Not only is no-KYC mandatory, also are lunar anon DEX exchanges,
as is adoption and migration to privacy coins over them as well as via P2P.
If you don't fight back by rolling out, spreading and using privacy-enabled
coins to the masses (whose numbers when then wielding private money are
what makes winning possible), then all stored value and means of transacting
will be killed, and the entirety of crypto will go to zero.
The WAR on Bitcoin Privacy Intensifies. Automatic Reporting of ALL
Trades and Transactions Soon Mandatory.
Massive overreach of international regulators to force all service
providers in the industry to:
Record ALL crypto trades on exchanges, DEFI and DEXs;
Record (large) purchases from private wallets;
Record all transfers to cold storage and make lists with private
wallet addresses;
Send all this info annually to the (tax) authorities;
And finally, the G20 forces governments to pass these rules into
domestic law.
The war on privacy continues. The aim: to tackle anonymous spending
and exchanging of crypto. As you’ll discover, these new regulations
force upon us a system of complete surveillance and control.
https://www.oecd.org/tax/exchange-of-tax-information/public-comments-received-on-the-crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.htm
This report explains exactly what to expect from the latest
developments launched in October 2022…
Disclaimer: Given that this post is based on new international
standards that have not yet been implemented in national legislation,
and US proposed legislation, non of this information can be considered
legal or financial advice.
What is Going On?
Last year, the crypto world was shaken to its core when the Financial
Action Task Force (FATF), acting in behalf of the G20, released their
guidance on virtual assets.1)
This document laid out a set of rules regarding stablecoins,
distinctions between private and hosted wallets, extensive KYC
requirements, the tackling of privacy tools, and more.2) FATF has also
provided a final definition of the type of service provider tasked
with reporting on crypto: the Virtual Asset Service Provider, or VASP.
Fast forward to today, and these rules are quickly being implemented
across the world.3) But as usual, it didn’t stop there. Another
international regulator, the OECD, is already building on this
framework in an attempt to massively increase the grip of authorities
on what happens in the industry.
What is the OECD?
The Organisation for Economic Co-operation and Development (OECD) is a
Paris-based international organisation that works to “build better
policies for better lives.” Its goal is to shape policies that foster
prosperity, equality, opportunity and well-being for all.4)
Together with governments, policy makers and citizens, the OECD works
on finding solutions to a range of social, economic and environmental
challenges. From improving economic performance and creating jobs, to
fostering strong education and fighting international tax evasion. The
organisation provides a unique forum and knowledge hub within which to
discuss and develop public policies and international standard
setting.5)
This “international standard” setting is what we will look at next.
Automated Exchange of Financial Information with Authorities Since 2014
In 2014, the OECD published the Standard for Automatic Exchange of
Financial Account Information in Tax Matters.6) This publication
created a “Common Reporting Standard” (CRS), which forces financial
institutions to automatically exchange account information with the
authorities of the country of residence of their account holders. The
goal: to prevent persons from holding financial accounts in offshore
jurisdictions and not reporting them back home.
This is why all financial service providers request utility bills:
they prove where you live, and hence where they have to report to.
All financial institutions that are currently subjected to these
regulations are forced to automatically report to the authorities the
name, address, Tax Identification Number(s), date and place of birth,
the account number, and the account value as of the end of the
relevant calendar year (or other appropriate reporting period).7)
Now, there is no more hiding of accounts held with a foreign financial
institutions. The authorities enlisted all financial institutions as
involuntary (but powerful) assistants in collecting facts and evidence
needed for tax compliance.
The Panama Papers; Just in Time to Boost Worldwide Implementation of
Automated Reporting…
After publishing their standards in 2014, the OECD needed to get
countries and their financial institutions in line. By August 2015,
the OECD had released the first version of a CRS Implementation
Handbook.8) It provided practical guidance to assist government
officials and financial institutions in implementing CRS.
But while the standards set by the OECD came into force in 2016 in
early-adopting states, by March of 2016 these standards were still far
from being fully integrated into the global financial system.9) This
was especially true in the offshore jurisdictions that were the main
target.
What was needed was a shift in conscience…
On April 3rd, 2016, the International Consortium of Investigative
Journalists published a giant leak of offshore financial records,
better known as the Panama Papers.10) These revelations caused public
outrage.
