An Italian police unit has cracked a million-dollar tax fraud case — and at the heart of it was not a secret bank account or shell company, but Bitcoin inscriptions.
A new way to hide old money
The Italian Economic and Financial Police Unit in Foggia uncovered a scheme in which one of the suspects allegedly used the Bitcoin Arrangements Protocol f BRC-20 code Standard for generating and hiding nearly 1 million euros, or about $1.1 million, in undisclosed capital gains.
According to the blockchain analytics company String analysisThe suspect created tokens using those tools, listed them on markets, sold them for significantly more than their original cost, and funneled the profits back into the underlying Bitcoin wallet.
The cycle repeated, with profits moving directly into new registers, resulting in money constantly being moved out and out of the tax registers.
Introduced in 2023, the Ordinals Protocol works by assigning a serial number to a satoshi, the smallest unit of Bitcoin, and including data such as images or text in a Bitcoin transaction. The BRC-20 standard builds on this by allowing users to publish, mint, and transfer tokens directly on the Bitcoin blockchain.
Tax authorities are playing catch-up
Tax evasion through cryptocurrencies is nothing new. What changes is how creative the approaches are. Bad actors are increasingly turning to NFTs, decentralized finance protocols and emerging token standards in hopes of keeping wealth hidden from authorities, Chainalysis said. The company published its findings on Wednesday.
Compliance data suggests the problem is deep. A study released in March found that only 32% to 56% of cryptocurrency owners in the United States report their gains to tax authorities. In Norway, this number dropped to just 12%, based on research published in August 2024.
Meanwhile, the United States Internal Revenue Service The country’s total tax gap — the total amount of taxes legally owed but not collected — is estimated at $606 billion.
A trail that never disappears
Despite the technical innovation behind schemes like the one in Italy, Chainalysis said there is an inherent weakness in using cryptocurrencies to hide money. Blockchain technology keeps a permanent record of every transaction, and this record cannot be changed or deleted.
The Fatal Flaw of Cryptocurrency Fraud
Blockchain intelligence tools are able to reconstruct an entire financial network and compare it with the information that cryptocurrency exchanges have to disclose, making it possible to trace transactions back to suspected tax fraud. Officials said the Italian case shows that technical novelty does not mean anonymity.
As new types of digital assets continue to emerge and generate income, analysts say the gap between actual on-chain wealth and what people declare on their taxes will attract more attention from investigators around the world.
Featured image from Tax Central, chart from TradingView
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