Already in the midst of cracking down on offshore tax and banking violations as part of its war on global tax evasion, the Internal Revenue Service (IRS) has recently revealed that it sees the rise of virtual currencies as an avenue for tax evasion and money laundering schemes. “Clearly the increasing use and misuse of cyber-based currency and payment systems to transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to, ” IRS official Victor Lessoff told the Financial Times in an interview. Lessoff also said that, “it doesn’t take much of a leap to assume that these currencies may be used to avoid paying taxes.”
In the past, web-based transactions made it difficult for law enforcement agencies and tax-collecting bodies alike to accurately monitor the transfer of funds for legitimate and illicit reasons. However, technological advances as well as reporting and data mining programs, such as OVDP, FACTA, and Grand Jury investigations are facilitating the identification of individuals and potential investigation targets, faster and with more accuracy.
The Wall Street Journal reported on May 31, 2013:
The federal crackdown intensified Tuesday when prosecutors accused Costa Rica-based Liberty Reserve of operating a $6 billion money-laundering ring that was tied to an Internet-based currency. It marked the first time authorities have invoked the 2001 Patriot Act against a virtual currency.
Liberty Reserve couldn’t be reached late Friday for comment. Its website, libertyreserve.com, says the site has been seized by the “United States Global Illicit Financial Team.”
The criminal indictment was filed in U.S. District Court in the Southern District of New York. The company and seven of its principals and employees were charged with money-laundering and operating an unlicensed money-transmitting business.
The Liberty Reserve charges came two weeks after authorities froze an account tied to the largest bitcoin exchange.
We expect that the Internal Revenue Services’ investigative authority and resources will be of great value to government in seeking out individuals who may be involved with virtual currencies.
Contact Moskowitz, LLP for more information.