anti-money laundering

Banks in Mexico Pose Greater Money Laundering Risk Than Crypto Firms, Says Report

29/08/2020 by Idelto Editor

Commercial banks by far pose the greatest risk of money laundering in Mexico compared to crypto-related companies, according to a new report by the country’s Financial Intelligence Unit (FIU).

The study singles out what it calls the “G7 banking group”, which includes BBVA, Santander, Citibanamex, Banorte, HSBC, Scotiabank, and Inbursa, as the biggest conduits of illicit money in the South American country.

Brokerage firms and foreign exchange entities have also been flagged as “high risk”, El Economista reported.

The “G7 banking group” controls 80% of the assets within Mexico’s financial sector. However, Mexico’s second National Risk Assessment report did not provide figures for the potential loss from bank-linked money laundering activities.

Santiago Nieto Castillo, who heads the FIU, noted that the “G7 banking group” is “the most regulated sector” in the country. But even then, “multiple banking, made up of the seven largest banks in Mexico, is the sector most likely to be used to carry out money laundering operations,” he said.

Regulators throughout the world have long been suspicious that bitcoin (BTC) exchanges and other crypto companies might be liable to using their platforms to facilitate illegal financial transfers.

So, authorities have been tightening screws around anti-money laundering (AML) reporting requirements for crypto exchange operators and other blockchain companies.

In Mexico, digital asset firms must report transactions of more than $2,500 to the financial regulator, in line with AML requirements. This may be a one-time transaction or those that occur over a period of six months.

But operating a cryptocurrency business in the country requires that one pays $35,000 in licensing fees and generate up to $100,000 in profit per year, according to a new law targeting fintech companies, which came into force in 2019. The requirements reportedly sent a number of firms underground.

Now, in its latest report, Mexico’s Financial Intelligence Unit did not classify virtual assets-related risk – but that does not imply the sector is risk-free. Regulators still consider crypto susceptible to money laundering and terrorism financing, but only as an “emerging risk”.

Cryptocurrency trading is booming in Mexico thanks to a combination of a lack of public confidence in the banking sector, the promise of cheap financial transfers, and other factors.

Bitso, the country’s number one crypto exchange, has reportedly more than tripled trading volume during the eight months to May 2020. The platform now boasts over one million users, of which 92% are locals.

What do you think about banks and money laundering in Mexico? Let us know in the comments section below.

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US Regulators Target Bitcoin ATMs: 88% of the Funds Exit the Country via Machines

04/06/2020 by Idelto Editor

Bitcoin automated teller machines (BATMs) will become the next target for regulators, as world governments tighten screws on money laundering.

According to Ciphertrace CTO John Jeffries, crypto-cash machines will attract “greater…regulatory focus” in a bid to rein-in alleged cross-border illicit financial transfers.

Jeffries urged “the need for more uniform regulatory enforcement and compliance” as governments start to crack down on crypto-infused automated teller machines.

This comes as Ciphertrace released a report showing that cross-border transactions accounted for 74% of bitcoin moved between exchanges in 2019. Of this, 88% of funds leaving the United States through bitcoin ATMs were sent to cryptocurrency exchanges abroad – mostly to “high-risk” platforms.

The amount of money wired to overseas exchanges at high-risk has grown rapidly, doubling every year since 2017, said the crypto intelligence firm, in the report published on June 2, 2020. The report did not provide specific figures on the extent of capital leaving via BATMs.

High-risk exchanges are “nefarious exchanges known for facilitating criminal activities and money laundering,” according to Ciphertrace. These types of exchanges may not be inherently criminal, but illicit transfers through the platforms are cause for concern, it said.

Until now, bitcoin-facilitating machines – which total about 8,000 worldwide – have appeared to operate outside national anti-money laundering (AML) laws, attracting users keen on privacy – the wrong crowd, in government’s eyes.

In Canada, regulators have become stricter on bitcoin ATM transactions, recently passing a law that compels operators to report all deals above 10,000 Canadian dollars (about $7,400), as part of measures to prevent money laundering and terrorism financing.

Germany, Spain and the United States are all cracking down on bitcoin ATMs, both for tax and AML purposes. The crypto teller machines allow users to buy and sell cryptocurrency. They can also work in remittances, allowing transactions between two fiat currencies, underpinned by bitcoin.

What do you think about regulators going after Bitcoin ATMs? Let us know in the comments section below.

