Global Tax Group Issues Crypto Risk Indicators for Financial Institutions

An international group of tax chiefs, known as the Joint Chiefs of Global Tax Enforcement (J5), has urged financial institutions to be vigilant about crypto risk indicators that are prone to illicit activities.

The J5, a coalition of five of the world’s largest taxation organizations, aims to combat financial crimes globally. The group includes the IRS from the US, the UK’s HMRC, the Canadian Revenue Agency (CRA), the Australian Taxation Office (ATO), and the Fiscal Information and Investigation Service (FIOD) from the Netherlands.

The group has released a document titled “Crypto Assets Risk Indicators,” highlighting several risk factors associated with cryptocurrencies. Developed by a specialized team of cyber experts from member countries, these indicators are intended to enhance the ability of financial institutions to detect and report money laundering and other illicit activities involving crypto assets.

Key Risk Indicators

The document identifies five key risk indicators:

1. Crypto Asset Layering: The process of making transactions to conceal the origin of illicit funds.
2. Geographical Risk Indicators: Transactions tied to locations with poor regulatory frameworks.
3. High-Risk Counterparties: Engaging with unknown or suspicious transaction recipients.
4. Unknown Transaction Recipients: Lack of clarity on who is receiving the funds.
5. Ransomware Attacks: Increasing use of crypto to facilitate ransomware payments.

John Ford, Deputy Commissioner of the Australian Taxation Office, emphasized the growing threat posed by cryptocurrencies to financial institutions. “We are dedicated to ensuring our staff have the best professional capabilities to deal with crypto asset analysis and investigation. The release of these risk indicators will bolster our financial institution allies in the joint fight against tax crime,” Ford noted.

Advisory for Financial Institutions

The J5 has advised banks to prioritize the detection of crypto layering and to exercise vigilance when dealing with transactions tied to high-risk geographical locations. The group also highlighted the surge in crypto payments to ransomware attackers, which hit $449.1 million in the first half of 2023, according to a Chainalysis report—a significant increase from the previous year.

In light of this, J5 has strongly urged financial institutions to avoid making ransomware payments. “Stop ransomware payments because they are a key point where criminals interact with the legitimate financial system,” the group stated.