The Joint Chiefs of Global Tax Enforcement (J5) released an advisory note on Thursday warning financial institutions about five risk indicators associated with cryptocurrency assets that could indicate money laundering, cybercrime, tax evasion, and other illicit activities. This advisory, developed by a team of cyber experts from each J5 member country, is detailed in a document titled “Crypto Assets Risk Indicators.”
The document outlines how cryptocurrency asset layering, specific geographic locations, high-risk counterparties, obscure transaction recipients, and certain online behaviors may signal criminal activity. By sharing these risk indicators, law enforcement aims to gain valuable insights from the financial sector and other reporting agencies.
The J5 encourages financial institutions to:
- Prioritize detecting crypto asset layering, a money laundering phase where transactions are complex to hide illicit fund origins.
- Be vigilant with cryptocurrency transactions tied to jurisdictions with weak regulatory frameworks, poor anti-money laundering (AML) controls, or high corruption levels.
- Monitor unusual counterparties, especially those linked to darknet marketplaces or mixing services.
- Implement Know Your Customer (KYC) techniques to identify risks in cryptocurrency transactions and ensure regulatory compliance.
- Detect and report financial flows related to ransomware, as stopping ransomware payments is crucial where criminals interact with the legitimate financial system.
Risk indicators are vital for financial institutions to detect and report money laundering and illicit activities involving cryptocurrency assets. Timely identification allows institutions to intervene and report to the relevant authorities, maintaining the financial system’s integrity and ensuring AML regulation compliance. The J5’s capability to share intelligence across borders enhances this effort.
“We are operating in a digital world without borders, and it is more important than ever to raise awareness of risk indicators tied to cryptocurrency assets that may be indicative of criminal activity,” said Eric Ferron, Director General of the Criminal Investigations Directorate at the Canada Revenue Agency. “By working together with financial institutions globally, we are enhancing our abilities to detect and report money laundering and illicit activities involving cryptocurrency assets.”
“Cybercrime detection is something we do together within the J5 partnership, but partnerships outside J5 with the Financial Intelligence Units (FIUs) are just as important,” said Niels Obbink, Director General, Dutch Fiscal Information and Investigation Service. “This J5 Red Flag document is a good example of that cooperation, which FIUs worldwide can now use to their advantage to take action against cybercrime.”
“The growing threat of crypto assets is a key focus for the J5, and the Serious Financial Crimes Taskforce with the Australian Taxation Office and our partner agencies are committed to tackling and reducing this threat,” said John Ford, Deputy Commissioner of the Australian Taxation Office. “We are dedicated to ensuring our staff have the best professional capabilities to deal with crypto asset analysis and investigation, and the release of the risk indicators will bolster our financial institution allies in the joint fight against tax crime.”
“Financial institutions are a vital partner and key line of defense against criminals looking to exploit crypto assets,” said Richard Las, Director, Fraud Investigation Service, HMRC. “The J5 is committed to working with them to improve risking, so I’m pleased our crypto experts have been able to share their knowledge in this latest Risk Indicator. We know it’s only by working together that we can hope to combat this threat.”
“Identification and detection play a crucial role in combating cybercrime on a global level,” said Guy Ficco, Chief, IRS Criminal Investigation. “Anytime we can pool the resources of our J5 partners to issue pertinent information to financial institutions about cybercrime indicators, we will seize the opportunity.”
The J5 issued its first set of red flag indicators in 2022, focusing on non-fungible tokens (NFTs) and warning the public about their risks.
The J5 leads the fight against international tax crime and money laundering, including cryptocurrency threats and those who facilitate global tax evasion. They work together to gather information, share intelligence, and conduct coordinated operations against transnational financial crimes. The J5 includes the Australian Taxation Office, the Canada Revenue Agency, the Dutch Fiscal Information and Investigation Service, His Majesty’s Revenue and Customs from the United Kingdom, and the Internal Revenue Service Criminal Investigation Division from the United States.
The IRS Criminal Investigation Division (CI) is responsible for investigating financial crimes, including tax fraud, narcotics trafficking, money laundering, public corruption, healthcare fraud, and identity theft. CI special agents have exclusive jurisdiction over violations of the Internal Revenue Code, with a federal conviction rate of over 90 percent. The agency has 20 field offices in the U.S. and 12 attaché posts abroad.
Read full advisory below
By FCCT Editorial Team
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