UK Tax Authority in Search of Blockchain Analytics Tools

The United Kingdom’s Revenue and Customs (HMRC) – the country’s tax authority – has recently revealed to be investing towards the development and implementation of a new blockchain analytics tool that could help identify crypto cybercriminals.

According to HMRC’s request for proposal document, UK’s tax authority seeks to develop a new tool to catch crypto cybercriminals.

The agency is concerned that, due to the anonymous transactions made possible by blockchain technology, cybercriminals are able to use this anonymity for illicit purposes. As such, the institution intends to analyze cryptocurrency transactions that are being used for criminal activities such as tax evasion and money laundering.

“Many of these crypto-asset transactions are recorded publicly in a ledger known as a blockchain. Whilst the transactions are typically public, the participants undertaking them are not,” stated the tax authority in the report.

Currently, the HMRC is looking for the “provision of a tool that will support intelligence-gathering methods to identify and cluster crypto-asset transactions into linked transactions and identify those linked to crypto-asset service providers”.

According to the HMRC, the new tool will be used to help the tax authority trace several types of cryptocurrency transactions, which are stored anonymously on a blockchain. Ideally, the agency is looking for software that can track privacy-oriented coins such as the Monero, Zcash, and Dash.

However for now, the HMRC will focus on finding a tool that would help monitor transactions on the most popular blockchains, which are Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Tether, Ripple, and Litecoin. They also want to be able to maintain that capability following any future forks that ripple out related to those assets.

The governmental institution is currently accepting proposals from potential tech agencies until the end of January, and looking to start the project on February 17th. In addition to that, the report states that HMRC is ready to invest up to £100,000 ($130,000) toward licensing for the blockchain analytics tool.

Potential suppliers for the new tool include blockchain analytics firms Chainalysis, Elliptic and CipherTrace. These tech firms focus on tracking crypto transactions, for instance, the U.K.-based Elliptic has recently found over $400 million worth of XRP transactions associated with illegal activities such as scams and Ponzi schemes.

In the meantime, the tax authority has been relentlessly working to bring more safety and security to the industry. In August of last year, the agency demanded customer and transaction information from the following crypto exchanges: Coinbase, eToro, and CEX.IO. Accordingly, HMRC had sent out letters to these exchanges requesting customers’ names and transaction histories, stating that “these transactions may result in potential tax charges and HMRC has the power to issue notices requiring exchanges to provide this information.”

Although an increasing number of people are using cryptocurrency and digital assets for legal purposes, earning legitimate payments on their digital assets, there is still a looming concern about those who use cryptocurrencies for criminal activities.