The market seems to be turning in the last few weeks and with it the interest of large institutions for more control is growing again. Where at the beginning everything was still in the "shadow", governments now have their fingers in the pie and tried to gain a noticeable degree of control. According to their own statements, the aim is to stop criminal activities with cryptocurrencies and to identify the individuals behind them. Different countries show strong differences in terms of acceptance and perceptions of cryptocurrencies. Some countries in Asia, for example, ban Bitcoin and Co. completely - many European and North American countries, on the other hand, choose to regulate the market and prevent conspicuous actions. In this article we explain the extent to which one's own transactions can be seen as transparent and what governments do to investigate people behind transactions.
In 2014, the USA started to control crypto traders for the first time. Four years later (July 2018), the IRS (Internal Revenue Service) set up an international task force to reduce the threat to tax administrations. In addition to the USA, Australia, Canada, the Netherlands and Great Britain are also part of the team. "The Joint Chiefs of Global Tax Enforcement", also known as "J5", combine their international capabilities to develop strategies for gathering information and operate in common studies. Other authorities, such as the Belgian STI (Special Tax Inspectorate), also follow this example and are looking for ways to get crypto exchanges to disclose data for inspection.
Government data tracking:
- The Austrian government is already working with crypto exchanges and programs to screen user data and regulations in order to identify risks and improve compliance.
- America is looking for a big data tool to monitor blockchains. Already 7 crypto exchanges use monitoring technology to detect illegal market activities.
- In January 2019, Denmark instructed the tax authorities to request all information from three exchanges arising from crypto transactions. The relevant crypto exchanges are legally obliged to disclose the data of their users upon request (names, addresses, personal tax numbers and details of transactions from 2016, 2017 & 2018).
Methods & Strategies for Monitoring:
- Japan is on the verge of introducing a system to track suspicious transactions
- Russia already relies on profiling of suspicious users
- The USA uses raw Internet data, which allows access to IP addresses and IDs of Bitcoin transactionalists.
- The Public Information Network Security Supervision Agency (PINSS) in China monitors foreign exchanges to detect conspicuous activities.
- Stricter anti-money laundering guidelines for crypto exchanges to come into force in the EU in January 2020
- General conditions are forcing crypto exchanges to introduce KYC policies (Know-your-Customer)
Situation in the EU:
In July 2018, the EU Parliament published a detailed analysis on "Virtual currencies and central banks monetary policy: challenges ahead", explaining that "although there is currently no standardized approach to financial regulation, efforts will be made to coordinate the regulations of all countries". The aim is to guarantee that crypto exchanges comply with KYC and AML guidelines. The EU is exerting pressure on exchanges to include KYC processes in registration as soon as transactions exceed a certain limit. Furthermore, the EU aims to develop anti-money laundering laws that would require crypto exchanges to report suspicious transactions to financial authorities. With the Cyber Crime Competence Center (C4 for short), Austria has its own institute subordinate to the Federal Criminal Police Office, which is already setting up its own special teams to crawl the blockchains in order to identify the users behind the transactions. Following the Austrian example, it can be expected that the "J5", the European task force and other national teams will monitor the crypto market and identify suspicious actions as early as the development phase.
What can I do?
Tax evasion is not a trivial offense, there are high penalties and the risk one is exposed to is not justified. Especially, because in case of suspicion up to 10 years can be investigated backdated. In order to be on the safe side before the tax authorities, all transactions must be clearly documented. One tool for this is our Blockpit platform. Data can easily be entered by using API or CSV files. All transactions are displayed clearly and the tax rate realized from the profits is determined. The resulting tax return can be submitted to the tax authorities without any further problems. A quick and easy way to avoid unjustified suspicions by the government.
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