Bitcoin Weekly 2013 June 12: IRS Eyes Bitcoin Over Tax Evasion, PRISM’s Effect On BTC Prices, Israeli Banks Resisting Exchanges
This past week saw a huge explosion of media surrounding domestic spying and the deep puncturing of trust and privacy by US Internet users (and people in general) with the revelations surrounding Verizon and the NSA and then immediately thereafter the leaks involving PRISM. This has driven a lot of thought about what BTC can do for people who want a digital currency—that depends on the Internet—and also may have affected current prices.
The IRS has also joined into speaking about Bitcoin—through virtual currencies in general—in that they could be used for tax evasion. No doubt, financial regulation will become the next-big-thing for the Bitcoin community as it not just becomes more popular, but comes to the attention of governments and regulatory agencies. Can we expect a tax fraud crackdown?
Finally, Israeli banks seem to be resisting money transfers done to and from accounts connected to Bitcoin exchanges—reports CoinDesk and others—essentially stifling people who live in that country from trading.
From Money Laundering to Tax Evasion, Bitcoins Evolving “Criminal” Outlook
Even as many bitcoin exchanges are trying to best fit into money regulations in the US, prosecutors continue to scrutinize the use of virtual currencies to commit crimes. Namely, citing the expectation that offloading cash into BTC could be used to evade taxes.
“Clearly the increasing use and misuse of cyber-based currency and payment systems to anonymously transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to,” Victor Lessoff, director of the Internal Revenue Service (IRS) in charge of cyber threats told the Financial Times.
“The globalisation and digitalisation of our currencies is a significant emerging threat […] It doesn’t take much of a leap [to think] that these currencies would be used for tax evasion.”
This problem for the IRS wouldn’t be specific to Bitcoin or any other money transmittance (similar to how money laundering can be done with businesses and underground trades can be done with boxes of Tide.) However, whenever BTC is transferred from and to USD means that the trader enters into financial regulations—and therefore the prevue of the IRS.
Only last week the FTC began a study of the effect of Bitcoin and sites such as PayPal on banking and this speech by a prosecutor about how virtual currencies and even sites similar to PayPal may end up falling under financial regulations (and the scrutiny of the IRS in general.)
NSA’s PRISM revelations and its effect on the Bitcoin market
The Internet is a wild, wild, West as much as it’s a world wide Web, and everything we see and do can be monitored. This happens to be one of the selling points for a psudeo-anonymous currency such as Bitcoin and it drives a real sense of connectivity between the privacy conscious as well as those looking forward to a truly digital currency for the information age. As a result, news about spying on the American people—such as come with the NSA and Verizon and revelations about PRISM—can have a real effect on the sentiment of Bitcoin traders.
Over at , Daniel Cawrey, has argued that this shift in sentiment is exactly why we’ve seen something of a swift market shift in Bitcoin value since the PRISM spying news media cycle:
The sell-off has continued. On Sunday, a time when the market for bitcoins is slow-moving historically, the price dropped during heavy volume trading.
The link between bitcoin price and public opinion has been well discussed. The rash of sell-offs in the past week indicates that some might be concerned about the role of bitcoin, considering how much the United States government knows about what occurs on the internet. While they cannot stop bitcoin, they can monitor it – which after the past weeks’ revelations, they most certainly are doing.
Cawrey makes a commentary about how sentiment about the Internet and privacy in general affects Bitcoin trading because it’s so thoroughly tied up with a community with a sense about how they interact with data. Although, he also notes that with revelations that the NSA is spying on US citizens that something like BTC should be more valuable due to its cryptographic nature—but instead we’ve seen the value fall somewhat.
The market shift has been extremely short term—after all the PRISM news is only hitting the market right now with corporations denying and politicians explaining away the details—but its shows that the community who trade in bitcoins are a little bit sensitive to what affects the Internet and the US in general.
Israeli banks resisting (or restricting) Bitcoin exchanges
The news is still a little thin on the ground but between news posted on Israeli Army News and CoinDesk has seen some resistance in Israel about bitcoin exchanges and transfers. It looks more like the banking system of Israel is more uncertain about how its own laws govern exchanges between money and as a result have started to suspend such activity.
From news on the ground, users are reporting that what’s happening is Israeli banks are blocking and restricting bank transfers between customers and Bitcoin exchanges as well as any accounts apparently tied to people who trade in BTC. As a result—until the banks involved resolve their issues with the law—people who want to use Israeli banks to exchange or trade in BTC may be out of luck.
The Coindesk report includes an e-mail cited by a user on the Bitcoin Forum who reported an e-mail from their bank, Mizrahi Tfahot, about a request to transfer funds to Mt. Gox:
From a check made in the bank it seems that your account contains activity involved with virtual currency. The activity is characterized by issuing wire transfer to a company called MTGOX, through which this currency is purchased.
Virtual currency is anonymous and unregulated. Trading them is not regulated and thus poses a high risk for the bank. Therefore, the bank has decided not to allow such activity for our customers, until guidance/clarifications are issued by the Israel Central Bank.
You are requested to stop any such activity.
We inform you that if you do not comply, we will have to refuse any activity directly or indirectly related to this area of activity.
This story obvious has a long way to go before it’s obvious what’s going on. However, it’s obvious that Israeli banks are not certain about how they’re supposed to react to “virtual currency” trading. And if they’re going to refuse to comply with transfers to and from Bitcoin exchanges and traders it means that bitcoin customers in Israel will need to look outside their own country for banking options (or just third party money transfer.)
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