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Bitcoin Is Financial Instrument, Clarifies Germany, Crypto Custodians Qualify as Financial Institutions

03/03/2020 by Idelto Editor

The Federal Financial Supervisory Authority of Germany, Bafin, has issued guidance to clarify the status of cryptocurrencies and the regulations that apply to related business activities. The recommendations are based on the country’s current legislation, taking into account the latest changes.

Also read: Turkey to Inspect Cryptocurrency Exchanges as Part of Government Offensive Against Online Gambling

The Keepers of Your Crypto Are Financial Institutions in Germany

The guidance document concentrates on the requirements for the providers of crypto custody services operating in the Federal Republic. Starting from 2020, German banks and other regulated financial institutions are allowed to manage cryptocurrencies such as bitcoin on behalf of their clients, after Berlin adopted amendments transposing Europe’s anti-money laundering rules into national law. German fintechs also rushed to offer similar services.

Regulators begin with defining what a crypto custody business is – the safekeeping and managing of crypto assets or private cryptographic keys that serve to hold and store crypto assets that can be transferred to others, which is a financial service. The definition stems from the German Banking Act, while providing this type of service was made possible by the law implementing EU’s Fourth Anti-Money Laundering Directive. The changes came into force on Dec. 12, 2019.

Germany now considers service providers who offer the exchange of virtual currencies for legal tender and vice versa, or for other digital assets, to be financial service institutions. Cryptocurrencies, depending on their design, are generally regarded as financial instruments. The exchange of cryptos falls into the category of regulated banking and other financial services transactions. The broad definition has been given in order to account for all crypto assets relevant to the financial market, including digital coins that are not considered units of account.

Coins and Tokens Are Digital Representations of Value

The guidance further describes cryptocurrencies as a digital representation of value that has not been issued or guaranteed by a central bank or public body and does not have the legal status of a currency or money. At the same time, a crypto can represent an agreement for, or an actual exercise of, a payment or investment. It can be accepted as a medium of exchange by natural or legal persons and be transmitted, stored and traded electronically. Coins and tokens can also bear rights similar to those of traditional securities.

German regulators have made it clear that any organization which wants to conduct banking business in the country or provide financial services commercially needs permission from Bafin. This applies to domestically operated companies, or in other words entities that are based in the Bundesrepublik even if they serve non-residents only, and companies that have established a local office from which they maintain their business activities.

Firms operating in the crypto sector must apply for a Bafin license by the end of November, 2020. So far, over 40 financial institutions have declared intent to offer services related to cryptocurrencies under the country’s updated legislation, as news.Bitcoin.com reported in February. Entities that already work with crypto assets have until March 31 to at least express intent to apply for a license. This is not part of the actual application procedure, but an important step towards acquiring the necessary license.

Do you think Germany’s efforts to regulate the crypto space will create favorable conditions for the development of the industry? Share your opinions on the subject in the comments section below.

Images courtesy of Shutterstock.

Do you want to dig deeper into Bitcoin? Explore past and present cryptocurrency prices through our Bitcoin Markets tool and head to our Blockchain Explorer to view specific transactions, addresses, and blocks.

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US Develops Cryptocurrency Intelligence Program Targeting P2P Sites, Forums, Darknet Markets

24/02/2020 by Idelto Editor

The U.S. Department of Homeland Security has revealed a cryptocurrency intelligence program aimed at identifying unlicensed crypto businesses using P2P sites, online forums, and darknet markets. These areas have consistently presented “a significant challenge to law enforcement” and the Financial Crimes Enforcement Network (FinCEN).

Also read: Regulatory Roundup — Trump’s Cryptocurrency Proposals, IRS Changes Rule, China Quarantines Cash

Cryptocurrency Intelligence Program

The Department of Homeland Security (DHS) released its budget overview for the fiscal year 2021 last week. The department has several programs that monitor crypto activities, including the Bulk Cash Smuggling Center (BCSC), which provides operational support in the enforcement and prohibition of bulk cash smuggling or transfer of illicit proceeds.

In the budget document, the DHS revealed that the BCSC has developed Cryptocurrency Intelligence Program (CIP), elaborating:

[CIP] identifies unlicensed money services businesses in the form of independent cryptocurrency brokers’ use of peer-to-peer (P2P) sites, online forums and classified advertisements, and darknet markets (DNM) to engage in unlicensed money services businesses (MSB) activity.

According to the DHS, “A large portion of these unlicensed MSBs are engaged in laundering narcotics proceeds, including opioid trafficking.”

