Seizing Crypto for Taxes: Spain's Strategy Against Tax Evasion

Spain is not alone in its mission to crack down on crypto as South Korea proposes that crypto project executives receive regulatory approval before their appointment.

There have been a few global cryptocurrency industry updates over the past few days. Spain and South Korea are both intensifying their regulatory frameworks for cryptocurrencies to combat tax evasion and enhance oversight. Spain's Ministry of Finance, under María Jesús Montero, is drafting amendments to allow the seizure of crypto assets for unpaid taxes. South Korea's Financial Services Commission proposes that crypto project executives receive regulatory approval before appointment.

Additionally, Terraform Labs' former CFO, Han Chang-joon, has been extradited from Montenegro to South Korea for fraud charges related to the collapse of the company's stablecoin ecosystem.

Spain's Bid to Regulate Crypto and Settle Debts

The Spanish Ministry of Finance is taking some big steps to tighten its grip on the oversight of cryptocurrencies in the country, aiming to allow it the capacity to seize digital assets for the settlement of tax debts. Under the leadership of María Jesús Montero, the ministry is in the process of drafting amendments to the General Tax Law, specifically targeting Article 162, which would empower the Spanish Tax Agency to pinpoint and confiscate crypto assets belonging to taxpayers who have failed to clear their dues.

A pivotal change came into effect on Feb. 1, with a royal decree expanding the range of entities that possess the authority to report to the Treasury for tax collection purposes. Before this, only banks, savings banks, and credit cooperatives had this capability. This move is part of a broader strategy by the Treasury to clamp down on tax evasion more vigorously, including compelling banks and electronic money institutions to disclose details of all card transactions.

These developments are unfolding pretty rapidly, presenting some regulatory challenges as Spain tries to proactively establish a framework to regulate cryptos. The Spanish Ministry of Economy and Digital Transformation also announced in October of 2023 that the Markets in Crypto-Assets Regulation (MiCA), the first comprehensive crypto framework by the European Union, would be implemented nationally by December 2025, six months ahead of the official deadline.

Additionally, Spanish residents who hold cryptocurrencies on platforms outside of Spain are required to report these assets to the tax authorities by the end of next month. The window for submitting the Form 721 declaration, which began on Jan. 1, 2024, will close on the last day of March.

This mandate applies to both individual and corporate taxpayers, who have to disclose the total funds in their foreign crypto accounts as of Dec. 31, 2023. However, this requirement only affects those whose crypto assets exceed the equivalent of 50,000 euros (approximately $54,000). For people using self-custodied wallets, they have to report their holdings through the standard wealth tax Form 714.

South Korea Tightens Crypto Regulation with Executive Approval Requirement

Meanwhile, South Korea's Financial Services Commission (FSC) has also taken a big step towards tightening the regulatory framework surrounding the crypto industry in the country. On Feb. 5, the FSC proposed amendments that would require executives of cryptocurrency projects to get regulatory approval before stepping into their roles in crypto companies. This move is aimed at giving the FSC the authority to screen and approve executives joining these companies, with crypto firms required to report any changes in personnel to the regulator. In other words, executives would only be able to start their positions after the FSC's approval of their personnel change report.

The proposal is part of a much broader effort to enhance oversight of the virtual asset service provider (VASP) sector and is expected to take effect by the end of March 2024, pending reviews and resolutions by authorities, including the Ministry of Government Legislation and the FSC itself. The new rules will apply to VASP renewal reports due in the second half of 2024, potentially affecting companies' abilities to renew their VASP licenses. Specifically, the FSC will have the authority to suspend the review for VASP license registrations if the personnel are under investigation by local or international authorities.

The FSC is currently asking for public feedback on this proposed amendment, with a deadline for comments set for Mar. 4. This move is part of a series of actions taken by South Korean regulators to introduce tighter controls over the cryptocurrency market. Earlier efforts include working on legislation to regulate crypto mixers, trying to curb their use for money laundering, and proposing changes to credit finance laws to prevent the purchase of crypto with credit cards.

Terraform Labs CFO Extradited for Trial

In other crypto news from South Korea, the former Chief Financial Officer of Terraform Labs, Han Chang-joon, was recently extradited from Montenegro to South Korea to face multiple criminal charges related to fraud. This was confirmed by a police statement on a Montenegrin government website and further verified by a police spokesman to Reuters.

Chang-joon, along with Terraform Labs' CEO Do Kwon, was arrested in March of 2023 at the Montenegrin capital's airport while attempting to use forged Costa Rican passports to board a flight to Dubai. They were subsequently imprisoned for four months in Montenegro for the falsification of travel documents.

The case against Chang-joon and Kwon stems from their involvement in the collapse of Terraform Labs' stablecoin ecosystem in May of 2022. This event led to huge financial losses and triggered a global response, including an Interpol "Red Notice" for their arrest issued by South Korea. Despite this, Kwon managed to set up a business in Serbia, allowing him to continue his operations abroad.

Interestingly, the police statement noted that Chang-joon is facing a potential life sentence in South Korea, a much more severe punishment compared to Kwon, who is said to face up to 40 years in prison as per South Korean media reports.

Kwon, meanwhile, remains in Montenegro despite extradition efforts. A Montenegrin court ruled in December last year to extradite him to the United States, where he faces eight charges, including various fraud and conspiracy offenses.