Tax authorities urge awareness of cryptocurrency risk factors

The Joint Global Tax Enforcement Staff – a coalition of tax authorities including the Australian Taxation Office, Canada Revenue Agency, Netherlands Tax Research and Information Service, Her Majesty's Revenue and Customs of the United Kingdom and the Criminal Investigation Division of the Internal Revenue Service. from United States - posted a notice to financial institutions about risk indicators linked to cryptocurrency activity, many of which have to do with privacy and anonymity.

"Identification and detection play a crucial role in the fight against cybercrime globally," said Guy Ficco, head of IRS Criminal Investigation, in a statement. "Any time we can pool the resources of our J5 partners to issue relevant information to financial institutions on cybercrime indicators, we will seize the opportunity."

The document, called "Crypto Asset Risk Indicators," highlights how cryptocurrency asset layers, geographic locations, high-risk counterparties, unknown or hidden transaction recipients, and certain online behaviors can indicate criminal activity. He named 42 specific risk factors related to these areas.

Several of these risk factors have to do with someone attempting what authorities consider too difficult to remain anonymous. They include things like "a disproportionate amount of the client's account activity involves the buying and selling of privacy coins or maintaining a large portfolio of privacy coins, the client transfers Bitcoin in large volumes in exchange for privacy coins, the client "Try to provide as little identity as possible." possible information, including incomplete or insufficient identification information, and the customer's use of an anonymity-oriented email provider," among others. The document also mentions the use of peer-to-peer platforms that bypass institutions traditional financial institutions.

Many of these risk factors arise from one of the reasons cryptocurrency was developed in the first place, specifically to bypass traditional financial institutions with a medium of exchange that, by design, was intended to be effectively untraceable. While much has been done to bring the cryptocurrency sector to light, which has weakened the presence of this ethos in the community, it is still a factor.

Other risk indicators are linked to specific activities, such as "rapid movement of funds between accounts held on crypto exchanges with no apparent trading logic", the origin of the activity, such as sending/receiving from gaming platforms or exchanges operating in areas high-risk. jurisdictions identified as non-cooperative for anti-money laundering purposes, and the nature of counterparties, such as financial institutions or individuals subject to sanctions or based in sanctioned states. Onboarding issues may include "the level or volume of transactional activity is inconsistent with the customer's apparent financial profile, usual pattern of activities, occupational information, or stated business information." Some activities are often associated with ransomware and other cybercrime, such as a digital currency account linked or funded by multiple bank accounts at several different institutions, or going silent after a large initial digital currency transfer.

In general, J5 advises that institutions:

• Prioritize the detection of layering involving cryptoassets, the phase of money laundering in which transactions are intentionally complicated to conceal the illicit origin of funds, throughout your relationship with your clients;
• Exercise vigilance when dealing with cryptocurrency transactions linked to jurisdictions known for weak regulatory frameworks, inadequate anti-money laundering controls or high levels of corruption;
• Monitor unusual counterparties, especially if they have exposure to darknet markets or mixed services;
• Practice know-your-customer techniques to identify potential risks associated with cryptocurrency asset transactions and ensure compliance with regulatory measures; and
• Detect and report ransomware-related financial flows and stop ransomware payments because they are a key point where criminals interact with the legitimate financial system.