Financial criminals and con artists are constantly evolving their methods, finding new, innovative ways to steal your information, your identity, and your hard-earned money. As we approach tax season in 2019, let’s focus on a unique fraudster scam the IRS and FinCEN warn about every year — tax scams.
Over the last couple of years, this classic (and devastating) swindle has taken on a new form, and it’s one that every crypto enthusiast should be aware of. While scammers have used computer viruses and threats of blackmail to demand wire transfers or less traceable ransoms in the form of gift cards for decades, they are increasingly demanding cryptocurrency of their victims.
If you’re a cryptocurrency investor or enthusiast, then you need to know about this scam so that you don’t end up permanently losing your tokens. It’s a scam that plagues consumers all year-round but seems especially pernicious during tax season.
However, if you’re a business owner or cryptocurrency MSB (particularly an ATM/BTM/kiosk operator), there’s actually a lot you can do within your cryptocurrency compliance strategem to protect your business and your customers from this scheme.
In this article, we’ll help you understand:
- How IRS tax scams work and what to watch out for
- Why cryptocurrency is increasingly a target of fraudsters
- How cryptocurrency kiosk/BTM operators can join the good fight against financial crime.
Let’s get started!
How IRS Tax Scams Work
The Financial Crimes Enforcement Network (FinCEN) and IRS warn about tax scams every year. Why?
Because like the “Nigerian Prince” scam, it’s a classic that still works.
A typical IRS hustle looks like this. A representative of the “IRS” will contact you, usually via phone or email. They will explain that you owe an extraordinary amount of money to the government, and threaten to freeze your accounts and assets.
Some even threaten to throw you and/or your family in jail if you don’t immediately make a payment of thousands of dollars or more.
Of course, the real IRS doesn’t work this way. Usually, if you owe the IRS money, the agency’s first step is to send you a simple letter.
Additionally, according to its own website, the IRS will never:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer.
- Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
- Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
- Ask for credit or debit card numbers over the phone.
Of course, owing the IRS money is no small thing, and we don’t want to diminish how bad it is being in trouble with the agency. The point is, the IRS does not act like the mob when it comes to collecting back taxes.
What Does This Have To Do With Cryptocurrency?
In this sophisticated scam, payment has traditionally been requested in the form of wire transfer, credit card, even gift cards to the iTunes store. Increasingly, these fraudsters are requesting payments in cryptocurrency, like bitcoin.
According to a report from CCN, there has been an increase in fraudsters impersonating tax collectors or even police officers and demanding victims convert their cash into cryptocurrency at an ATM to pay the balance.
The problem is that due to the pseudo-anonymity of cryptocurrencies, it’s almost impossible for the authorities to catch the criminal that scammed you.
“It’s a very hard fraud to investigate given that after the money has been transferred, we can’t freeze the funds that are in the machine because it’s already been converted,” said a law enforcement official quoted in the report.
“It’s unfortunate. There’s been a lot of people that have lost a lot of money.”
What BTMs Can Do
With fraudsters increasingly demanding ransoms in cryptocurrency, ATM, BTM, and kiosk operators are in a unique position to help law enforcement catch bad guys and win some positive credibility for the crypto industry in the eyes of regulators while they’re at it.
Strong compliance, especially robust KYC/CDD policies and procedures, will be absolutely essential in fighting sophisticated IRS tax scams.
In addition to being extra hawkish for cryptocurrency tax scams, make sure that your ATMs themselves are sufficiently equipped for the task of identifying potential fraud.
One of the key tools for KYC, cryptocompliance, and spotting suspicious activity is a camera.
We strongly recommend using ATM cameras to aid in customer identification in general, but they can also be useful in spotting suspicious activity occurring at your machine.
Does the customer appear confused, or under duress? Are they accompanied by someone who appears to be coercing them into executing a transaction?
Here’s something else to keep in mind…
IRS tax scams typically target the most vulnerable populations. One demographic group that has become a major target in recent years for identity theft and victimization are those considered elderly and vulnerable adults.
ATM, BTM, and kiosk operators are expected to report crimes as well as any suspicious activity. Given the increased focus on this vulnerable group and the growing trend of crypto ATMs being used in IRS tax scams, we strongly recommend that operators develop a policy that monitors for elderly financial abuse.
Here is some boilerplate language to better understand what this sort of policy must address:
The Financial Crimes Enforcement Network (FinCEN) and the Consumer Financial Protection Bureau (CFPB) have defined Elder Financial Exploitation (EFE) as the illegal or improper use of an older person’s funds, property or assets. EFE has emerged as one of the most significant frauds against individual persons. It is the most common form of elder abuse in the United States. In response, FinCEN issued an advisory (Fin-2011-A003) encouraging financial institutions to identify “red flags” related to financial exploitation (FE) and to report suspected or known instances of exploitation in Suspicious Activity Reports (SARs).
See Appendix for “FinCEN Advisory: Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation.”
Persons of advanced age are attractive targets because of their assets and regular sources of income, increasing the need for effective interventions. Such consumers may also be particularly vulnerable due to factors such as isolation, cognitive decline, physical disability, health problems, and/or bereavement. Thus, their ability to protect themselves from exploitation may be limited.
In addition to elders, several states have expanded statutory protection from financial exploitation to “vulnerable adults, aged 18 or more.” Individuals who have attained the age of 18 years of age or more with disabilities, or who have a limited ability to protect themselves from exploitation, are considered “vulnerable adults” and are protected similarly to persons of advanced age.
Note: This policy shall define persons who have attained age 18 or more with disabilities, and persons of advanced age, as “vulnerable adults.” This policy defines financial exploitation of “vulnerable adults” as financial exploitation (FE).
BTM operators are encouraged to use the following disclaimer to warn customers of this and any other scam activity:
WARNING!
We have been made aware of numerous scams involving bitcoin and cryptocurrency ATM transactions.
Scams are continuously evolving and have taken many forms. Have you been suggested a job opportunity and then asked to send bitcoins using an ATM? Were you asked to pay a utility or IRS tax bill in bitcoin? Did you find a great deal on Craigslist where the seller asked you to pay in bitcoin or other cryptocurrency using an ATM? If so, it’s highly likely you’re the victim of a scam.
If anybody you don’t know asks you to send them bitcoin or any cryptocurrency, DO NOT DO IT!
Bitcoin and cryptocurrency transactions are IRREVERSIBLE, meaning that all transactions are final. Neither [Operator company name] nor any other bitcoin or cryptocurrency exchanger has the ability to reverse a transaction, as might be possible with a bank, credit card, or other traditional financial institution.
If you have any questions, please do not hesitate to contact our customer support line at (xxx) xxx-xxxx.
[Operator company name] takes consumer protection very seriously and partners with law enforcement to help ensure a safe environment for our customers and participants in the bitcoin and cryptocurrency marketplace.
Is Your Compliance Ready For Cryptocurrency Tax Scams?
If you’re a cryptocurrency ATM, BTM, or kiosk operator, we hope the above language is helpful in developing a policy that prevents your business from being unwittingly used this tax season to facilitate financial crime.
That said, with fraudulent activity expected to rise in just a few months, we also strongly encourage business owners to reach out to the cryptocurrency compliance specialists at BitAML for a compliance review. We can help you set up a stronger compliance strategy to get you through April, the rest of 2019, and beyond. Contact us today.
