Cryptocurrency and Asset Protection: Is Cryptocurrency the new Swiss Bank Account?

By of MillarLaw A Professional Corporation On Sunday, April 29, 2018

Perhaps the most popular feature of cryptocurrency is a promise of anonymity (read secrecy).  Cryptocurrency in many respects has replace the “numbered” Swiss bank account but without the protections of the bank secrecy laws of a sovereign country.  What cryptocurrency offers instead is the promise of the ability to move and store large amounts of cash for an indefinite period of time at little or no cost.  The result is that cryptocurrency is  a favorite vehicle for individuals who may be looking for ways to avoid currency controls to secret large sums of money out of their country.  Cryptocurrency also serves to hide assets in a virtual world.  A typical asset protection plan can be reduced to a transfer of funds to a cryptocurrency account through a private wallet and the result is no readily available target for the enforcement of a judgment.  The funds exist in an account somewhere in the blockchain but without the passcodes they can never be located.

The ability to hide assets in cryptocurrency presents an enforcement problem for taxing authorities.  Unless there is a sale of the cryptocurrency through an exchange there is limited reporting of the transaction.  An intermediary, such as an escrow holder may have an anti-money laundering program there requires disclosure of beneficial owners of the account, but given the fact that no where in the blockchain is an individual name associated with the blockchain account the opportunity to provide false information is obvious.  This make cryptocurreny almost an ideal vehicle for a form of asset protection and to the same degree tax evasion.

The IRS is focusing enforcement effort on cryptocurrency.  The efforts to date have involved the use of John DOE Summonses for records of public exchanges, like Coinbase, a company located in San Francisco, California.  Coinbase was recently ordered to turn over account information on 14,000 account holders which information will be used for enforcement purposes.  What the IRS is likely go get is the account transaction register of fay traders, but the real goal is to find the account holders who are using cryptocurrency as the new Swiss account, with capital appreciation the potential benefit as and when the value of any given cryptocurrency increases.

The use of cryptocurrency as an asset protection device is going to continue as long as there are gaps in reporting and the desire to conceal assets exists.