The Joint Chiefs of Global Tax Enforcement (J5) have issued a warning to financial institutions regarding risk indicators that may indicate money laundering, cybercrime, tax evasion, and other illicit activities involving crypto assets. The J5 emphasizes the importance of detecting signs of money laundering and tax evasion through the gathering, analysis, and reporting of financial data. By keeping financial institutions informed about what to look for, it increases the likelihood of them detecting and reporting suspicious activities.
One of the key areas financial institutions should focus on is the detection of layering involving crypto assets. This involves money laundering where transactions are intentionally complicated to conceal the illicit origin of funds. Signs of layering could include unusually high volumes with rapid movement of funds between digital wallets across multiple jurisdictions, transactions involving large volumes from private wallet addresses, and the conversion of different crypto assets. Other indicators include activity related to crypto mixers, gambling platforms, peer-to-peer platforms, and transactions involving privacy coins.
Financial institutions need to pay attention to geographical risk indicators when dealing with cryptocurrency transactions linked to jurisdictions with weak regulatory frameworks, inadequate anti-money laundering controls, or high levels of corruption. Factors such as exchanges operating out of high-risk jurisdictions, IP addresses from high-risk jurisdictions, and crypto addresses matching recognized watch lists are all red flags to watch for. Additionally, high-risk counterparties like over-the-counter trade brokers dealing with privacy-oriented or anonymous services should be closely monitored.
The J5 also highlights the importance of robust know-your-customer practices in identifying potential risks associated with crypto asset transactions and ensuring compliance. Warning signs include customers providing minimal identity information, difficulty in contacting customers, shared addresses, mobile devices, and IP addresses, as well as anonymity-oriented email providers. Financial institutions should also be wary of new clients accessing multiple bank accounts or engaging in money mule activities.
Crypto exchanges play a crucial role in detecting and reporting financial flows related to ransomware and stopping ransomware payments. The J5 provides guidance on identifying potential bad actors or accounts associated with organizations perpetrating ransomware and cybercrime. Indicators to watch for include high usage of privacy coins or chain-hopping, where digital currencies are exchanged and moved from one blockchain to another. By sharing resources and information, the J5 aims to enhance the ability of financial institutions to combat cybercrime on a global scale.
Established in 2018, the J5 consists of criminal intelligence communities from Australia, Canada, the Netherlands, the United Kingdom, and the United States. Committed to combating international and transnational tax crime and money laundering, the J5 members work together to share resources and collaborate in the fight against criminal activities. By issuing warnings and guidelines to financial institutions, the J5 aims to enhance their abilities to detect and report money laundering, tax evasion, and other illicit activities involving crypto assets.
