On May 23, 2024, the Joint Chiefs of Global Tax Enforcement (the “J5”) published an advisory note for financial institutions, identifying red flags associated with crypto-related illicit activities. The J5 is a collaborative partnership of tax authorities from the U.S., UK, Canada, Australia and the Netherlands. The advisory note is not the first time the J5 has addressed crypto; in 2022, the J5 released a set of red flag indicators highlighting risks associated with non-fungible tokens.
In the advisory note, the J5 identifies risk indicators it believes play a pivotal role in enabling financial institutions to detect and report money laundering, tax evasion and other illicit activities involving crypto. The risk indicators are numerous and address crypto asset layering, geographical risk, high-risk counterparties, new client onboarding, ransomware and cybercriminal risk. One such risk indicator is that sending or receiving from crypto mixers may suggest money laundering—a concern also held by OFAC, which we discussed here.
Publications such as the advisory note shed light on a mounting concern among domestic and international tax authorities about the decentralized and anonymous nature of crypto. Eric Ferron, Director General of the Criminal Investigations Directorate at the Canada Revenue Agency, speaking on the advisory note stated, “We are operating in a digital world without borders, and it is more important than ever to raise awareness of risk indicators that are tied to cryptocurrency assets that may be indicative of criminal activity.” In light of this, financial institutions may wish to consider the risk indicators outlined in the advisory note for proactive measures.
