Bitcoin Money Laundering

February 6, 2020

For most Americans who are aware of it, bitcoin is a harmless curiosity. For some, bitcoin may potentially raise serious questions about bank security and the purpose of fiat currency. But for most, bitcoin isn’t considered a force to be reckoned with or seen as something which can cause major societal changes. This perception is actually not accurate. For one thing, bitcoin and other cryptocurrencies appear to be here to stay. And for as long as cryptocurrencies are around, they will disrupt public confidence in traditional currency markets. 

Bitcoin and other cryptocurrencies are also creating a bigger workload for the IRS. The IRS is having to determine how traditional tax principles apply to cryptocurrency and put effort into cryptocurrency tax debt collection. We’ve seen this in the most recent series of letters sent out to cryptocurrency holders. What few people realize, however, is that bitcoin and other cryptocurrencies are often used in black market or other underground transactions. The Drug Enforcement Administration identified this fact in its 2017 publication, National Drug Threat Assessment (NDTA). 

In this post, we will go over the basics of this 2017 report by the DEA. Essentially, the DEA noted that bitcoin is becoming increasingly used by transnational criminal organizations for money laundering and drug trafficking purposes. We will conclude by encouraging cryptocurrency holders to come forward and proactively disclose their tax debts to the IRS. Proactively disclosing past tax debts will ensure that the problem doesn’t get worse. 

Use of Bitcoin Noted in NDTA Publication 

The 2017 NDTA publication notes that transnational criminal organizations are always seeking new means to conduct business. Historically, these criminal organizations have used bulk cash, money value transfer systems, trade-based money laundering, and even traditional banks in some instances. Now, these organizations are starting to use bitcoin and other virtual currencies as a means for carrying out criminal business. Bitcoin is anonymous. That’s one reason for it’s popularity. The identity of a given digital wallet owner can be extremely difficult to track down, and bitcoin transactions themselves are characterized by a large degree of anonymity. Bitcoin therefore allows criminal organizations to carry out illicit business (such as drug smuggling) with greater ease. The fact that bitcoin is also increasingly accepted by mainstream institutions also contributes to bitcoin’s popularity among criminal organizations. 

Bitcoin Used in Criminal Organizations in China 

Bitcoin has seen a big rise in popularity among criminal organizations operating in China. It is now the coin of the realm for Chinese criminal organizations using trade-based money laundering schemes. Trade-based money laundering involves shipping large quantities of “made in China” goods to either the U.S. or Mexico. The criminal organizations will ship the goods to either of these places and then receive the local currency in exchange. Now, instead of the local currency, these criminal organizations are preferring to receive payment in bitcoin.

The use of bitcoin in this type of scheme confers several advantages. The criminal organizations are able to evade scrutiny much more easily whenever they transfer funds to Chinese-based manufacturers. Many criminal organizations will also be able to use their bitcoin to purchase Chinese goods without any oversight or scrutiny from a financial institution. In short, the anonymity, mixed with widespread acceptance in the market, has made bitcoin a coveted currency among criminal organizations in China. 

Bitcoin Users Should Disclose Past Debts 

The use of bitcoin in transnational money laundering and drug trafficking is definitely disturbing. Another disturbing thing to think about is past tax debts deriving from bitcoin or other cryptocurrencies. If you have crypto tax debt, the best thing to do is to proactively come forward and resolve the debt with the IRS. Depending on the specifics of your case, you may need to file amended returns, create an installment agreement or submit an OIC. Dealing with past tax debt is never an easy thing. Past tax debt stemming from cryptocurrency is probably much more difficult because of all the uncertainty and novelty. But one thing is for sure: ignoring or avoiding the IRS when it comes to crypto tax debt will only worsen the situation. 

Get in Touch with MC&C to Learn More 

At Mackay, Caswell & Callahan, P.C., we make an effort to stay on the cutting-edge of IRS tax debt collection. This is what enables us to serve our clients effectively. We regularly consult with clients to resolve past federal tax debt, New York State tax debt, New York State sales tax debt, New York mobility tax debt, and so forth. If you have unresolved debt with the IRS, we can help you. This includes unresolved debt deriving from bitcoin or other cryptocurrency. If you have cryptocurrency tax debt, you need a tax attorney who has any knowledge and understanding of cryptocurrency. This is what sets us apart. Call us and one of our top New York City tax attorneys will respond to your case instantly. 

Image credit: Photo Credit & License 

As seen on

Client reviews

How can I help you?

You can contact us using this form day or night, 24 hours a day, 7 days a week, 365 days a year. You will hear back from one of our attorneys the same day or next day.

If you would like to speak with a team member immediately, we are available 24/7 via this form — or via phone toll-free from 6am – 8pm EST M-F at: 844 - MCC - 4TAX

schedule an appointment with us

Call Toll Free
844 - MCC - 4TAX
send a message
Contact Us
send a message
Contact Us