Government Investigations: Use of the Financial Crimes Enforcement Network and Virtual Currency

Since 2009, the US Department of Justice has implemented an aggressive anti-tax evasion strategy that has changed by targeting tax havens that host financial intermediaries (i.e., banks) to the financial intermediaries themselves as well as individuals holding funds offshore. The criminal prosecutions of foreign banks and individuals with un-reported accounts overseas has led to the imposition billions of dollars of monetary penalties and prison time for individuals, as well as the implementation of Foreign Accounts Tax Compliance Act (FATCA).

In 2016, the Internal Revenue Service announced that it will dedicate agents of its Criminal Investigation Division (who tout themselves as the best financial crimes investigators in the world) to Virtual Currency and Cyber Crime investigations. As part of this strategy, the Internal Revenue Service is working in conjunction with the Financial Crimes Enforcement Network (FinCEN).

What is FinCEN

The Financial Crimes Enforcement Network, FinCEN, is a bureau in the U.S. Department of the Treasury, established in 1990 to analyze and disseminate information to law enforcement at the federal state, local and international levels for the purpose of detecting and deterring money laundering and other financial crimes. Today, FinCEN has numerous areas of responsibility, including but not limited to,

  • Bank Secrecy Act – development of regulations and enforcement of regulations,
  • Financial Reports – Receiving and maintaining a database of required information reports,
  • Information sharing with domestic and foreign partners in government and private industry.

Goals of FinCEN

The United States Department of the Treasury, FinCEN Strategic Plan reports that, FinCEN’s broad goals are to:

  1. Safeguard the financial system from evolving money laundering and national security threats; and,
  2. Maximize sharing of financial intelligence between FinCEN and its domestic and foreign partners in government and private industry.

What this Means for Virtual Currency

Basically, what these goals mean, is that the virtual currency community can expect more required information reporting to FinCEN, which can then be used by other government agencies, such as the Internal Revenue Service, investigating crimes and other alleged wrongdoing. What this also means: it is likely that financial penalties for failing to file reports will be imposed and enforced.

For example, currently, account holders of overseas bank accounts are required to file an information report (Form 114) with FinCEN each year, reporting financial accounts in excess the U.S. dollar equivalent of $10,000. The Secretary of the Treasury has delegated to the Director of FinCEN the authority to implement, administer, and enforce compliance with the Bank Secrecy Act and associated regulations. The BSA provides criminal and civil punishments for failing to file Form 114 (as well as other forms, such as Form 8300). The monetary (civil) penalties can be $10,000 or more per violation!

As you can see, the fines can be draconian, and the reality is, the reporting requirements regarding virtual currency, whether it be individual users or money services banks are still being defined.

In our next post, we will cover some of the virtual currency reporting requirements for individuals and money services banks.

Contact an Attorney

However, in the meantime, if you have a specific question, please do not hesitate to contact us. Phone: 415-394-7200 or email. Moreover, should you have the need for a civil or criminal tax attorney or are the subject of government investigation, you should obtain legal advice immediately from an attorney. The government has massive resources but never forget you have rights and are entitled to a vigorous defense.