Virtual currencies have strengthened their position as mediums of exchange
Virtual currencies are digital currencies based on cryptography. While the use of virtual currencies in itself is not a crime, they do not have an official status parallel to that of money. Virtual currencies are defined as mediums of exchange and, in practice, many of them are accepted as a means of payment.
The number of virtual currencies is growing rapidly and not all of them can be given a monetary value. Regarding the virtual currencies for which a monetary value can be calculated, the one with the highest market value is Bitcoin. The markets also include mediums of exchange which are not necessarily, in reality, virtual currencies, even though they are marketed as such. It may be difficult for consumers to differentiate fraud attempts from genuine virtual currencies. The speculative nature of the value of virtual currencies may also cause substantial financial losses to the people who invest in them.
The anonymity of virtual currencies facilitates their exploitation as means of exchange and money laundering in criminal activities. Virtual currencies may also derive from criminal activities. When criminal assets are exchanged into a virtual currency, their tracing becomes laborious, but not impossible. The blockchain of Bitcoin, for example, is public, which means that currency transactions can be accessed by others.
Crimes involving virtual currencies are on the rise
According to international estimates, some 5–10 per cent of Bitcoin transactions relate to criminal activities. In Finland, the number of suspected crimes involving virtual currencies which have come to the attention of the Police has grown every year. The increased use of Bitcoin prepaid cards in Finland is also likely to be linked to criminal money laundering.
The use of a virtual currency enables a variety of crimes, such as tax crimes, account offences and offences by a debtor. In Finland, suspected crimes related to virtual currencies that come to the attention of authorities typically involve drug offences and frauds. At least part of the drug and fraud criminality related to virtual currencies is internationally organised. Money obtained by fraudulent means is quickly exchanged into a virtual currency and that makes the tracing and return of the assets more difficult. Virtual currencies are also connected to a variety of cybercrime phenomena.
In Finland, virtual currencies are subject to taxation. When selling Bitcoins, for instance, any possible increase in value is subject to a capital income tax payable in euros. Tax monitoring targets those who, according to preliminary information, have made a profit in virtual currency transactions. The Tax Administration is aware of about 500 cases involving the evasion of capital taxes during 2013–2016, in which the evaded tax income has amounted to a total of approximately EUR 9 million.
Virtual currencies require regulation
The skills, analytical tools, resources and powers of authorities must be up to date for the effective prevention of the exploitation of virtual currencies in crime. The current challenge is the lack of regulation concerning virtual currencies, given that the relevant legislation is still being developed.
Virtual currency operators should be subject to identification obligation in terms of their customers. The disclosure of identifiable transaction data to the authorities should also be promoted, examples including mass disclosures of data to the Tax Administration. Companies issuing anonymous payment cards should also be covered by the scope of regulation and monitoring in such a way that the use of virtual currencies in the payment of shadow wages, for example, would not be possible.
The Ministry of Finance is preparing legislation applicable to the providers of virtual currency exchange services and wallet services, in which these operators would be subject to a registration obligation and a number of other obligations. In addition, the operators in question should comply with legislation concerning the prevention of money laundering and the funding of terrorism in their operations. The legislative amendments are set to take effect on 1 January 2019.
Key figures related to virtual currencies
- In 2017, crimes related to virtual currencies that came to the attention of the Police grew by 50 per cent compared to the previous year.
- Bitcoin transactions related to criminal activities roughly 5–10 per cent.
- Estimated number of virtual currencies 1,920 (situation in March 2018).
- Estimated number of users 10–20 million.
- The industry employs some 2,000 people on a full-time basis.
- From 2012 to 2016: The sales and purchases of Finns amount to approximately EUR 24.4 million and EUR 32.5 million, respectively.
- The Evaded taxes on capital income in Finland in 2013–2016 approximately EUR 9 million.
Further information on the taxation of virtual currencies is available (in Finnish and Swedish)