The criminal use of cryptocurrency

The criminal use of cryptocurrencies

Cryptocurrencies have been adopted as part of money laundering schemes and are particularly associated with several predicate offences including fraud and drug trafficking. They are also widely used as a means of payment for illegal goods and services offered online and offline.

Money laundering is the main criminal activity associated with the illicit use of cryptocurrencies. The growing popularity and adoption of cryptocurrencies have led to their increasing use in money laundering schemes. Other criminal activities that show an intensive use of cryptocurrencies are related to the use of cryptocurrencies as a payment method for illicit goods and services, fraudulent cryptocurrency investments and cybercrime. In all instances, criminals want to obfuscate the source of the illicit assets with cryptocurrencies. A number of indicators show how criminals involved in frauds strongly rely on the use of cryptocurrencies.

Cryptocurrencies are also the means of payment of choice for criminal commodities and services, such as drugs or child sexual abuse material (CSAM) purchased online. This applies in particular to listings on dark web marketplaces where they are the main means of payment. Different types of malware target cryptocurrencies for theft as well as for the mining of coins in the network of unaware victims. Extortion schemes carried on by cybercriminals make extensive use of cryptocurrencies. Digital services and infrastructure abused for criminal purposes like servers, virtual private networks (VPNs) and hosting services are mostly purchased in cryptocurrency.

Money laundering

Virtually all kinds of criminal profits are laundered using cryptocurrencies. These activities range from the laundering of proceeds already in digital form, such as the payment of ransoms or criminal infrastructures, to a transformation of huge amounts of cash into virtual assets. Examples of cryptocurrency usage in money laundering schemes include the purchase of cryptocurrencies by criminal networks using illicit proceeds and the use of cryptocurrencies to transfer funds.

The use of cryptocurrencies in money laundering schemes has been increasing, and many criminal networks relied on cryptocurrencies as a payment medium during the COVID-19 pandemic.

Money laundering networks specialised in large-scale money laundering

as a service have adopted cryptocurrencies and are offering their services

to other criminal actors. These networks can already rely on established infrastructure such as numerous bank accounts as well as in-depth knowledge of the banking system and use of FinTech.

Money laundering networks provide their services to other criminal networks, which may include the acquisition or trade of cryptocurrencies, the legalisation of criminal assets and the final cash out in the accounts of criminals. Professional money laundering networks are a significant threat and enable other criminal networks to operate. Marketplaces on the dark web advertise money laundering cryptocurrency service providers. They also offer information on how criminals can cash out cryptocurrencies, such as by exchanging Bitcoin for gift vouchers or prepaid debit cards.

Predicate offences

The use of cryptocurrency in money laundering involves the profits of both online and offline criminal activities. They are in fact frequently reported in the context of drug trafficking, fraud and cybercrime.

Cybercrime proceeds

primarily concern funds coming from online frauds, ransomware and dark web marketplaces. The highest volume of illicit transactions is associated with these criminal activities.

Fraud

Fraud is the most frequently identified predicate offence for the illegal use of cryptocurrencies, accounting for more than half of identified criminal transactions.Criminals involved in fraud either make use of professional (crypto) money laundering services or set up their own money laundering schemes.

Criminals involved in investment fraud are particularly adept at using cryptocurrencies to channel illicit proceeds. Cryptocurrency investment fraud schemes have been identified in several EU Member States.

Fraudsters create websites devoted to cryptocurrency investments or advertise lucrative investments and encourage investors to create accounts on online trading platforms. Alternatively, operators from established call- centres offer opportunities requiring small initial investments that end in high profits. The victims have the impression to be able to monitor their investments thanks to internet platforms. However, the whole process is a deception. Brokers try to obtain information about the victims using social engineering techniques, while gaining their trust with simulated trading activities.

On some occasions, fraudsters collect capital to initiate a new profitable cryptocurrency which does not really exist. Pyramid schemes are a frequently used method of attracting investors with promises of high returns. The increase in value promised to investors is just an illusion, and any disbursements to investors are merely funds transferred from investors further down the pyramid. Members are encouraged to bring others into the fold in exchange for a commission.

Drug trafficking

Cryptocurrencies are increasingly used to launder the proceeds of drug trafficking. In recent years, EU law enforcement authorities carried out several investigations into the laundering of drug trafficking proceeds using cryptocurrencies. These large-scale laundering activities normally involve specialised criminal networks that provide professional crypto money laundering services.

Cybercriminals

Cybercriminals make extensive use of cryptocurrencies that consequently have to be laundered, invested or cashed out. Proceeds from cybercrime activities normally do not require a conversion as they are often already in cryptocurrencies. Cybercriminals extensively use obfuscation techniques and services to hinder transactions traceability.

Conclusion 

As I write there seems to be no solution like one tablets suits all. Cryptocurrency as currency for crime is a neat equation and this would remain till cryptocurrencies exist in the world. Do though costly solutions exist to track cryptocurrency used for any type of crime but is not feasible for all police forces across the world . Government now need policies and regulations if crypto is to be governed for at lease law and order purposes .

