phase II.
Today, Jevans said, "Our goal at CipherTrace is to grow and strengthen the blockchain economy through improved security and compliance." He founded the company in 2015 with the intention of helping people "do business safely and securely."
When asked whether CipherTrace was involved in any work with the Treasury Department or its Office of Foreign Assets Control (OFAC), Jevans laughed and said only that his company is "strongly aware" of the goings-on.
Jevans also called the news about President Trump's executive order banning the petro "amazing." For the president to be addressing cryptocurrency in such a public way gives our little corner of the world more legitimacy.
"It's pretty frickin' cool," Jevans admitted. "It means that our stuff is real." He said that he wasn't at all surprised by the petro ban, explaining that it aligns with general US sanctions policy towards notable international antagonists (e.g., North Korea).
With regard to more privacy-oriented cryptocurrencies (i.e., Monero, Zcash), Jevans expressed enthusiasm. He called himself one of the old-time "cypherpunk guys," and said, "I'm a fan." Still, he hedged his bets explaining, "Whoever trades in those types of products, they're going to have to comply with KYC." Altogether, Jevans seemed to anticipate that the US government may require the usage of built-in protocols to identify cryptocurrency users.
For all the cryptocurrency stakeholders who wonder whether their coins will be subject to oversight and regulation, the forthcoming SEC-CipherTrace partnership should serve as a harbinger of enforcement actions. Whether you're simply an investor or you're setting up shop as an ICO executive, the nation's stock market regulator has made it clear that it's watching. We might not have a groundbreaking announcement quite yet (e.g., a Bernie Madoff of the cryptocurrency world), but the writing is on the wall.
Over the last few months, the SEC has been very active in the cryptocurrency space – urging appropriate registration by digital asset exchanges, filing lawsuits against fraudulent initial coin offerings (ICOs), policing blockchain-related exchange-traded funds (ETFs), testifying before the Senate Banking Committee, providing guidance to its employees about cryptocurrency investments, and seeking answers about cryptocurrency-linked financial products.
It's worth noting that the CipherTrace founder has previously linked to earlier government contracts. Jevans founded IronKey, a firm known for its encrypted USB drives. In 2005, IronKey received a $1.4 million grant from the Homeland Security Advanced Research Projects Agency (HSARPA), the research wing of the DHS. IronKey was acquired by Imation (now, GlassBridge Enterprises) in 2012.