The G5, the five largest Western European countries, were quick to
jump on the bandwagon and call for more international cooperation to
tackle “tax dodging and illicit finance.”11) The message did not fall
on deaf ears; the next day, on April 15th, G20 Finance Ministers and
Central Bank Governors met in Washington and issued the following
Communiqué:
“…we call on all relevant countries including all financial centers
and jurisdictions*, which have not committed to implement the standard
on* automatic exchange of information by 2017 or 2018 to do so without
delay and to sign the Multilateral Convention. We expect that by the
2017 G20 Summit all countries and jurisdictions will upgrade their
Global Forum rating to a satisfactory level. We mandate the OECD
working with G20 countries to establish objective criteria by our July
meeting to identify non-cooperative jurisdictions with respect to tax
transparency. Defensive measures will be considered by G20 members
against non-cooperative jurisdictions if progress as assessed by the
Global Forum is not made.”12)
Thus, within 12 days of the publication of the Panama Papers, the
world’s 20 most powerful governments had collectively agreed to start
pushing CRS reporting requirements aggressively, and to punish
non-cooperative (offshore) jurisdictions—regardless of their local
laws.
This is how offshore finance was brought into the fold, and financial
privacy died.
Why Can the OECD Regulate Financial Institutions Around the World?
Isn’t this a Task of Democracy?
The OECD isn’t a government agency of any individual country. As such,
it cannot create law. It issues what is known as “soft laws,” or
“recommendations” and “guidance.” Only when this guidance is
transposed into the laws of individual countries does it becomes
“hard” law, with real world power.
In theory, this process is subjected to the formal (democratic)
law-making processes of the implementing countries. However, countries
that don’t participate face restricted access to the financial system
and ostracism from the international community. For this reason,
almost all nations are compelled to implement these recommendations.
It must also be said that national governments, especially in the
Western world, highly value this kind of international cooperation,
and the control it gives them without the need to deal with the
“inconveniences” of democracy. They simply hide behind the fact that
these are “international standards” which they have to follow because
“everybody” does.
Neither does it help that few of our representatives, journalists and
fellow citizens seem to understand the impact of these treaties. Those
in the legal industry who do understand the implications just look at
it as “business as usual” and a new way to generate income. As such,
most standards are passed into domestic law with little opposition or
delay.
International Standards Aim to Supersede National Law
Once these treaties are accepted, they become part of a body of law
called “international law,” which in many cases supersedes national
laws. Unknown to the general public, international law is increasingly
being used as a backdoor for passing invasive regulations such as
those we are discussing here, and establishing a global bureaucracy
with real power over our (financial) lives.
It is also worth noting that the people working for this Paris-based
institution have not been elected, their procedures and budget are not
subjected to democratic oversight, and they are almost impossible to
remove from power.
Like most international organizations, their operations fall under the
Vienna Conference on Diplomatic Intercourse and Immunities.13) As
such, they enjoy immunity for their actions taken whilst in office,
are exempt from administrative burdens (such as taxes and fines), and
enjoy less stringent (COVID) travel restrictions.
AUTOMATIC Exchange of Transaction Info For Crypto
Last week, October 10th, the OECD published the “Crypto-Asset
Reporting Framework and Amendments to the Common Reporting
Standard.”14)
This applies the tax reporting guidance of the existing CRS to
crypto―and makes it FAR more invasive…
The OECD first published a public consultation version of the document
on 22nd March 2022.15) The deadline for feedback from the public was
29th April 2022. This gave the public just over a month to analyze a
101-page document, figure out what it meant for them and their clients
in multiple jurisdictions, and formulate a public statement on company
letterhead.
This is not a sign that the OECD takes public input seriously. When
comparing the two documents, there is no material difference between
the public consultation and the final version in the section that
matters most, the actual rules…16)
Public consultations give these recommendations the appearance of
being widely supported by “stakeholders.” It creates the illusion that
the public has a say in the matter. It doesn’t. When you read the
questions carefully, they only seek feedback on details, such as which
intermediaries are to be included or excluded, which type of NFTs are
to be in scope, what reporting thresholds there should be, and how
much time should be reserved for implementation.17)
Furthermore, if you read the commentaries submitted, which can be
downloaded here, most respondents just talk their own book, trying to
elicit amendments that perhaps exempt them from a specific reporting
requirement, or trying to get a longer time-frame for implementation.
In all fairness, there were also a number of industry insiders who
highlighted the double standards created for the crypto industry, and
how much of a burden the regulations would represent. In the end, none
of this mattered. The regulations have been published and are now the
new worldwide standard.
What Are The New Guidelines for Crypto?
As was the case with earlier regulations, Bitcoin will not be
banned. Instead, the OECD builds on the approach set by FATF: to
regulate the service providers who facilitate transactions.
