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Crypto Weekly

'Mountains' of fraud are rampant in crypto and NFTs, IRS says

Government agencies are grappling with how to police digital assets in order to deter investors from engaging in criminal activity. A special agent assigned to the IRS's criminal investigation division's Los Angeles field office, Ryan Korner, reports mountains and mountains of fraud in this area. Tax crimes and financial crimes are investigated by this division.

USC Gould School of Law professor Korner said celebrities aren't immune from the IRS's criminal probes. We aren't necessarily looking for celebrities, but when they openly say to the IRS, 'Hey, IRS, you should probably look at me,' we investigate."

A total of $3.5 billion worth of cryptocurrencies related to financial crimes were seized by IRS investigators during fiscal year 2021, accounting for 93% of all assets seized by the division during that period. At the end of the year, IRS CI had 80 active cases where the primary violation concerned crypto, Korner said.

Criminal activity is a concern for law enforcement agencies. The Korners are concerned when they see people paying millions of dollars for assets, like NFTs, that don't seem to have any intrinsic value. He said that bad actors can use that to their advantage to launder money from criminal enterprises, such as drug trafficking. Market manipulation of NFTs and cryptocurrencies, in general, is rife, according to Korner, with highprofile investors able to influence asset prices with a single tweet. Government agencies have in the past targeted crypto companies that used celebrities to endorse products and engage in illegal activities.

Earlier this year, boxer Floyd Mayweather and music producer DJ Khaled settled charges with the Securities and Exchange Commission that they failed to disclose payment for promoting a scheme through social media.

IRS CI is trying to train all of its agents on crypto and NFT issues because "this space is the future," Korner said. He said that the agency is looking to increase collaboration and information sharing with other federal agencies, including the Justice Department, to make sure everyone is on the same page and staying ahead of the criminals. 

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