IMF Report Says AML Not Enough To Stop Bitcoin Tax Evasion

IMF Report Says AML Not Enough To Stop Bitcoin Tax Evasion

On Wednesday, the International Monetary Fund (IMF) published a paper in which it said that anti-money laundering (AML) rules are not the solution for dealing with criminals and tax evaders who use crypto for covering their tracks.

However, it did admit that the rules could certainly be a good and logical tool to start dealing with criminals and tax cheats.

The paper

Members of the Fiscal Affairs Department of the IMF were the ones who penned the paper, which include Michael Keen, Shafik Hebous, Ruud de Mooji, and Katherine Baer.

The paper came with a disclosure stating that the IMF may not necessarily have the same views that were highlighted by the authors.

As far as taxation is concerned, the primary concern of the paper is that criminals and the rich have a potent and new way of conducting transactions without them being detected, thanks to digital assets.

The authors are aware that tens of billions of dollars are at stake in the form of potential tax revenue and there has not been any consensus about how the matter should be dealt with.

The authors asserted that they do not have any intention of providing ‘policy prescriptions’.

The suggestions

They did add that governments can look at existing US laws and regulations as a guide for stopping illegal activity and financial crimes.

The IMF authors stated that the tax system has to come up with a way of dealing with crypto, whether the industry withers or survives.

They admitted that applying AML rules, along with third-party reporting requirements, was indeed the first step that governments could take where possible.

As far as AML rules are concerned, the paper referred to the guidance provided in 2015 by the Financial Action Task Force (FATF).

While they were aimed to be used as a global standard for dealing with money laundering, it is a fact that not every jurisdiction is compliant with the said rules.

The details

It was noted in the paper that authorities can get important information about ownership of digital assets from centralized institutions like exchanges.

This is because the said exchanges function as a platform where cash is exchanged for digital assets and they can also track other activities.

According to the estimates in the IMF paper, around $300 billion could have been raised in capital gains tax of 20% on crypto-related transactions back in 2021.

Nonetheless, the authors added that tax authorities can still not get the complete picture from Know-Your-Customer (KYC) procedures that are designed to ensure compliance with anti-money laundering rules.

According to the authors, the KYC rules could help authorities in finding out that a certain amount of crypto was cashed by someone.

But, they would not be able to identify any capital gains or losses from the transactions recorded on the blockchain unless they have access to additional information.

The authors said that tax authorities can take advantage of blockchains because they are transparent when it comes to information about transactions.