In this instance, the OECD developed a new global tax transparency
framework which provides for the automatic exchange of tax info on
transactions in a standardised manner. This is the “Crypto-Asset
Reporting Framework” or “CARF.”18)
As previously mentioned, automatic exchange of information used to
contain only the details of the individual and the account value. New
reporting obligations, however, apply to all transactions in an
account. This is a major extension of the reporting obligations that
currently exist for non-crypto financial services.
Reporting of Transactions (and their Nature) by VASPS
The OECD proposes that those providing crypto transaction services,
for or on behalf of customers, are to report under the CARF. We are
talking here about the reporting entities that are defined by FATF,
i.e. “Virtual Asset Service Providers,” or “VASPs.”19)
Before we look at the details of the information that is going to be
exchanged, let us remind ourselves of what a VASP is:
“VASP: Virtual asset service provider means any natural or legal
person who is not covered elsewhere under the Recommendations, and as
a business conducts one or more of the following activities or
operations for or on behalf of another natural or legal person:
i. exchange between virtual assets and fiat currencies;ii. exchange
between one or more forms of virtual assets;iii. transfer of virtual
assets;iv. safekeeping and/or administration of virtual assets or
instruments enabling control over virtual assets; andv. participation
in and provision of financial services related to an issuer’s offer
and/or sale of a virtual asset.”20)
As you can see, the definition of VASP is so wide that it covers many
of projects currently operating in the crypto space. According to the
OECD, reporting obligations also apply to companies facilitating
Decentralized Finance and Decentralized Exchanges.21)
What Kind of Individual Transactions Are to Be Reported?
What needs to be reported? In particular, the following three types of
transactions:
Exchanges between Crypto Assets and Fiat Currencies;
Exchanges between one or more form(s) of Crypto Assets;
Transfers of Crypto Assets (including Reportable Retail Payment
Transactions).22)
Transactions will be reported by type of Crypto Asset, and will
distinguish between outward and inward transactions. In order to
enhance the usability of the data for tax administrations, the
reporting is to be split out between Crypto-to-Crypto and Crypto
Asset-to-fiat transactions. Reporting service providers will also be
forced to label transfers (e.g. airdrops, income derived from staking
or a loan), in instances where they have such knowledge.23)
In short, the CARF mandates that information an all trades, including
the type of coin, the amount of coins, the market value, and what was
paid, be submitted. This info is then aggregated and automatically
exchanged.24) The goal is to inform the tax authorities of how much
you own and what kind of income you generated from your holdings.
And if that is not enough, the OECD allows lawmakers the option to
request lists of private wallet addresses of users.25)
Reporting of Retail Transactions from Private Wallets
On a final note, the OECD has come up with a trick to limit the
opportunity for crypto users to spend their coins anonymously. The
CARF also applies to merchant providers facilitating crypto payment
for goods or services. In such instances, the merchant provider is
required to treat the customer of their customer as its own customer,
and report the value of the transaction to the tax authorities of the
buyer.26)
For now, this only applies to “large” purchases of over USD 50,000.[27]
What About US Citizens and Green-Card Holders?
The CRS has been implemented worldwide. All developed nations and all
international financial centers have been included in the list,
leaving few of the world’s financial highways untouched.28)
Surprisingly, the United States is not on that list. The reason is
that the US came up with their own automatic reporting framework even
before the OECD did. It is called the Foreign Account Tax Compliance
Act, or FATCA, and requires that foreign financial Institutions and
certain other non-financial foreign entities report on the foreign
assets held by their U.S. account holders.29)
Up until now, FATCA did not directly apply to crypto. But the new 2023
budget proposal seeks to amend section 6038D(b) of the Internal
Revenue Code to require reporting for a new third category, namely any
account that holds digital assets maintained by a foreign digital
asset exchange or other foreign digital asset service provider (a
“foreign digital asset account”).30)
There is also another US-specific reporting obligation, the Report of
Foreign Bank and Financial Accounts. Regarding FBAR, FinCEN has issued
Notice 2020-2, stating that it also intends to make reporting foreign
virtual currency accounts mandatory.31) Moreover, US tax payers are
already required to report their crypto transactions on their tax
returns.32)
The question is, will the United States also implement a CARF like
system, as in the automatic reporting of all transactions? This
question remains unanswered for now. But President Biden’s Executive
Order from earlier this year clearly stated that the current
administration is committed to these international standards,
including those commissioned by the G20 and FATF, and that the US has
a leading role in developing and adopting these international
standards on digital assets.33)
Despite all this, it is still unclear what the regulatory landscape in
the US will look like. Regardless, US-based companies with clients in
other countries (i.e. most of them) will have to implement these
policies. It is hard to imagine the US government not wanting to have
this information for itself, especially since the legal framework is
largely in place. But we will have to wait and see.
What Will Be the Outcome of These Regulations?
