Joint Global Tax Group Issue Crypto Risk Indicators to Financial Institutions

An international group of tax chiefs – J5 – has advocated financial institutions to be mindful of crypto risk-indicators, prone to illicit activities.

The Joint Chiefs of Global Tax Enforcement (J5) has listed-down five risk-indicators associated with cryptocurrencies. The indicators are developed by a specialized team of cyber experts from member countries.

J5 is a global joint venture between five world’s largest taxation organizations to combat financial crimes worldwide. The association consists of the IRS from the US, UK’s HMRC, Canadian Revenue Agency (CRA), Australian Taxation Office (ATO) and the Fiscal Information and Investigation Service (FIOD) from the Netherlands.

Dubbed “Crypto Assets Risk Indicators,” the document highlights several risk indicators. These “play a pivotal role in enhancing the ability of financial institutions to detect and report money laundering and illicit activities involving crypto assets.”

The red-flags listed by J5 include crypto asset layering, geographical risk indicators, high-risk counterparties, unknown transaction recipients and ransomware attacks.

“Risk indicators play a pivotal role in enhancing the ability of financial institutions to detect and report money laundering and illicit activities involving cryptocurrency assets.”

According to John Ford, Deputy Commissioner of the Australian Taxation Office, the move comes as there is a growing threat of cryptos to financial institutions.

“We are dedicated to ensuring our staff have the best professional capabilities to deal with crypto asset analysis and investigation. Release of the risk indicators will bolster our financial institution allies in the joint fight against tax crime,” Ford noted.

J5 Warns Financial Institutions

The most recent advisory has encouraged banks to prioritize detection of crypto layering. It is a process where transactions are intentionally made to conceal origin of illicit funds.

Further, J5 advocated to “exercise vigilance” while dealing with crypto transactions tied to geographical locations with poor regulatory frameworks.

Additionally, crypto payments to ransomware attackers hit $449.1 million in the first half of 2023, per a Chainalysis report. This record was up $175.8 million from the same period the previous year.

With staggering increases in the use of crypto for illicit frauds, J5 has urged banks to refrain from paying ransomware. “Stop ransomware payments because they are a key point where criminals interact with the legitimate financial system,” the group said.