How much do CFTC and SEC anonymous whistleblowers earn?
Cryptocurrencies without regulatory oversight are only part of the story today. In response to the rise of tax-evading DeFi, the CFTC and SEC are ready to go to any lengths to take control of the industry.
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A few days ago, the head of the Commodity Futures Trading Commission (CFTC), Christine Johnson, openly encouraged crypto whistleblowers to increase their effort following the FTX Group collapse. She assessed the current situation as “heartbreaking” and noted that the freelancers’ hard work directly affects the effectiveness of investigations and punishments.
At the same time, Commissioner Johnson clarified that she personally guarantees complete anonymity to whistleblowers in accordance with the organization’s principles. And she reminded that regulators compensate decently for companies’ inside information.
Go figure! After all, they essentially do most of the Commission's investigators work.
The fact that “moles” were active in the community had long been established and for the majority of the crypto community, this was not news. However, the fact that insiders received millions of dollars was.
And although Christy Johnson doesn’t specify the figures, hiding them behind a vague “very large the amounts”, we were able to find more accurate information in some sources.
How to make a living when everything goes to hell?
It turns out that even during the collapse caused by the leading exchange, some can make good money. To do this, you need to anonymously cooperate with regulators: report illegal activities and financial abuses of your employer in a timely manner. The CFTC representatives insist that these actions can ensure the success of the whistleblower's company, since it (the company) will be “cleansed” of criminal elements and take the law-abiding path. This, according to the fiscal authorities, guarantees a good profit, peaceful sleep and a clear conscience.
If the violations reported by the insider are confirmed, the regulator takes measures aimed at collecting unpaid taxes or imposing fines. Following that, the scammer is entitled to a substantial reward.
According to the CFTC internal rules (under the whistleblowers IRS program), insiders are transferred 10-30% of the amounts that the agency receives in the form of fines or additional taxes. At the same time, the amount of penalties should exceed in total $2 million for all violations for a legal entity and $200,000 for an individual.
For example, in November 2022, OFAC transferred almost $2.5 million to an anonymous insider. We did a little digging and, based on it, we can assume that this was a reward for leaking information on the Bittrex exchange. A month prior, the exchange was fined $53 million for violating sanctions and anti-money laundering laws. The case was handled by OFAC and FinCEN (Financial Crime Enforcement Network). In November, Bittrex transferred a $24.3 million fine to OFAC's account for not blocking transactions from Crimean, Cuban, Iranian, and Syrian users on its platform. The rest of the money has not been refunded.
However, this is only a version.
Regulators are betting on the insiders’ greed
Legislators are concerned about their chronic failure in the fight against money laundering. The crypto industry, in their opinion, has become a safe haven for drug dealers and terrorism financiers. Users of crypto exchanges sometimes manage to bypass mandatory AML/KYC, and the law “On Bank Secrecy” does not always work: platforms refuse to provide regulators with information about users without proven charges.
Therefore, US SEC Chairman Gary Gensler compared the cryptocurrency revolution with a new era of wild banking and called for all cryptocurrencies (except BTC) to be considered securities.
And former CFTC Commissioner Dan Berkowitz, present General Counsel of the SEC, generally stated that DeFi is inherently illegal, and the money transfer “from hand to hand” is a direct violation of the US Tax Code.
Relying on the whistleblowers’ help, the legislators essentially admit that the Law regulation and enforcement depends more on anonymous denunciations than on their work.
And, as sad as it is to admit, their hopes are not empty. A document found online confirms that the large companies’ employees often make deals with regulators. More than $1 billion has been paid to moles under the IRS program since 2017.
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