The outcome of these new international standards will be full
transparency towards tax authorities. The aim of these standards is to
get automatic insight into all your trades, even laying the foundation
to prevent you from spending coins anonymously with retailers that use
a third party payment provider.
This means in practice that although you can hold coins in your
private wallet, you cannot easily spend or exchange them anonymously.
In short: no more privacy when you use third party services.
One might say this will be the death of third party services, because
accepting online payments is as simple as installing a piece of code
on your website and taking the payments yourself. But most companies
do not have the capacity to run their own payment system, and are
likely going to require payments through a regulated merchant.
As long as there isn’t a Bitcoin standard, meaning accounting and
payments regularly done in Bitcoin, there will be a need for fiat on-
and off ramps. As such, even when you do business in crypto, your
suppliers or clients are likely to make use of a service provider with
reporting obligations.
As a result, expect far more scrutiny on transactions; from exchanges,
but also from the people and businesses you are dealing with in
everyday crypto activity. Even if you do not need to report on certain
transactions, they might be forced to do so.
You might be okay with accepting direct peer-to-peer transactions, but
could run into issues later when you are obliged to prove where the
payments came from.
Regulators Are Out of Control
The reality is that these regulators are out of our control. Without
(direct) democratic mandates or oversight they are flooding the world
with regulation. Just like totalitarian regimes, they effectively
force private parties to police each other.
The service providers, forced into unpaid financial surveillance,
carry the rising compliance costs. Obliged to make hard decisions as
to whom they can take on as customers, they are likely to cut services
to those they consider not worth the compliance costs, such as small
or “high risk” businesses, and people in developing nations.
The cost of compliance might become so great that at least some of
them might want to facilitate transactions only with fully-vetted
wallets tied to a digital ID, such as the EU is implementing.34)
New Precedent: Centralized Surveillance of Individual Transactions
This is a good example of regulations being built on top of one
another, and raising the bar with each step. It should not come as a
surprise if at some point regular financial service providers are
forced into similar obligations to get in line with these new
“international standards.” This step might be taken with the
introduction of Central Bank Digital Currencies, currently being
developed all around the world.35)
Door Open to Further Monitoring and Restricting of Payments
It is not hard to imagine that once all transactions are transparent,
more actions can be taken as to which type of payments and type of
persons are allowed or not. We can see this financial “cancel culture”
already happening around the world.36)
As a result of all this surveillance, it is not only privacy that is
at risk right now; this starts to touch the very idea of maintaining a
payment system where you can freely transact and engage in economic
activity.
Only a massive and radical decentralization movement away from third
party service providers can prevent this dystopia. Stay tuned for a
next report and a roadmap for just that…
TLDR;
Governments at the highest level (G20) commissioned an organization
called the OECD to come up with international tax transparency rules
for crypto. They are using international law frameworks that supersede
national legislation and will demand that every country in the world
complies.
The OECD issued their guidance last week, Oct 10, 2022. They propose
that Virtual Asset Service Providers are to be required to annually
report, on your trades and transactions, to the tax authorities of
your country of residence.
Reporting on transaction information is a major extension of reporting
obligations as they exist for regular financial institutions. The US
is also looking to expand its own reporting frameworks.
Sources:
1 FATF, “Updated Guidance for a Risk-Based Approach to Virtual Assets
and Virtual Asset Service Providers,” (FATF, Paris, 28 October 2021),
https://www.fatf-gafi.org/publications/fatfrecommendations/documents/guidance-rba-virtual-assets-2021.html
2 Thysse W., “FATF Global Crypto Regulations Summary – June 2021,”
(Decentralized Legal System, June 22, 2021), available on:
https://decentralizedlegalsystem.com/wp-content/uploads/2021/06/FATF-Global-Crypto-Regulations-Summary-June-2021.pdf
3 “Further EU and UK Developments in Financial Crime Regulation of
Cryptoassets,” (Ropes & Gray, August 4, 2022), accessed on Oct 11,
2022,
https://www.ropesgray.com/en/newsroom/alerts/2022/August/Further-EU-and-UK-Developments-in-Financial-Crime-Regulation-of-Cryptoassets
4 “OECD – About,” (OECD), accessed on 3 Oct 2022, https://www.oecd.org/about/
5 Ibid.
6 OECD, “Standard for Automatic Exchange of Financial Account
Information in Tax Matters,” (OECD Publishing, Paris, July 2014),
https://www.oecd-ilibrary.org/taxation/standard-for-automatic-exchange-of-financial-account-information-for-tax-matters_9789264216525-en
7 Ibid., page 26
8 OECD, “Standard for Automatic Exchange of Financial Information in
Tax Matters – Implementation Handbook – Second Edition,” (OECD, Paris,
April 2018),
http://www.oecd.org/tax/exchange-of-tax-information/implementation-handbook-standard-for-automatic-exchange-of-financial-account-information-in-tax-matters.htm[Author:
1st edition since replaced by a 2nd edition, which is now found at
this link].