Bitcoin Tax by Indian Government: How

TAXATION  OF  BITCOIN  AND  OTHER  CRYPTO CURRENCIES IN  INDIA 😊

To understand the tax implications of Cryptocurrencies in India, the following points need to be understood under the context of the Income Tax Act:

1) Business Income - These are the profits and gains received from any business or profession carried on by the tax payer at any time during the Financial Year. It includes 'any' compensation received or other payment due to be received. Further, the compensation may be received in Cash or Kind.

2) Capital Gains - It means any income which has been derived from a 'Capital Asset' (whether movable or immovable)

3) Capital Asset - It means property of any kind held by the taxpayer, whether or not connected with his business or profession.

However, this does not include any Stock in Trade

Note: Since the cryptocurrencies have not been declared as legal tender by the Reserve Bank of India, these cannot be considered as legal tender (cash) and shall be considered as an asset. With a general understanding of the above terms, we move on to understand how cryptocurrencies would be taxed under different scenarios:

Scenario 1: When a person receives Cryptocurrency as payment for rendering goods or services

If a provider of goods or services receives any payment by cryptocurrency, then, the fair market value of the cryptocurrency received as consideration for rendering the goods or services will be considered as the consideration (that is the sale amount). Hence, the difference between the Fair Market Value of the cryptocurrency and the cost of provision of goods or services will be treated as Business Income in the hands of the taxpayer and the resultant Business Income will be charged to tax at the applicable slab rate.

Let us take the following example to understand the above more clearly:

Mr. A provides services for which he agrees to receive 2 Bitcoins. For simplicity purpose, assume the cost of provision of service as Rs. 5,00,000/- and the Fair Market Value of 1 Bitcoin = Rs. 5,50,000/-. Hence, by applying simple mathematics we can conclude that the total consideration for the services rendered is Rs. 11,00,000/- (5,50,000*2) and therefore the Business Income is Rs. 6,00,000/-

Continuation of Scenario 1: The person receiving cryptocurrency as consideration sells the cryptocurrency

Now as soon as the person receives the cryptocurrency as consideration, it becomes his capital asset under the assumption that it is not Stock in Trade (which is discussed later). Therefore, as and when the person sells the cryptocurrency, the resultant difference between the Fair Market Value on the date of receipt of cryptocurrency (from the provision of goods or services) and the date of sale of cryptocurrency will be treated as Capital Gain.

Further, if the cryptocurrency is held for 36 months or less, it will be treated as Short Term Capital Gain. If it is held for more than 36 months it will be treated as Long Term Capital Gain.

While computing Long Term Capital Gain, the taxpayer will get the benefit of indexation.

The bifurcation of Short Term Capital Gain and Long-Term Capital Gain is important since the Short Term Capital Gains are taxed at Slab Rates and Long-Term Capital Gains are taxed @ 20%.

Let us continue the example taken in Scenario 1:

Suppose the bitcoins received by Mr. A is sold by him @ Rs. 5,75,000/- per Bitcoin then the value of the consideration that will be received by Mr. A is Rs. 11,50,000/-. Hence, the Capital Gains would be Rs. 50,000/- (11,50,000 - 11,00,000) and depending on the period of holding of the cryptocurrency, it will be taxed as Short Term Capital Gain or Long Term Capital Gain

Scenario 2: A person paying consideration by cryptocurrency for receiving any goods or services

If a person availing any goods or currency pays consideration in the form of cryptocurrency, then in such a case there will be aspects which will need to be considered:

i) Capital Gains
ii) Amount (Quantification) of the expense

Capital Gains: The Capital Gains will be determined in the same manner as discussed in 'continuation of scenario 1' and will be taxed accordingly. However, in this case the relevant dates for determination of period of holding shall be the date of acquisition of the currency and the date of payment

Amount of expense: The amount of expense shall be the Fair Market Value of the cryptocurrency on the date of payment

Let us take the following example to understand the above clearly:

Mr. A avails goods worth Rs. 11,50,000/- the payment for which is discharged by paying 2 Bitcoins (5,75,000 * 2). Assuming the cost of acquisition of 2 Bitcoins to be Rs. 10,00,000/- (5,00,000 * 2), the resultant Capital Gain will be Rs. 1,50,000/- and will be taxed as Short Term Capital Gain or Long-Term Capital Gain depending on the period of holding.

The amount of expenditure will be the Fair Market Value of the Bitcoins that is Rs. 11,50,000/-

Scenario 3: A person Investing / Trading in cryptocurrency

This is the simplest to understand. However, the important aspect to be to be considered is whether the activity is to be considered as Investment or Trading.

If the activity is considered as Investment the difference between the sale price and purchase price will be treated as Capital Gains (the treatment will be as discussed earlier) and on the contrary if the activity is considered as Trading, the difference will be treated as Business Income irrespective of the period of holding.

Determining whether the difference will be considered as Capital Gains or Business Income will depend solely upon the intention of the person at the time of acquisition of the cryptocurrency.

Conclusion: The Indian Tax laws do not have a specific mention on how cryptocurrencies are to be taxed in India and remains a grey area, particularly as the exposure of people increases until a specific mention in the law is made. Even thou Chairman of direct tax has announced that the profit earned from bitcoin trading would be taxed.

The cryptocurrencies are not declared as legal tender by the RBI and spelled by Finance Minister himself in the budget speech, it hence may be treated as an asset.

Further, it shall be kept in mind that the cryptocurrency market is an unregulated market and risk of investment remains high without support of Indian Law.