The Internal Revenue Service Criminal Investigation unit (IRS-CI) reported involvement in a greater proportion of crypto investigations on Dec 4.
In a statement to Bloomberg, IRS-CI chief Jim Lee said that about half of all active investigations into digital assets over the past year have involved tax issues. By contrast, he pointed out that three years ago, 90% of active cryptocurrency cases involved money laundering.
That statement comes alongside an annual report from IRS Criminal Investigation that was published on the same day. There, Lee said:
“Our partnerships with the private sector created opportunities for us to solve the most complex crypto-related crimes in the world. We remain focused on stopping those who attempt to exploit new technology for nefarious purposes, mitigating illicit finance, and identifying national security risks.”
Lee acknowledged that most cryptocurrency users have legitimate intentions and said digital assets allow for financial innovation. However, he emphasized that cryptocurrency can aid money laundering, cybercrime, ransomware, the drug trade, human trafficking, terrorism, weapons financing, and tax crimes.
He added that chain-hopping (i.e., rapid cross-chain crypto transactions) and token swapping make tracking efforts “difficult, but not impossible.”
Areas of focus
The remainder of the IRS-CI report said that specific investigations concerned unreported income including from cryptocurrency sales and mining, as well as income from wages, rental income, and gambling winnings. It added that some taxpayers did not disclose crypto ownership in order to conceal their holdings.
IRS-CI provided few broad statistics on its crypto enforcement efforts. However, it said that Operation SpecTor, through which it targeted online drug trafficking with other government agencies, seized over $53.4 million in cash and virtual currencies. It added that more than 100 cases concerned the sale of counterfeit oxycodone pills containing fentanyl in exchange for cryptocurrency.
Notably, IRS-CI described how it is working internationally on crypto enforcement. The agency said that in May 2023, it provided blockchain analysis tools and cyber training to law enforcement agencies in Ukraine. It said that in September 2023, it worked with the UK and the Netherlands to offer a second round of crypto and blockchain training to Ukrainian officers.
The document also mentioned several investigations involving the IRS-CI, including cases against Bitfinex hacker Ilya Lichtenstein, OneCoin founder Karl Greenwood, and Silk Road hacker James Zhong.
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