9 KPGM, “The Common Reporting Standard: Are you ready?” (KPMG UK,
March 2016,)
https://assets.kpmg/content/dam/kpmg/pdf/2016/03/the-common-reporting-standard.pdf
10 “Giant Leak of Offshore Financial Records Exposes Global Array of
Crime and Corruption,” (The International Consortium of Investigative
Journalists, April 3, 2013), accessed on Oct 3, 2022,
https://www.occrp.org/en/panamapapers/overview/intro/
11 HM Treasury, G5 letter to G20 counterparts regarding action on
beneficial ownership, (G5, 14 April 2016),
https://www.gov.uk/government/publications/g5-letter-to-g20-counterparts-regarding-action-on-beneficial-ownership:
“The UK has initiated a ground-breaking deal to tackle tax dodging and
illicit finance, alongside Germany, France, Italy and Spain. Ministers
from each country have co-written a letter to G20 counterparts to urge
further international cooperation.”
12 IMF, “Communiqué: G20 Finance Ministers and Central Bank Governors
Meeting,” (Washington, April 15, 2016),
https://www.imf.org/en/News/Articles/2015/09/28/04/51/cm041616
13 UN, “United Nations Conference on Diplomatic Intercourse and
Immunities,” (Vienna, 2 March – 14 April 1961), accessed on June 10,
2021,
https://legal.un.org/ilc/texts/instruments/english/conventions/9_1_1961.pdf
14 OECD, “Crypto-Asset Reporting Framework and Amendments to the
Common Reporting Standard,” (Paris, 10 October 2022),
https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.pdf
15 OECD, “Crypto-Asset Reporting Framework and Amendments to the
Common Reporting Standard – Public Consultation Document,” (Paris, 22
March 2022),
https://www.oecd.org/tax/exchange-of-tax-information/public-consultation-document-crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.pdf
16 [Author note: for comparison, the actual regulations page 15, and
the public consultation document page 10]
17 OECD (2022), Public Consultation Document, pages 8-10 and 62-63
18 OECD (2022), page 6
19 Ibid., page 11
20 FATF (2021), page 22
21 OECD (2022), page 10, and page 12
22, 23 Ibid., page 12
24 Ibid., page 15, Section II: Reporting requirements, A.3.
25 Ibid., page 32, Transfers to External Wallet Addresses
26 Ibid., page 13
27 Ibid., page 19
28 “CRS by jurisdiction,” (OECD), accessed on Oct 11, 2022,
https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/crs-by-jurisdiction/
29 “Foreign Account Tax Compliance Act (FATCA),” (IRS), accessed on
October 11, 2022,
https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca
30 Department of the Treasury, “General Explanations of the
Administration’s Fiscal Year 2023 Revenue Proposals,” (Department of
the Treasury, Washington, D.C., March 2022),
https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf,
page 101
31 FinCEN, “Report of Foreign Bank and Financial Accounts (FBAR)
Filing Requirement for Virtual Currency, FinCEN Notice 2020-2,”
(FinCEN, Washington, December 18, 2020),
https://www.fincen.gov/sites/default/files/shared/Notice-Virtual%20Currency%20Reporting%20on%20the%20FBAR%20123020.pdf
32 IRS, “Form 1040 and 1040-SR Instructions,” (Department of the
Treasury, Internal Revenue Service, 2021),
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf, page 17.
33 Joseph R. Biden Jr., “Executive Order on Ensuring Responsible
Development of Digital Assets,” (White House, Washington D.C., March
9, 2022), accessed on Oct 11, 2022,
https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/
34 “eIDAS Regulation – eIDAS is a key enabler for secure cross-border
transactions,” (European Commission, Brussel), accessed on 11 October
2022, https://digital-strategy.ec.europa.eu/en/policies/eidas-regulation
35 “Today’s Central Bank Digital Currencies Status,” (CBDC Tracker),
accessed on Oct 11, 2022, https://cbdctracker.org/
36 [author note: this week alone famous artist Kanye West saw his bank
closed for this views, and Paypal contemplated fining their customers
for spreading what they considered misinformation.]
https://old.reddit.com/r/Bitcoin/comments/y6gwph/the_war_on_bitcoin_privacy_intensifies_automatic/
https://bitcoiner.guide/nokyconly/
