German Interior Ministry Dodges Questions On Chain Analysis Software, Mixer Risks

In August, German party Die Linke questioned the German government's use of blockchain analysis software and risks posed by crypto mixers for the concealment of criminal activity via a small inquiry, a formal process in German parliament for MPs to pose questions to the government.

Die Linke asked what development contracts, procurement, usage, and planning for future use exist on the part of federal authorities for which software that is or will be used for the seizure of cryptocurrency, what minimum requirements exist regarding error rates and verifiability of the software and its results, and what criminal procedure requirements exist that necessitate its use.

The inquiry was answered by the German Ministry of the Interior, which states in its response that "the customs authorities are currently not using any software that can be employed to seize cryptocurrency assets, nor do they currently plan to use such software in the future. Regarding the Federal Criminal Police Office (BKA), the federal government is not providing any information on this matter for investigative tactical reasons."

Procurement records however show that both the German Ministry of the Interior, as well as the German customs agency, have awarded contracts to Chainalysis Inc. for the licensing of chain analysis software.

The answer appears to be based on the technicality that chain analysis software is not directly used for the seizure of cryptocurrency, but rather for the detection of assets to be seized. Notably, Chainalysis directly advertises the use of its software in the seizure of crypto assets.

Die Linke further asked how the German government evaluates their legitimate use on one hand and the potential use for the concealment of criminal activity on the other, and what consequences the German government may draw for a potential mixer ban or regulation, noting that "coinmixing" and other anonymization software "corresponds to a widely held need to protect one's privacy in times of ubiquitous technological surveillance by digital corporations and government authorities".

The German Ministry of the Interior responded that an answer to the question is classified as secret according to section 2 paragraph 2 of the Classified Information Directive (VSA) referencing risks to national security in case of publication, stating that the answer will be provided to the questioners separately.

Die Linke additionally asked the Government about the use of cryptocurrency for money laundering, to which the Ministry of Interior stated that "workflows and analytical steps" of the Financial Intelligence Unit (FIU) adhere to "strict security and data protection standards," while noting that the FIU "operates independently and is autonomous in its operational analysis," "in line with the international standards of the Financial Action Task Force (FATF), the requirements of the Egmont Group, and European regulations."

Referring to the scope of the use of cryptocurrencies for money laundering, Die Linke asked how many cases involving cryptocurrencies have been referred to customs and the Financial Intelligence Unit on suspicion of money laundering between 2020 and 2024.

The Ministry of the Interior responded that between 2020 and 2024, 27,484 reports involving cryptocurrency on the suspicion of money laundering have been filed with customs and the Financial Intelligence Unit, with 5,234 cases in 2021, 9,302 cases in 2022, 8,049 cases in 2023, and 4,899 cases in 2024. Notably, in the year 2020, the FIU alone received over 280,000 suspicious transaction reports overall, citing an "unmanageable database".

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