U.S. Deploys Pincer Maneuver On Perceived Crypto Abuses – Fin Tech – United States

Crypto’s two calling cards, decentralization and
anonymity, can lead to abuses, such as money laundering and tax
evasion. The U.S. Treasury has long combatted crypto money
laundering, as seen 
here. Now, the U.S. Department of Justice (“DOJ”) is
unveiling a second prong of the U.S.’s pincer maneuver
against these perceived abuses by directly confronting tax evasion,
going beyond its historical practice of tacking tax fraud onto
money laundering charges. The DOJ unveiled this second prong of
attack by charging a taxpayer with straight-up tax fraud
in USA v. Ahlgren.

On February 7, 2024, the DOJ announced the 
indictment  of Frank Richard Ahlgren III in what appears
to mark the first stand-alone crypto tax fraud case. The ten-page,
seven-count indictment alleges that Ahlgren filed false tax returns
in 2017, 2018, and 2019, underreporting or failing to report gains
from the sale of Bitcoin and other cryptocurrencies. The indictment
also contends that, after selling some Bitcoin, Ahlgren structured
cash bank deposits to evade reporting requirements. According to
Don Fort, Former Chief of IRS Criminal Investigation, this is the
first crypto case with tax evasion allegations that are unrelated
to another crime. This indictment may set a precedent for DOJ and
IRS CI to pursue similar stand-alone crypto tax fraud cases.

On the enforcement side, in 
Coin Center v. Yellen, the crypto advocacy group Coin
Center sued Treasury’s OFAC after it designated Tornado Cash
a “Specially Designated or Blocked Person.” The
argument most extensively addressed by the court concerned whether
OFAC exceeded its statutory authority under the IEEPA by making
this designation, given members of the Tornado Cash entity claimed
they had no property or ownership interest in the tool. In a
decision filed on October 30, 2023, the court ruled in favor of
Treasury because the operative language of the IEEPA is “any
interest,” not “property interest” or
“ownership interest.” Adopting an expansive
interpretation of OFAC’s sanctioning authority, the court
found that OFAC’s designation was permissible because members
of the Tornado Cash entity had a financial interest in the tool.
The case is now on appeal before the Court of Appeals for the
Eleventh Circuit. If upheld, the verdict will enable Treasury to
sanction other crypto-based software tools similar to Tornado
Cash.

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