Federal criminal investigations related to fraud, theft, money laundering and drug sales frequently dovetail with tax evasion. Virtual currency exchanges are in the crosshairs for their role in facilitating criminal conduct.
The Treasury, the Financial Crimes Enforcement Network (FinCEN) in coordination with the U.S. District’s Attorney Office took action against BTC-e. The foreign-located virtual currency exchange (by volume one of the largest in the world) faces a civil fine of approximately $110 million for violating U.S. anti-money laundering (AML) laws.
An arrest of a Russian operator of the currency exchange recently occurred in Greece and FinCEN leveled a $12 million penalty against him personally for his role. According to an announcement, BTC-e help facilitate transactions that involved computer hacking, tax refund fraud schemes, identity theft and drug trafficking.
The coordinated criminal investigation
IRS Criminal Investigations was one of a number of federal agencies involved in the investigation.
Some of the issues were somewhat mundane, such as failing to seek information from customers beyond a username, password and email address. And openly disregarding U.S. AML laws by failing to register as a money service business and report suspicious activity.
Others violations show how international criminal networks have moved money around the globe:
- Customer service representatives from BTC-e explained how to access money from illegal drug sales on dark net sites like Silk Road and AlphaBay
- Numerous transactions involved stolen funds – more than 300,000 transactions were traceable to theft
- “CryptoLocker” and “Locky” ransomware attacks used BTC-e to facilitate transactions
The scale of the transactions in bitcoin has caught the eye of investigators – more than $296 million. Similar to offshore account investigations that pursued Swiss banks to uncover client information, investigations into virtual currencies may take a similar track.
If you have significant assets invested in Bitcoin, Ethereum or another blockchain digital currency, seek guidance to ensure IRS reporting compliance.