The Joint Chiefs of Global Tax Enforcement, a group of five national tax authorities including the Internal Revenue Service's Criminal Investigation unit, along with the U.K., Canada, Australia and the Netherlands, issued a pair of advisories explaining how over-the-counter cryptocurrency trading desks and cryptocurrency payment processors can be used to hide and move funds tied to criminal activity.
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The advisory on OTC crypto trading desks notes that they can help clients conceal illicit activity and bypass anti-money laundering controls. Recent estimates suggest the platforms enable individuals to buy and sell digital assets outside a public exchange and account for a large share of cryptocurrency trading activity, with daily trading activity totaling $1.44 billion compared to $74.51 million at cryptocurrency exchanges. The trading desks give clients anonymity and reliability when moving large sums of money or cryptocurrency, potentially functioning as an obfuscation tool for tax evaders and money launderers. To date, nearly $236 billion in suspicious activity has been reported to the Treasury Department's Financial Crimes Enforcement Network connected to these trading platforms.
"Law enforcement and regulatory agencies are not able to monitor in real time the billions in cryptocurrency assets that are moved daily by OTC desks as many of the OTC desks are not identified and labeled in many of the widely used commercial blockchain analysis tools," said the advisory. "In addition, OTC desk transactions often occur internally and are not visible on the publicly available blockchain."
The other advisory, on demystifying crypto payment processors, described how they enable direct payment for goods and services using digital assets. While the platforms offer fast, convenient transactions, they can also be employed to hide and spend illegally obtained digital assets or to commit tax evasion. From 2020 to 2024, suspicious activity reports tied to crypto payment processors increased over 1,000%. To date, financial institutions and digital asset providers have reported $5 billion in suspicious activity to FinCEN associated with cryptocurrency payment processors.
The J5 is recommending financial intelligence units leverage specific keyword searches when reviewing suspicious activity reports to identify transactions or patterns indicative of money laundering or tax evasion taking place on these platforms.
"In recent years, luxury products have integrated cryptocurrency payment processors into their payment capabilities," said the advisory. "Some of these include Rolls-Royce and Bentley dealers, Ferrari, Yacht brokerages, and luxury watches. The ability to off-ramp cryptocurrency and purchase luxury goods can be an attractive concept for tax evaders and illicit actors who aim to use the proceeds of tax evasion, money laundering and other financial crimes."
In September 2024, the J5 Cyber Challenge focused on data involving OTC cryptocurrency trading desks and cryptocurrency payment platforms and served as the basis for publishing the two advisories. J5 Cyber Challenges bring experts from the member countries of the J5 together to review data and identify quality leads from a variety of open and investigative sources. The alliance includes the Australian Taxation Office, the Canada Revenue Agency, the Dutch Fiscal Intelligence and Investigation Service, His Majesty's Revenue and Customs in the U.K., and IRS Criminal Investigation in the U.S.
