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As illegal activity grows, the IRS has seized $3.5 billion in cryptocurrency-related fraud money this year

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  • According to an annual report issued by the Internal Revenue Service, the Criminal Investigations Unit (IRS-CI) seized $3.5 billion from cryptocurrency-related fraud investigations in the fiscal year 2021
  • While the year 2021 isn’t yet finished, the amount of money taken through cryptocurrency breaches and fraud this year is set to surpass prior years
  • The CI unit of the tax agency is still one of the largest and oldest law enforcement teams working in this field

According to an annual report issued by the Internal Revenue Service, the Criminal Investigations Unit seized $3.5 billion from cryptocurrency-related fraud investigations in fiscal year 2021, highlighting how the burgeoning industry has also caused a rise in the unlawful usage of crypto. According to the IRS-CI, crypto-related crimes accounted for 93 percent of the total money seized this year, the latest indicator that fraudsters and scammers have discovered a method to profit from the increasing popularity of digital currency.

While the year 2021 isn’t yet finished, the amount of money taken through cryptocurrency breaches and fraud this year is set to surpass prior years. The most obvious explanation is that, according to statistics, the asset class has more than doubled in value. 

According to Chainalysis, a blockchain forensics business, illicit monies in cryptocurrencies account for less than 1% of all cryptocurrency transactions, implying that cryptocurrency is utilized for considerably less unlawful behavior than some detractors have claimed. However, with a market value of roughly $3 trillion dollars, that 1% figure corresponds to at least $20 billion in illegal cryptocurrency transactions.

ALSO READ: A BASEBALL CLUB IN AUSTRALIA IS PLANNING TO PAY ITS PLAYERS WITH BITCOIN

The CI unit of the tax agency is still one of the largest and oldest law enforcement teams working in this field. The unit’s first major cases included the seizure of billions of dollars in assets from the online drug bazaar Silk Road, as well as the 2013 breach of Mt.GOX, the world’s largest cryptocurrency exchange at the time.

Jarod Koopman, the IRS-acting CI’s executive director of cyber forensics, told Yahoo Finance earlier this month, that it was all money-laundering investigations, and that’s still part of our portfolio of crimes. Crypto is money by definition. We’re involved in any crime where money is the underlying element.

Decentralized finance has been subjected to a disproportionate quantity of criminal activity. According to a new analysis from blockchain analytics startup Elliptic, DeFi fraud and theft losses will total $10.5 billion in 2021. Unlike traditional banking or centralized cryptocurrency initiatives, DeFi protocols provide hackers with a far larger number of access opportunities. 

All they need is a single smart contract vulnerability, added Koopman. He went on to say that DeFi is a section of the crypto industry in which the IRS-CI has recently shown a lot of interest. The $600 million theft from the platform Poly Network and the $180 million loss through a vulnerability at the PAID Network are two noteworthy DeFi attacks.

Chainalysis and other Blockchain forensics businesses such as CipherTrace and Elliptic provide the software component that aids law enforcement and other government agencies in their crypto investigations. These tools assist in piecing together the flow of transactions across bitcoin payment networks. Although the assumptions aren’t always correct, Koopman believes the program has proven critical to law enforcement activities. According to Koopman, the IRS-CI is scaling up its bitcoin concentration. The unit’s seizure success rate alone demonstrates why the asset class is becoming increasingly important to them.

Steve Anderrson

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