‘Significant Challenge’ From P2P Platforms and Darknet Markets

The U.S. Immigration and Customs Enforcement (ICE) agency, under the DHS, has raised concerns over P2P platforms several times over the years. It noted that unlicensed P2P activities have continually presented “a significant challenge to law enforcement.” According to ICE, “Bitcoin and other virtual currencies are the preferred payment method in darknet markets. It is common for unlicensed P2P exchangers to obtain their bitcoin from selling illicit goods and services on darknet markets.” Noting that the Homeland Security Investigations (HSI), an investigative arm of the DHS, targets illicit P2P exchangers for money laundering and money services business violations, ICE asserted:

The biggest problem darknet market vendors face is converting virtual currency into traditional fiat currency. To avoid reporting requirements, illicit vendors turn to P2P exchangers or become P2P exchangers themselves in order to liquidate their virtual currency.

Currency exchangers, including cryptocurrencies, are considered money transmitters and are required to register and comply with federal anti-money laundering regulations. Under federal law, they must register with the Financial Crimes Enforcement Network (FinCEN) as a money services business. FinCEN confirmed in a May report last year that it and law enforcement had “observed unregistered entities being exploited or wittingly allowing their platforms to be utilized by criminals in the U.S. and abroad to further illicit activity, including through darknet marketplaces, P2P exchanges, foreign-located MSBs, and CVC [convertible virtual currencies] kiosks.”

ICE explained that the current U.S. regulatory framework for money transmission activities does not cover the full range of crypto activities that could be exploited for illicit purposes. Nonetheless, U.S. authorities have charged some people and businesses for unauthorized crypto activities on P2P platforms and darknet markets. On Aug. 23, 2019, Kunai Kalra pleaded guilty to operating an unlicensed money transmitting business where he exchanged up to $25 million in cash and cryptocurrencies for customers, including darknet drug dealers and other criminals, some of whom used his bitcoin ATM kiosk, FinCEN detailed. This was the first federal criminal case charging an operator of a digital asset kiosk with unlicensed money transmission. On April 18, FinCEN assessed a $35,350 civil money penalty against Eric Powers for willfully violating its rules and requirements during his operations as a cryptocurrency P2P exchange service provider. On Feb. 13 this year, the Department of Justice announced that an Ohio resident had been charged with operating a darknet-based bitcoin mixer which laundered over $300 million.

Meanwhile, the U.S. Office of the Director of National Intelligence believes that “a global cryptocurrency or a national digital currency could undermine the U.S. dollar.” It is now looking for researchers to evaluate this threat and the impact of the U.S. dollar losing its status as the world’s reserve currency.

What do you think of the Department of Homeland Security’s cryptocurrency intelligence program? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

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How the IRS Audits Cryptocurrency Tax Returns – Filing Expert Shares Example, Insights on AML Focus

23/02/2020 by Idelto Editor

Tax season is one of the most dreaded times of the year for many, and when the added confusion of filing crypto returns is thrown into to the mix, things can get even stickier. News.Bitcoin.com recently talked with Clinton Donnelly of Donnelly Tax Law, a service that specializes in crypto returns. The U.S. Treasury-licensed Enrolled Agent shared some of his opinions and insights regarding crypto audits and what triggers them, as well as an example from a client.

Also read: Tax Rules Hit Brazilian Crypto Exchanges, Forcing Trading Platforms Out of Business

Unclear Guidance Won’t Stop Audits

The IRS announcement that thousands of tax warning letters would be issued to United States crypto holders last summer elicited calls for greater clarification and guidelines, but it hasn’t stopped the Internal Revenue Service audit train from steaming forward. The presence of a new crypto question on 2019’s Schedule 1 form has individuals concerned about reporting their crypto assets correctly more than ever, and according to experts, this is for good reason.

“That is massive” says Enrolled Agent Clinton Donnelly of Donnelly Tax Law. “This question in the 2019 return … it forces every taxpayer in the United States to make a decision whether or not they’re going to be honest or not on this question, because its a yes or no and when you sign the tax return … it’s in small print, it says ‘under penalty of perjury I have reviewed this return and it’s true, complete and correct,’ so failing to check the box is incomplete.” He emphasizes:

It’s a yes or no … it’s kind of like coming out of the closets … Anybody who was a trader in ’19, well, they were probably a trader in ’17 as well.

Donnelly went on to explain that by reporting crypto gains in light of the new question, many crypto holders will inadvertently reveal that they first acquired their digital assets years back, which calls their previous years’ returns into suspicion and makes an IRS investigation more likely.

