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HMRC to demand crypto holdings data from taxpayers under investigation

Publications featured in include: City AM, Daily Express, FT Adviser, Proactive Investors, Accountancy Daily, Accountancy Today and London Loves Business. 
  • HMRC keen to stop money from organised crime ‘slipping through its fingers’
  • ‘Black Market Pesos’ and Chinese fei ch’ien among other controversial assets in HMRC spotlight

HMRC’s ‘statement of assets’ form (used to demand a complete accounting of all a taxpayer’s assets in an investigation) will now include explicit demands for information on cryptos and other assets including those commonly used by organised crime, including:

  • Cryptoassets such as Bitcoin and Ethereum
  • Assets in ‘value transfer’ systems, such as:
    • Black Market Pesos, a system commonly used by Mexican and Colombian drug cartels, which converts drug sale revenues in the US and Europe to local currencies without the money having to cross a border
    • Hundi, an Indian system of credit notes that has existed since the 12th century and is still used by merchants and Hawala, a similar money transfer system common in the Middle East and Africa
    • Fei ch’ien, trust-based money transfer system commonly used in China’s hidden financial system
  • Assets in E-money wallets like PayPal

There has been increasing concern at HMRC over recent years that the tax authority has not been able to identify cryptoassets used by tax evaders. This new demand for data on these assets is a further step in its attempt to get to grips with the problem.

Those who are found to have lied to HMRC about their assets can expect to be prosecuted.

David Jones, director in our Abingdon office, comments: “HMRC suspects that an increasing amount of hidden wealth is slipping through its fingers thanks to the rise of cryptocurrencies and other unsanctioned money transfer systems. This demand for information is an important step in HMRC’s fightback against that.  

The initiative comes hand in hand with HMRC’s publication of its new Cryptoassets Manual. A defence of ignorance of the law in this booming sector will no longer wash with the taxman.

Some assets like Black Market Pesos are almost exclusively used by organised crime but criminal proceeds flow through relatively mainstream assets like Bitcoin at a rate that some find alarming. For example, cybercriminals overseas take virtually all of their ransom payments in Bitcoin to avoid detection.

While criminals can still choose to not declare these assets, doing so gives HMRC another opportunity to bring criminal charges against them if their forensic work finds a hidden Bitcoin wallet.”

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