Tax investigators identify potential crypto crimes including US$1B scheme

International tax officials have identified more than 50 leads to potential crypto tax crimes that may lead to official investigations in the coming weeks, including one case that could be a Us$1-billion Ponzi scheme.

Top criminal tax and financial crimes officials from the U.K., U.S., Canada, Australia and the Netherlands, a group known as the J5, met in London this week to share intelligence and data to identify sources of cross-border illegal crypto activity. The officials specifically focused on emerging trends with decentralized finance and nonfungible tokens, or NFTS.

“Some of these leads I'm talking about, they involve individuals with significant NFT transactions revolving around potential tax or other financial crimes throughout our jurisdictions,” Jim Lee, the Internal Revenue Service's chief of criminal investigations, told reporters Friday.

One lead “appears to be a US$1 billion Ponzi scheme. That's billion with a B and this lead also touches every single J5 country.”

The initiative highlights increasing scrutiny of risks, fraud and malfeasance in the burgeoning crypto industry. U.S. Treasury Secretary Janet Yellen told lawmakers Thursday that the meltdown of the Terrausd stablecoin highlighted the need for new regulations.

The J5 tax officials have also identified leads involving decentralized exchanges and financial-technology firms, Lee said. There could be announcements on “significant targets” as soon as this month, he added. The officials declined to give any more specifics about the leads, which don't involve any charges.

The identification of potential crimes marks more bad news in what's been a tumultuous week for crypto markets. Large price fluctuations roiled crypto markets and depressed total crypto asset valuations by about US$270 billion, according to some estimates.

The ease at which crypto transactions can easily cross international borders has necessitated closer collaboration between countries that have struggled to keep pace with rapid shifts in technology in recent years.

“NFTS are one of the new modern digital ways of trade-based money laundering,” Niels Obbink, of the Dutch Fiscal Information and Investigation Service, told reporters. “And since there is ... less control and less supervision and a limited regulation that makes it vulnerable for fraud, it must have our attention.”

Yellen said on Thursday that Terrausd's spectacular tumble shows the dangers of tokens that purport to be pegged to the US dollar. She called for new regulations and added that Treasury was working on a report about the issue.

She told lawmakers she “wouldn't characterize it at this scale as a real threat to financial stability, but they're growing very rapidly.”