J5 Issues Advisory on Crypto Risk Indicators to Combat Illicit Activities
WASHINGTON — The Joint Chiefs of Global Tax Enforcement (J5) have released an advisory note aimed at financial institutions, warning them of five key risk indicators associated with cryptocurrency assets that may suggest money laundering, cybercrime, tax evasion, and other illicit activities. This advisory, titled “Crypto Assets Risk Indicators,” was developed by a specialized team of cyber experts from each J5 member country.
The advisory highlights critical risk factors, including cryptocurrency asset layering, geographic locations, high-risk counterparties, unknown or obscured transaction recipients, and certain online behaviors that could indicate criminal activity. By sharing these indicators, the J5 hopes to gather valuable insights from financial institutions and other reporting agencies to enhance the detection and reporting of illicit activities.
The J5 urges financial institutions to:
- Prioritize detecting layering involving crypto assets, a money laundering technique where transactions are made complex to hide the illicit origin of funds.
- Exercise caution when handling cryptocurrency transactions linked to jurisdictions with weak regulatory frameworks, inadequate anti-money laundering (AML) controls, or high corruption levels.
- Monitor unusual counterparties, especially those exposed to darknet marketplaces or mixing services.
- Implement Know Your Customer (KYC) techniques to identify potential risks associated with cryptocurrency transactions and ensure regulatory compliance.
- Detect and report financial flows related to ransomware and prevent ransomware payments, which are a crucial interaction point between criminals and the legitimate financial system.
By focusing on these risk indicators, financial institutions can better detect and report money laundering and other illicit activities involving cryptocurrency assets. Timely identification allows for intervention and reporting to relevant authorities, contributing to the integrity of the financial system and compliance with AML regulations. The J5's ability to share intelligence across borders enhances this effort.
Eric Ferron, Director General of the Criminal Investigations Directorate at the Canada Revenue Agency, emphasized the importance of this initiative, stating, "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."
Niels Obbink, Director General of the Dutch Fiscal Information and Investigation Service, highlighted the importance of international cooperation, noting, "Cybercrime detection is something we do together within the J5 partnership, but partnerships outside of J5 with the FIUs are just as important."
John Ford, Deputy Commissioner of the Australian Taxation Office, reiterated the commitment to tackling the growing threat of crypto assets, stating, "We are dedicated to ensuring our staff have the best professional capabilities to deal with crypto asset analysis and investigation."
Richard Las, Director of Fraud Investigation Service at HMRC, underscored the role of financial institutions as a key line of defense against criminals exploiting crypto assets, emphasizing the importance of collaboration to combat this threat.
Guy Ficco, Chief of IRS Criminal Investigation, highlighted the crucial role of identification and detection in combating cybercrime globally, saying, "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, which includes tax authorities from Australia, Canada, the Netherlands, the United Kingdom, and the United States, leads the fight against international tax crime and money laundering, particularly those involving cryptocurrency. The J5 works collaboratively to gather information, share intelligence, and conduct coordinated operations against transnational financial crimes.
The IRS Criminal Investigation Division (CI) is the criminal investigative arm of the IRS, responsible for investigating financial crimes, including tax fraud, money laundering, and public corruption. CI agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code and have a federal conviction rate of over 90%. The agency operates 20 field offices in the U.S. and 12 attaché posts abroad.#RegulatoryOverreach