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Joint Global Tax Group Issue Crypto Risk Indicators to Financial Institutions

An international coalition of tax authorities known as the J5 is urging financial institutions to pay close attention to indicators of risk associated with cryptocurrencies, which are often used for illicit purposes.

The Joint Chiefs of Global Tax Enforcement (J5) has identified five key risk indicators related to cryptocurrencies. These indicators have been crafted by a team of cybersecurity experts from member countries.

J5 represents a collaborative effort among the tax agencies of five major countries to combat financial crimes on a global scale. Its members include the IRS (United States), HMRC (United Kingdom), CRA (Canada), ATO (Australia), and FIOD (Netherlands).

Referred to as “Crypto Assets Risk Indicators,” the guidelines outline various signs of risk. According to the document, these indicators are crucial for empowering financial institutions to identify and report instances of money laundering and illicit activities involving crypto assets.

J5 has flagged several warning signs, including crypto asset layering, geographical risk factors, high-risk counterparties, unknown recipients of transactions, and ransomware attacks.

“Risk indicators are crucial in empowering financial institutions to identify and report instances of money laundering and illicit activities involving cryptocurrency assets,” stated John Ford, Deputy Commissioner of the Australian Taxation Office.

Ford emphasized the increasing threat posed by cryptocurrencies to financial institutions, underscoring the importance of equipping staff with robust capabilities for crypto asset analysis and investigation. He highlighted that the release of these risk indicators will strengthen the collaborative efforts of financial institutions in combatting tax-related crimes.

J5 Warns Financial Institutions

The latest advisory from J5 emphasizes the importance for banks to prioritize the detection of crypto layering, a tactic used to obscure the origin of illicit funds through intentional transaction manipulation.

Furthermore, J5 advises financial institutions to exercise caution when handling crypto transactions originating from regions with lax regulatory frameworks.

In addition to these concerns, a Chainalysis report reveals that crypto payments to ransomware attackers surged to $449.1 million in the first half of 2023, marking a significant increase of $175.8 million compared to the previous year.

Amidst these alarming trends in the use of cryptocurrencies for illicit activities, J5 strongly advises banks to refrain from making ransomware payments. The group underscores the importance of halting such payments, as they serve as critical junctures where criminals interface with the legitimate financial system.

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Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

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