Cryptocurrencies and dirty money are working together

The regulation approved by the Council of Ministers in November 2021 for the licensing of entities for operating online stock exchanges in the cryptocurrency market does not appear to have prompted any operator to be formal until May 2022, where even from the confirmations of the Financial Supervisory Authority does not seem to have done applicable formalization of this informal market.

And yet, reports from foreign money laundering bodies[1] and notices from Albanian police operations[2] show that the economic activity of cryptocurrency production is not yet licensed as a genuinely taxable activity like all operations of financial market activities.

This means that the big beneficiaries are not simply those who produce cryptocurrencies, that are most exposed by high energy consumption, but those money laundering cases that have no author. In these cases, they have no chance to operate without protection from the authorities who have the opportunity to act, even it looks quite difficult to operate in a market stifled by informality like the one we live in Albania.

The activity report of the Directorate for the Prevention of Money Laundering (GDPML) for 2021 does not mention any case related to the reporting of suspicious money laundering activity or operation in the case of cryptocurrencies, when the subjects if we had registered them as online scholarships would, they also will had the obligation to carry out due diligence and enhanced procedures, as the case may be, for all their clients as well as to report any cryptocurrency transactions above the value provided by law.

But even the General Directorate of Taxes (GDT) has not a single case to say that it has done its duty to track down illegal activities of cryptocurrencies. This is in fact one of the primary tasks of the GDT, for intelligent and risk-based tracking to implement the objectives of the Strategy for revenue optimization and the establishment of tax justice.

So the law is not being implemented!

None of these tasks have been done and this does not seem to be happening even for the rest of the year, regarding the anti-informality work program.

There’s a gap in fiscal legislation!

The tax legislation does not provide for cases of use of cryptocurrencies in the case of transactions, or even a special guide for the control of cryptocurrency operators and stock exchanges.

Meanwhile, no joint guidelines are provided between the GDT, GDC and GDPML for this purpose or special regulations to train and instruct employees in order to prepare for this new unknown market, but with a total informality since its inception, like none of the other businesses in the country.

All this situation explains why this law, like some other laws that are made in a hurry and under the interest of certain lobbies that have nothing to do mostly with the public interest, but with the interest of corrupt officials, criminal groups, that seeking to formalize and capture the free market to set their own rules, as is happening in certain segments of the economy.

The government is in dire need of liquidity and is looking to borrow money. Within this need may also occur the fulfillment of money laundering objectives by criminal groups, which in the last two decades have called it fairer to keep liquid assets abroad. And based to this influx of money is the right time, as long as government agencies do not do their job properly or do not do it at all, and the situation degenerates into allowing dirty money to be clean made alongside regular formal market, but competing and take out of the market many businesses that do not have the potential for funding such as corrupt and criminal groups.

This is understandable from the adoption of this law that was born “dead”, or from the launch of fiscal amnesty, the questioning of cannabis legalization, the normal dysfunction of the GDPML and the flourishing of the construction sector beyond the declared formal capacity of funds for investments, as well as forms of preferential taxation on the occasion of the launch of the new law in the absence of a real and quality fight against informality and evasion.

All these inactions and approvals of laws in a hurry, when business does not ask for them, but the government itself is interested, give us to understand that the financial system is under the conditions of a public oligopoly, where institutions seem to have problems with integrity guaranteed by the law.

But why should we care about all this treatment?

From all this logic of the law on online cryptocurrency exchanges there does not seem to be any direct or indirect benefit to the public, other than the informal market and dubious money laundering channels.

In these conditions we are in the position of a market which commits tax evasion among others as mentioned above.

Tax fraud charges resulting from non-payment of taxes on cryptocurrency profits are punishable under tax legislation. The offense occurs when an income winner makes a deliberate attempt to evade taxes in addition to money laundering which is another crime that should be stopped and punished.

How do cryptocurrencies lead to tax evasion?

For example, a business that receives more than ALL 10 million in cash from a customer must submit a currency transaction report. This can also happen if a consumer buys a device for more than 10 million ALL in cash. These reports of such transactions, currently occurring occasionally, indicate to government institutions that a buyer has a lot of money, which should or should not be reported on a tax return.

But the same rules do not apply to cryptocurrencies. A business that receives 10 million ALL, e.g. in Bitcoin by a customer fails to submit them in a currency transaction report, as he is not registered as a business, or is within the activity of foreign exchange points, which include the transaction as the daily routine of their exchange work of currencies in LEK and vice versa. So, those incomes that are included as cryptocurrency, e.g. Bitcoin, Etherus etc. may go tax-free if not reported in the business tax return.

Despite making up a relatively small portion of business revenue today, cryptocurrency transactions are likely to increase in importance over the next decade, especially in the presence of a broad-based financial reporting system.

According to tax experts, this current situation is mainly due to poor reporting requirements and lack of registration as formal businesses. On the other hand, the GDT may not be able to track crypto revenues or transactions if they are not reported by exchanges, businesses and other third parties. And that means income may not be taxed.

None of the institutions that have the scope of work about monitoring and auditing cryptocurrencies activities have set clear rules for it, so there is massive non-reporting. Whenever there is non-reporting a way is created to profit from tax fraud in a traceable way or much more difficult to trace.

Crypto is rapidly becoming an alternative to cash as more traders accept Bitcoin and other virtual currencies as payment. But, while the rules for cash tracking are more regulated as a coverage area by the Bank of Albania, what specifically needs to be changed in terms of fiscal and financial?

Tax legislation should treat cryptocurrency transactions as cash.

Also, financial institutions, non-financial and all that have to do with cash payments should be based on the threshold e.g. 150,000 ALL to be reported as suspicious transactions.

Other measures available are the tasks of the institutions mentioned in this analysis, which if they become coordinated with each other are slightly less likely to let go without dictating transactions in large amounts.

We are talking about a small country with a small financial and monetary market, where the money entering Albania remains here, as the financial market cannot transmit it abroad, due to its lack of connection with the global market.

As a result, cryptocurrency expenditures are related with people, like many others you can find if you look at which activity or sector has outdone itself with the costs it incurs.

It’s simple when you know how to do it and above all you want to do your job!

[1] https://euronews.al/en/albania/2022/05/18/money-laundering-lands-albania-in-grey-list-for-second-year-in-a-row/

[2] https://abcnews.al/1-milion-euro-investim-policia-godet-kriptomonedhat-tre-te-arrestuar-ne-durres/