Unregulated decentralized digital money is revolutionizing financial markets. Governments are scared and banks are looking for ways to control the flow of capital and profit from the blockchain. In this post, we’ll look at how the US government is attempting to limit and control cryptocurrency… and what you might do to avoid those controls.
How far will governments go to scrutinize one of the last freedoms of movement we enjoy?
It starts with, all banks in the US required by law to fill out suspicious activity reports on their customers. Next, banks all over the world that accept US clients must act as unpaid IRS agents under FATCA. These laws of reporting to the US government started expanding, then becoming morbidly obese, and are now expanding to include cryptocurrency.
And each agency is looking at crypto differently… in whatever why gives them the most power to regulate or profits from taxes.
For example, IRS has rules that cryptocurrencies are assets. When sold, they are taxed at capital gains rates, or 20% plus your state for long term, not including Obamacare taxes that may be eliminated by Trump.
But the SEC has ruled that ICOs must follow the same regulations as IPOs. That is, may only be offered to accredited investors and are subject to all securities regulations. So, raising Bitcoin is treated the same as raising US dollars by the SEC.
Also, recent changes to Section 5312 of US Code Title 31, the definitions expanded to include any business which issues or transacts with credit cards (that’s like 99% of businesses in the world) and prepaid things (such cards, phones, coupons, etc.), will have to file reports with the government.
Watch out! Texaco, Mickey-D’s, and KFC, are compelled to report your financial transactions. It seems like senators binge watched Breaking Bad, and got inspired on money laundering issues.
Through newly proposed legislation, the Senate and the SEC are trying to target cryptocurrency under the anti-money laundering regulatory standards, by identifying Cryptocurrency as real money.
The proposed legislation attempts to regulate Bitcoin by calling it cash and forcing sites to comply with money laundering regulations. But crypto is built upon privacy. To apply KYC and AML rules to this form of payment is incompatible with its intended use.
The proposal includes a list of monetary instruments that must be reported when entering or leaving the US. In theory, leaving the US with more than $10,000 in Bitcoin or Ether, you would have to notify authorities or face the penalties, such as prison time, civil asset forfeiture, etc.
Does anyone see what’s wrong with this? You want people, who think a bottle of lotion is dangerous at an airport, to identify sophisticated software transportation that essentially holds things online. Sure, like that’s going to happen. I believe it will take a long time before officials are able to identify “criminals” with + $10,000 of digital money in their “pockets.”
For argument’s sake, the obligation to declare amounts in any form over $10,000 exists, irrespective of whether customs officials have a way of detecting such holdings. Since digital currencies technically travels with the holder (like a bank account), wherever the holder goes, the holder would have to declare their entire crypto portfolio each time the holder travels in and out of the U.S.
- The argument is that the currency “exists” on your laptop, not just in the cloud. Therefore, it must be reported.
This is like having to provide financial statements every time you travel. This type of declaration is not required for bank accounts with more than $10,000 stored outside the United States. You need to report once a year (by filing and FBAR), not when you travel.
In the digital world as mentioned before true identities aren’t required, so these crypto coins could basically to belong to Zelda, Master Chief from Halo. Now, if you are from the US you are generally screwed when tapping into this market. The fact that you went on a bitcoin mining craze and solved a ton of algorithms to recover these tokens, in the comfort of your homeland in the US, or wanted to change you digital money into tangible money is now being taken hella seriously.
The government intends to catch cryptoprenures who’ve found refuge online, because they fear losing control of the economy. In this Bitcoin persecution, the government agencies are contradicting, IRS referring to it assets and SEC as real money. This predicament is empowering global markets by exposing more incompetence of current US politics.
Here is what to expect for holding US passport and/or cryptocurrency:
- Expansion of Foreign Account Tax Compliance Act (FATCA) of unregulated foreign crypto currency exchanges. The IRS already outsourced a group of hackers to infiltrate blockchain to obtain information on users and transactions, sort of a digital stake out or paying someone to be a creepy online stalker (IRS Penetrates Blockchain ).
- FATCA currently only applies to U.S account holders of certain foreign financial and non-financial institutions.Some type of global monitoring of blockchain activity, or a global initiative to regulate internet transactions and trade through international treaties.
- Extreme harassment crossing national borders and penalties for not disclosing, as the only way to encourage full disclosure.
- Under the “John Doe” summons provided by Internal Revenue Service (IRS), it seeks to serve Coinbase, by implying client records are criminal evidence, it has become crusades of this blockchain era.(John Doe Summons)
When stuff hits that fan, this is what you need to consider now:
- Invest in cryptocurrency offshore
– Keep an offline and offshore wallet
– Invest in offshore trust as asset protection ( or money protection, who knows what the next definition of cryptocurrencies is.)
– Work with countries with beneficial laws and attitudes towards cryptocurrency.
– Form an offshore corporation to hold your wallet and currencies.
You can further protect your freedom of movement by purchasing a second passport or second residency. As foreign governments react to pressure from the United States, many are closing their doors to US persons. They only way to open those doors is to become a legal resident of a tax haven jurisdiction. For more information, see: Panama is getting out of the offshore banking business.
I’ll close by noting that it’s still possible to by cryptocurrency with your US retirement account. You can’t do this in the United States, but you can if you go offshore first. Setup an offshore IRA LLC, move your IRA into that structure and then transfer it to a crypto wallet.
One important note – the wallet must be in the name of your LLC and not in your personal name. Transferring the IRS into a wallet under your name would be a taxable distribution… so, be careful.
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