Tax dodgers often use creative methods to avoid state dues. It stands to reason then that governments must also be imaginative in combating such transgressions. This past week, the South Korean Government has seized approximately $47 Million (€39 Million) worth of crypto assets, including Bitcoin, from a number of individuals in back taxes.
This is not the first time the Seoul Government has used crypto assets as a form of guarantee, having seized approximately $22 Million (€18 Million) worth of such assets in late April. The current seizure is, however, the largest to date. Inability to repay the taxes by those tax dodgers deemed “major and habitual” will result in liquidation of the crypto assets according to authorities.
This crackdown sits in the shadow of a larger tax avoidance policy implemented by South Korea. However, it also works hand-in-hand with the Government’s pursuit of crypto fraud and money laundering regulation. The 60 South Korean crypto exchanges must meet strict registration requirements by September of this year.
On Friday the 25th, the UK seized approximately £144 Million (€167 Million) worth of crypto assets during an investigation into money laundering activities. The Metropolitan Police have not disclosed what type of crypto assets were seized, though it is undoubtedly the largest crypto seizure in the UK and one of the largest globally.
Last year was infamous for crypto seizures, with the US claiming to have taken $1 Billion (€838 Million) worth of Bitcoin from the ruins of the dark net Silk Road marketplace.
These seizures are executed under a climate of international demands to increase regulations in the cryptocurrency markets which have been growing louder in the past few months. Central Banks, discontented with the lack of control, and keen to reinforce their central role in the financial system, have continuously lobbied states to reign in the cryptocurrency trade.
The tendency for cryptocurrencies to be used as a vehicle for fraud and other illegal financial activities is due to the difficulty of tracking who traded what has prompted governments to pay heed to these calls. In May, the Biden Administration released their Green Book on tax which includes more stringent reporting requirements for purchases in regards to cryptocurrency assets exchanges.
While governments seem to be making moves to address the issues posed by crypto currencies, the more interesting question that arises from events this week is just how governments can seize a crypto asset?
For Bitcoin in particular, investors have a wallet and keys to that digital wallet. Whoever wants to access the wallet will need the keys. The adage within the crypto universe goes: “Not your keys, not your coins”. Ironically, in order to get the keys, governments must seize the wallet which contains crucial data used in the keys. Governments have been reluctant and coy in revealing how this is exactly done.
With the regulatory rope tightening around the crypto asset marketplace, and large seizures becoming regular, the independent status of cryptocurrencies will become even more contentious. Additionally, and reinforced by events this week, crypto assets have created a new avenue for combating money laundering, fraud, and tax avoidance. An avenue that will no doubt continue to be explored.