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International Tax Law Enforcement To Focus On FINtech Companies

The Joint Chiefs of Global Tax Enforcement (J5)— tax authorities of Australia, Canada, Holland, the UK, and the US—recently convened investigators, cryptocurrency experts, and data scientists in a virtual event, “The Challenge,” where the J5 honed in on developing leads and jumpstarting investigations into criminals’ use of the FINtech industry. (The last J5 Challenge, in 2019, focused on cryptocurrency.)  FINTech companies, some of which have profits in the billions, invent and market new solutions for the financial industry; examples include cryptocurrency, payment processing platforms like PayPal, crowdfunding loans, and insurance.

Many FINtech companies have adopted compliance regimes and are partnering with governments and law enforcement to prevent financial crime.  But novel online FINtech products—including applications allowing encrypted communications about financial transactions—and inconsistent regulation and compliance leaves the FINtech industry open to abuse by tax evaders and money launderers.  Jim Lee, Chief, IRS Criminal Investigation, affirmed that the J5 Challenges result in meaningful enforcement actions and that he expects “we will see results from this Challenge in the months and years to come.”

One such result is an investigation worked under the J5’s umbrella that culminated with a March 12, 2021 Indictment in the Southern District of California, charging the former CEO of Sky Global and its main distributor, both Canadian nationals, with facilitating international drug trafficking and money laundering by creating and maintaining an encrypted communications system whereby Sky Global allegedly remotely deleted evidence of criminal activity.  Another J5-related investigation resulted in the March 23, 2021 securities fraud, money laundering, and tax evasion indictment of Jason Peltz in the Southern District of New York; Peltz and his co-conspirators allegedly used smartphone applications with end-to-end encryption to hide their communications.