Cryptocurrency has always felt like the wild west. From its early days being used in online black markets like The Silk Road to its meteoric rise into mainstream awareness, that lawless feeling has been hard to shake. Nonetheless the tax man cometh, exemplified by the recent wrangling over cryptocurrency taxation in the infrastructure bill, and no matter how much like the wild west it might seem, cryptocurrency can be taxed just like most other investments and property. With so much happening in Washington, we were pleased to see a replay of a Fintech Beat interview with Jarod Koopman, the director of the Cybercrime division of the Internal Revenue Service. The re-airing of the show arrived just in time for tax season, and before the summer’s tumultuous talks on how and whether to impose digital taxes on actors like miners.
With special agent Kooper as the guest, the conversation naturally focuses on illicit crime, national security, and income tax. Crypto isn’t tied to a fiat currency, but it is property, nonetheless. In its own right, it could be harmless, but just like any “fruits of the crime” it can be taken in a search-and-seizure. As the preferred method of exchange for criminals on an ever expanding dark-web, crypto has become a resource that might not be innately illegal, but is wrapped up more and more in illegal activity. Equally important, with the country reportedly losing about a trillion dollars every year in unpaid taxes, the IRS, like many policymakers, has honed in on crypto as a possible mechanism relied on by tax dodgers for evading taxes.
As a professor, Dr. Brummer is no stranger to the ways in which cryptocurrency has transformed the landscape. A scholar turned Washingtonian, living in the District of Columbia with his wife, the attorney Rachel Loko, he has long had his eyes set on the intersection of finance and law. New fintech means new regulations, and in the age of crypto, those regulations need to happen faster and more efficiently than ever before. He is a professor and faculty director of Georgetown’s Institute of International Economic Law, and has dedicated his career to keeping up with new challenges in financial regulation. On his podcast, Fintech Beat, Dr. Brummer interviews experts and insiders in financial technology to explore the “intersection of policy, finance, and tech” for the benefit of potential investors and enthusiasts alike. He is also the founder and host of the DC Fintech Week Conference, a weekend of panels and discussions in the nation’s capital with the goal of democratizing information about the future of financial technology. His paper, “What Do the Data Reveal About (the absence of Black) Financial Regulators?” was published by Brookings last year and is a testament to his intersectional approach to financial technology and regulation; incorporating race, class, and demographics, and concerns about representation into his body of work. He has had the distinction of serving on Joe Biden’s transition team and was recently added to Fannie Mae’s board of directors in February of 2021. Nonprofits, governments and industry leaders alike call on minds like Dr. Brummer to stay on the cutting edge of technology. With blockchain being utilized more and more as a means of making things like international banking easier and cryptocurrencies themselves being developed by major institutions like JP Morgan, it’s essential for all major players to stay up to date, including the cybercrime division of the IRS.
The IRS, like other law enforcement agencies, hasn’t had it easy. The Silk Road, one of the few online drug markets to become a household name, is the tip of the iceberg. Newer, larger illegal markets pose constant risks. Crypto is an attractive currency choice for those markets; it allows for anonymity, mobility, and ease of transfer. Moreover, Koopman observed, while a newer savvier criminal class is emerging, a common problem in this new era of cybercrime are the hackers bought out in the “crimes as service” marketplace. The dark-web is as much a place for securing freelance work as it is a place for securing contraband or narcotics. Which Dr. Brummer dubbed “a criminal Angie’s List.”
One interesting question posed by Dr. Brummer was the issue of the innocent crypto holder, namely, if you’re holding a form of crypto that was somehow connected to criminal activity, could you be prosecuted as a criminal? Koopman assured him that so long as he wasn’t a participant in an illegal act, holding the crypto itself wouldn’t be a problem. The more immediate challenge is how quickly countries will adapt to high quality KYC compliance and surveillance. By virtue of just not being fast enough to adapt and form their own cybercrime divisions, countries can unwittingly (or intentionally)become what Koopman calls “crypto havens” where dark-web vendors far larger than The Silk Road ever was can thrive with impunity. International organizations, nonprofits and private industry are all working hard to educate those countries out of becoming havens but as Koopman said, “We have to become smarter and faster about that process.”
Another fascinating issue involved just what happens when government “busts” of crypto occur. Just what happens does not, in short, mimic what arises in the world of fiat currencies. Cryptocurrency is, in many instances, extremely volatile, creating major challenges when it comes to liquidating the illicit crypto seized in drug and other heists. “The government could move a market just in terms of how it removes these fruits of the crime,” Brummer intuited after learning how long it takes for the crypto to be auctioned off.
Koopman concludes the episode with the hint of a major takedown of a large dark-web marketplace. It’s a blockbuster note to hold the audience in considerable suspense, with the head of the IRS’ cybercrime division admitting that he couldn’t disclose details on the case. Supposedly it was a landmark crackdown, leading to international arrests of “hundreds” including the leader of the organization. “We’ll be waiting with bated breath to see what happens next,” Dr. Brummer said, speaking for all of us.
“If making policies for cryptocurrency is hard, enforcing crypto laws might be even harder,” Dr. Brummer concludes. The effort to keep up with the growing enterprise is agonizing, requiring the kind of breakneck speed and international coordination that has almost never been easy in law enforcement. Then, whilst holding volatile cryptocurrencies, authorities have to figure out a way of auctioning it off. It’s not an easy feat, but if Koopman’s hand in a massive dark-web crackdown is any indication, cybercrime authorities are rising to the occasion.