IRS Investigators Recover Over $3.6 Billion in Cryptocurrency
The Internal Revenue Service Criminal Investigation (IRS-CI) confiscated more than $3.6 billion worth of cryptocurrency associated with the 2016 hack of Bitfinex, an online digital currency exchange. The Department of Justice (DOJ) arrested Ilya Lichtenstein and his wife, Heather Morgan, for allegedly laundering $4.5 billion in cryptocurrencies following the hack—the largest crypto seizure in DOJ history.
According to the Treasury Department, the crypto economy is contributing to a tax gap–the difference between taxes paid and taxes owed. By facilitating illegal activity, including tax evasion, cryptocurrency poses a significant detection problem.
Recently, IRS Commissioner Charles Rettig notified Sen. Maggie Hassan (D-NH) that the agency needs appropriate funding and adjustments to the tax code to effectively combat the use of cryptocurrency by criminals, which has emerged as a popular method in recent years.
Cryptocurrency hacks and seizures are key drivers behind the Biden Administration's and Congress' attempts to regulate the digital currency industry. A coalition of Representatives also re-introduced a bill aimed at taxing gains made from trading cryptocurrencies.
The Professional Managers Association (PMA), an organization representing IRS managers, opposes Congress' routine expansion of the agency's responsibilities while cutting its budget.
“Inserting the language to create a brand-new reporting framework and mechanisms for digital assets or cryptocurrency is quite an expensive assignment for the IRS to receive with $0 of funding to even implement it. So, the IRS will then be faced cutting from other areas of its operating budget in order to make that happen,” stated Chad Hooper, PMA’s Executive Director.
Morgan and Lichtenstein, according to court documents, conspired to launder stolen cryptocurrencies by routing and storing substantial amounts of bitcoin, which the pair then transferred to external financial accounts. Federal prosecutors have accused Lichtenstein and Morgan of using false personal and corporate identities, in addition to converting bitcoin to other forms of cryptocurrency to make it harder to track, a practice known as "chain hopping."
“In a methodical and calculated scheme, the defendants allegedly laundered and disguised their vast fortune,” stated IRS-CI Chief Jim Lee, “IRS-CI unraveled a sophisticated laundering technique, enabling them to trace, access and seize the stolen funds.”
Federal law enforcement acknowledged that the seizures and arrests confirm that online anonymity cannot hide theft and money laundering, and that cryptocurrencies can still be traced. Cryptocurrency is not invisible to the IRS just because it’s anonymous.
Larry Cosme, National President of the Federal Law Enforcement Officers Association (FLEOA), commended federal agencies for their efforts, but insisted on the need for Congressional action on cybercurrency to ensure law enforcement have the resources to address cybercrime more robustly.
"The case further shows why it is important that our nation’s criminal laws reflect the reality of evolving criminal enterprises,” stated Cosme, “Congress must understand these new threats and ensure law enforcement has all the tools necessary to combat these crimes.”