Example of a Crypto Audit – Anti-Money Laundering the Active Focus

Donnelly’s service has so far seen two cryptocurrency audits with its clients, and the tax professional is interested in learning more about what triggers an IRS investigation. One client claimed to have never received the 2019 warning letters, but was audited all the same. According to Donnelly, the focus of the IRS is not so much on the methods by which capital gains are reported, but that all inputs and outputs are accounted for, and that the AML (anti-money laundering) narrative remains in central focus.

“I think people sense that the government views crypto traders as possibly engaging in some sort of crime,” Donnelly notes. “We shouldn’t feel that way, but we do.” He cites a recent Chainalysis report showing the darknet’s share of crypto usage is less than 1% of the total. The tax expert went on:

I would say most of these questions, as you read them, fall into the category of anti-money laundering … My suspicion is that if the IRS wanted to crack down on every American that traded cryptos they could do it, but the backlash from voters back to congress would snap the IRS in the face and they would be sent packing … So I think as long as they stay on the money laundering theme, then they look above board.

Donnelly also shared a non-confidential snippet of a client’s IRS audit letter for a 2017 return relating to just under $40,000 in crypto gains. This client claims to have never received the warning letters from the agency.

Donnelly emphasized throughout our conversation that it is not so much the various means by which a crypto holder reports gains — using different tax tools can and often does result in slightly different numbers — but that the IRS wants to verify total asset amounts add up, with all inputs and outputs accounted for. Especially where cash is concerned. The image of the form above lays out in detail what types of specific information the agency wants to know.

Donnelly further detailed that high frequency traders are sometimes concerned when seeing large proceeds calculated for their trades on 1099-K forms from crypto exchanges, but that costs are not yet factored into these amounts. This can make some traders understandably hesitant to file, but audits are less likely if the proceeds amount is reported fully.

IRS May Use Foreign Bank Account Form to Avoid Due Process in Audits

“Half the court cases in tax court are because the IRS didn’t do the procedure right, the due process, if you will, ” Donnelly details, “but there’s this form called the FBAR form … that form is not a tax form, it’s not a part of the tax laws. The IRS administers it, but it’s not a part of the tax laws. It’s part of the Bank Secrecy Act, Title 18.” He goes on:

Prosecutors love the FBAR form because they can say ‘you didn’t file it, you should have, whammo, here’s the penalty and we can assess it right now.’ There’s no due process defense on that.

The FBAR form has to do with assets held in foreign bank accounts, and must be filed by U.S. taxpayers if “the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.” The FBAR brings Fincen (Financial Crimes Enforcement Network) into the tax action, and has to do directly with combating money laundering, so Donnelly suspects this may be part of the reason the AML narrative has become the focus of crypto tax reporting. It is also a frightening prospect for crypto traders utilizing overseas exchanges and accounts.

“The penalty for the anti-money laundering form — this is FBAR — is $10,000, plus $10,000 for every foreign account that you’ve never reported,” Donnelly elaborates. “If you never filed the FBAR, you just told the IRS all the exchanges you were on … you just incriminated yourself. They say ah, ‘well you’re on Huobi, Kucoin, Binance, you got five of ’em. That’s $50,000 plus the $10,000 I originally smacked you with for not filing a form. You didn’t do this in ’17, you didn’t do it in ’18, you didn’t do it in ’16 either, so I can just add these penalties up.’ Before you know it you’re up to $200, $300,000 and they can get worse if they want to be hostile about it.” He concludes:

The IRS controls the narrative. ‘We’re not going after crypto traders, we’re going after people that are violating the anti-money laundering laws’ … It’s implicitly ‘dirty,’ right? — to be caught for money laundering.

Staying Safe

Donnelly says his mission is to help people file what he calls a “bulletproof tax return,” as the penalties for simple mistakes and omissions can be so egregious, and so few tax advisors know how to help their clients when it comes to crypto.

News.Bitcoin.com also regularly publishes articles on available tax tools and software which may make the job of reporting easier for bitcoiners. Of course, when dealing with unpredictable and potentially dangerous groups like the IRS, individuals should exercise due diligence and research thoroughly before pursuing any course of action. Not surprisingly, the permissionless, peer-to-peer money designed to fight financial censorship that is bitcoin, has fast become a prime target for the very groups of middlemen, banks, politicians and other third parties it makes largely unnecessary.

What do you think of Donnelly’s views on crypto tax audits? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock, Cryptotaxaudit.com, fair use.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The Local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

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