During the Han Dynasty about 2,000 years ago, China reconciled with some nomads in Central Asia. They kept looting merchants on the Silk Road in order to get easy paydays. This was done in order to fully establish the Silk Road trade route from China to Europe and obtain a huge source of wealth from the luxury goods trade.
Now, as trade increasingly shifts to the digital realm during the global COVID-19 pandemic, cyber attackers are taking advantage of the organization’s lax cyber security measures. They are using ransomware to cryptographically lock the data of these organizations until the ransom is paid in cryptocurrency. Back to 2019, 98% of ransomware payments are paid In Bitcoin (Bitcoin).
related: Unlike before: Digital currency makes its debut in COVID-19
Anne Neuberger, Deputy National Security Advisor for U.S. Networks and Emerging Technologies Explanation:
“The number and scale of ransomware incidents have increased significantly. […] The U.S. government is cooperating with countries around the world to hold ransomware participants and the countries that harbor them accountable, but we cannot fight the threat posed by ransomware alone. The private sector has unique and critical responsibilities. ”
President Joe Biden’s government is taking action to respond to cyberattacks – this is estimated It costs $1 trillion a year, and it usually comes in the form of ransomware—as a national security threat.The intelligence agencies concluded that they pose a greater threat to the country, including gasoline, food supplies and Hospital system risky.
Recently, the U.S. Department of Justice Seized 63.7 BTC (worth approximately $2.3 million at the time) represented the proceeds of Colonial Pipeline’s payment of ransom to an organization called “DarkSide”. It did this through coordinated efforts with the U.S. Department of Justice’s Ransomware and Digital Ransomware Working Group, which worked with domestic and foreign government agencies and private sector partners to combat this major criminal threat.
related: Cybercrime working group that monitors the global digital financial system
Lisa Monaco, the deputy attorney general of the U.S. Department of Justice, pointed out: “Tracking money is still one of the most basic but powerful tools we have.” She continued:
“Ransom payment is the fuel that drives the digital blackmail engine, and [..] The United States will use all available tools to make these attacks more costly and less profitable for criminal companies. ”
Paul Abate, deputy director of the FBI, added:
“We will continue to use all our available resources and use our domestic and international partnerships to disrupt ransomware attacks and protect our private sector partners and the American public.”
The impact of cryptocurrency payments on U.S. taxation
One question is whether payments for ransomware can be considered as “ordinary and necessary” costs of doing business, and can they be deducted from taxable income as theft loss 162 (one) with 165 (one) The Internal Revenue Law provides for the power to deduct any losses not covered by insurance or other means. There are multiple judicial and administrative definitions of theft. The IRS definition seems broad enough to cover cyber attacks and allows ransomware payments in cryptocurrencies to be deducted as business expenses for federal tax purposes.
However, in the first 162(c), If the ransom paid in cryptocurrency constitutes illegal bribery, illegal kickbacks, blackmail payments, or other illegal payments – such as payments to a group classification As a terrorist organization under any U.S. law-it will not duty freeTherefore, taxpayers should distinguish illegal payments from ransomware encrypted currency payments by highlighting property theft. When paying ransomware needs in cryptocurrencies to cybercriminals who have known links to sanctioned or boycotted foreign governments, illegal issues may arise.
related: The sanctions compliance for fiat currency and cryptocurrency transactions are the same: experts believe
This is an example, if Written by Tom Robinson, Elliptic co-founder and chief scientist: “Elliptic was the first Bitcoin wallet identified by the DarkSide ransomware organization to receive 75 Bitcoins from the Colonial Pipeline. […] Dark side [which is believed to be based in Eastern Europe] It is an example of “ransomware as a service” (RaaS). In this mode of operation, the malware is created by the ransomware developer, and the ransomware affiliate is responsible for infecting the target computer system and negotiating with the victim organization to pay the ransom. This new business model has completely changed ransomware and is open to those who do not have the technical ability to create malware but are willing and able to penetrate the target organization. “
If the victim company spreads the infection to other companies, the ransomware attacker may even offer it a discount.According to a report, these ransoms paid in BTC were subsequently laundered in the darknet market release Through Flashpoint and Chainalysis.
Any ransom paid in cryptocurrency is taxed as property rather than currency. Therefore, taxpayers should keep detailed records of these ransom payment cryptocurrency transactions, report any gains and report the fair market value of any mined cryptocurrency in their tax returns.
In addition, the Financial Crime Enforcement Network (FinCEN) also supervises cryptocurrency-related transactions in accordance with the Financial Crimes Act. Bank Secrecy Act (BSA) by statement “(1) The administrator or exchanger who accepts and transmits convertible virtual currency or (2) buys and sells convertible virtual currency for any reason is a currency transferor.”
Therefore, according to the BSA, cryptocurrency senders need to complete a risk assessment, develop written procedures to avoid money laundering, appoint a personal compliance officer, and complete other action items.
related: U.S. updates its cryptocurrency AML/CFT laws
It should be noted that other profitable and guilty participants in the Bitcoin ransom payment program may find themselves facing criminal and tax fraud/tax evasion penalties.For example, John McAfee, the founder of the anti-virus company named after him, was recently charged There are various tax crimes related to cryptocurrency transactions held by nominees in the United States, and if convicted, they will face many years in prison.This may have been a factor in his decision to commit suicide in a Spanish prison in court Ruled that he could be extradited To the United States.
related: John McAfee’s suicide report sparked suspicion and led to conspiracy theories
In a speech to the U.S. Senate Appropriations Committee, FBI Director Christopher Wray advised ransomware victims not to pay a ransom to retrieve hijacked data or regain network access.he Say “In general, we discourage payment of ransom because it encourages more such attacks. Frankly speaking, there is no guarantee that you will get your data back,” Add to: “We must make it more difficult and painful for hackers and criminals to do what they are doing.” He continued:
“Last year, we took more than 1,100 actions against cyber opponents, including arrests, criminal charges, convictions, dismantling and sabotage, and through our cooperation with the private sector, foreign partners, and federal, state, and local entities.”
The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Selva Ozeli, Esq., CPA, is an international tax lawyer and certified public accountant. He often writes articles on tax, legal and accounting issues for tax notes, Bloomberg BNA, other publications and the OECD.