US Tax Implications of Cross-Border Cryptocurrency Bribes


Today's blog author is an attorney and crypto regulation expert - Selva Ozelli. Selva previously wrote a whitepaper for us, 'Regulations Fall on Bitcoin Around the World.'

The 2007-2008 global financial crisis brought new challenges for — and, in time, improvements to — the U.S. Foreign Corrupt Practices Act (FCPA) and its enforcement around the world. Over the last decade, the FCPA has been one of the most important tools in the worldwide effort to fight corporate bribery of foreign officials. In the aftermath of the financial crisis — and at the urging of the G-20 — the OECD proposed tax transparency rules.1 Since then, 147 jurisdictions have signed on to the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes and that effort has helped to improve the utility of the FCPA. It is increasingly common for heads of states, including royalty, to face prosecution and even jail time for transnational corruption-related offenses.2 The financial crisis also helped the cryptoeconomy emerge — enabling the cross-border peer-to-peer transfer of value, including cryptocurrency bribes. In the crypto-economy,value can be created by mining, and distributed ledgers allow for the transfer of money over the internet without the involvement of banks, which must obey anti-money laundering (AML) and know-your-customer (KYC) laws. Regulators and tax authorities are often unable to detect violations of the FCPA and tax laws. They are also often unable to detect money laundering or fraud that involves cryptocurrency.

Testifying before the U.S. Senate Subcommittee on Crime and Terrorism at a hearing led by Sen. Lindsey Graham, R-S.C., titled, “Protecting Our Elections: Examining Shell Companies and Virtual Currencies as Avenues for Foreign Interference,” Scott Dueweke of DarkTower, a cybersecurity firm, explained:

'For cryptocurrencies, the greatest emerging threat of foreign funds reaching the coffers of political candidates, or to be used to fund other influence operations, are the increasing number and liquidity of privacy coins. These are cryptocurrencies that seek to evade efforts to identity their users through the blockchain, and criminals are using them. These funds do not need to stay in their virtual currency of origin, however. Digital money can be used through a huge matrix of exchangers. Thousands of them around the world — interconnected — and do not necessarily meet any type of KYC requirements. For somebody who knows what they’re doing and is skilled, it’s almost impossible to follow them through this matrix of exchangers.'

This article explores the U.S. tax implications of cryptocurrency bribery payments made by multinational entities in violation of the FCPA. It is a follow-up to an earlier article by this author, who ran a webinar on the topic by MCO, providing useful background information on the FCPA and other applicable U.S. tax laws. To download the full article click here.

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