Author：Quantum trader
The Joint Chiefs of Global Tax Enforcement (J5) published two advisories on Thursday warning that over the counter (OTC) crypto trading desks and payment processors are being used to obfuscate and move funds tied to criminal activity.
The group, which is made up of tax bodies from Australia, Canada, the Netherlands, the U.S. and the UK, said that average daily trading volume for OTC desks totalled $1.44 billion—far higher than its $74.5 million estimated volume for exchanges.
“These desks provide clients with anonymity and reliability when moving large sums of money or cryptocurrency, thus potentially functioning as an obfuscation tool for tax evaders and money launderers,” said the J5 in a statement on the website of the Australian Taxation Office.
It added that to date, “nearly $236 billion in suspicious activity has been reported to the Financial Crimes Enforcement Network connected to these trading platforms.”
The J5 noted that cryptocurrency payment processors had seen an increase of more than 1,000% in suspicious activity reports tied to them from 2020 to 2024, while processor-related suspicious activity reports filed to the Financial Crimes Enforcement Network totalled $5 billion.
OTC desks and crypto
OTC desks are often used by high-net worth individuals and companies who don’t want to trade on an open exchange.
But the J5 is concerned that law enforcement and regulatory agencies cannot monitor the transactions in real time because OTC desks are not identified and labelled in many commercial blockchain analysis tools.
“Despite facilitating billions in daily transactions, the majority of OTC desks may not be filing suspicious activity reports to mitigate the risks associated with the sheer volume of cryptocurrency being exchanged,” it said.
It noted that as a result, OTC desks “may be providing an added layer for criminal actors seeking to launder illicit funds from the cryptocurrency ecosystem into traditional finance.”
When it comes to payment processors, the J5 also noted that in recent years some luxury product companies have offered the ability to pay with cryptocurrency, including dealerships for Rolls-Royce and Bentley, Ferrari, yacht brokerages, property firms and luxury watch companies.
“The ability to off-ramp cryptocurrency and purchase luxury goods can be an attractive concept for team evaders and illicit actors who aim to use the proceeds of tax evasion, money laundering, and other financial crimes.”
There have been some enforcement actions in the area. In 2021, U.S. authorities settled a case with Bitpay for violations of multiple sanctions programs.
In Hong Kong, the government will bring in a new regulatory regime for OTC desks this year that will include requiring compliance with the local Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The move was spurred after years of OTC services, including physical storefronts in the city, operating in a grey area.
The 2023 collapse of the crypto exchange JPEX, which used influencers to front many of these storefronts, led to admissions from regulators that they didn’t know how many OTC businesses were operating in the city and that there was little oversight of their activity.
Their activity will be further restricted by the stablecoin licensing regime, introduced last year, due to their use of USDT for many transactions.
OTC trading desks, including those run by major exchanges, use a variety of techniques to track potential illicit flows. According to Haider Rafique, Global Managing Partner and CMO at OKX, this includes comprehensive KYC/AML, real-time surveillance via blockchain analytics, and tight collaboration with regulators and authorities to spot, report, and help freeze suspicious flows fast. “Building trust in crypto means shutting down the bad actors decisively,” he told Decrypt.
"We strongly support law enforcement in cracking down on illicit crypto activity, including misuse of OTC channels,” he added.
