The Internal Revenue Service’s Criminal Investigation division is partnering with tax authorities abroad to ferret out signs of tax fraud, targeting financial technology companies and cryptocurrency.
IRS-CI has been coordinating with four other countries’ tax authorities in a group known as the J5. They include the Australian Taxation Office, the Canada Revenue Agency, the Dutch Fiscal Information and Investigation Service, and Her Majesty’s Revenue and Customs in the U.K. They have been holding challenges each year since 2018 centered around various forms of tax evasion. This year they’re focusing on fintech and crypto (
Financial technology companies are mostly law-abiding, developing new and innovative systems that make use of cryptocurrency and other digital opportunities afforded by the internet, such as payment-processing software, crowdfunding of loans, and insurance technology. By developing innovative products, fintech companies are able to take on large traditional financial institutions like banks and insurance companies and make profits in the billions of dollars. Not surprisingly, that kind of technology can attract criminals.
“We’re not saying that fintech companies are involved in tax fraud, but new financial innovations at companies make it easier for people to keep their money out of sight of authorities,” said Tom Logtens, who leads the cyber group for the Dutch Fiscal Information and Investigation Service, during a press conference Thursday. “That’s what we’ve found. Looking at this year’s challenge, we were basically looking at getting together, but because of the COVID epidemic and travel regulations, it took longer than we initially anticipated, and we started planning for a virtual event.”
He and the rest of the group worked together online over a three-day period this week to see how they could investigate international fintech and cryptocurrency tax fraud cases. “It’s really promising what we found and how we can continue this,” Logtens added.
They coordinated with cyber experts and investigators in all their countries. “The cyber group and the challenge are a new thing for all of us, “ said Oleg Pobereyko, the J5 cyber lead and Western area cyber crime unit supervisor. “Every year we try to impact the system. The difference with this year’s challenge is that we tried to focus on the bigger picture rather than looking at specific individual threat actors. We try to learn from our mistakes and stay more focused and more productive. At past challenges, we tried to identify threat actors who were actively within the J5 jurisdictions, whether it was money laundering or evading taxes. This year, the main focus was on the fintech companies who still meet the same geographic criteria as money laundering and tax evasion, but we believe that this year’s challenge will be more successful due to the global impact.”
Fintech companies may get swept up in such investigations. “One of these fintech companies could potentially be the target of an investigation if we find any conspiracy type elements where it looks like they were either not following regulations or in some way conspiring with a taxpayer or a criminal to commit criminal activity,” said Ryan Korner, executive special agent in charge of the Los Angeles field office of IRS Criminal Investigation. “Coming out of the 2019 challenge, we had 17 fully developed leads and approximately a dozen operations that are ongoing.”
Earlier this month, one such investigation led to indictments against the CEO and an associate of the Canadian tech company Sky Global on charges that they participated in a criminal enterprise to facilitate the transnational import and distribution of narcotics through encrypted communications devices.
“That company was using encrypted communications and potentially facilitating a lot of other criminal activities,” said Korner. “Not only did we investigate the company, but we also followed the tentacles and found other criminal enterprises and tax evaders that we should be looking at.”
IRS Criminal Investigation has also been investigating instances of COVID-19 related tax fraud schemes in coordination in some cases with its international partners, but now mainly within the U.S. borders. “For a period of time, we did have a COVID working group within the J5 that looked at the types of schemes you’re seeing here in the United States that CI is out doing,” said Justin Cole, director of communication and education at IRS Criminal Investigation. “We’re seeing hundreds of cases and hundreds of millions of dollars impacted. What we found in the J5 is that, while we had some leads generated, those leads were better worked individually by the countries. So, those leads that were developed were returned back to the countries to work individually, and where as needed when there’s international nexus, there’s continuing coordination and information sharing, but there is no longer a specific group targeting COVID fraud for the J5. They’re being worked by the individual countries.”
