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.
