UK's HMRC tax authority seeks tools to track down cryptocurrency criminals

The UK's Her Majesty's Revenue and Customs (HMRC) tax collection agency is asking for a blockchain analytics tool useful in the hunt for cybercriminals -- and perhaps asset tax avoiders. 

In a project request posted last week, HMRC asked bidders to provide a tool that "will support intelligence-gathering methods to identify and cluster cryptoasset transactions into linked transactions and identify those linked to cryptoasset service providers," -- in other words, a forensics tool able to link together blockchain-based transactions with exchanges or other third-party services. 

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The contract, worth £100,000, requires a remote-access online tool usable by the FIS-DSI Cybercrime, part of the tax authority's fraud investigation unit. 

Cryptocurrency, including Bitcoin (BTC) and Ethereum (ETH), are virtual coins that can be mined, traded, and stored on the blockchain, also known as a distributed ledger. Transactions made between wallets and exchanges are recorded on the blockchain, with different 'nodes' storing the same record, making forgery difficult. 

However, it can be difficult to unmask users and holders of cryptocurrency, making virtual coins a popular alternative to bank accounts and fiat currency by cybercriminals. 

HMRC hopes a third-party can provide the means to do so. To make life easier for investigators, the agency has requested software able to go beyond the analysis of public ledger records and raw blockchain data to "close intelligence gaps in the use of cryptoassets in supporting criminal activity against HMRC."

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At a minimum, the tool must be able to track forks and blockchains facilitating the exchange of cryptocurrency including Ethereum, Etherium Classic, Bitcoin, Bitcoin Cash, Ripple, Tether, and Litecoin -- and any means to monitor Monero, Zcash, and Dash is considered to be a bonus. 

The most interesting request is the ability to unmask users through cluster analysis, a concept actively being explored by academics (.PDF). HMRC also hopes to be able to use these techniques, which often rely on machine learning, to attribute addresses to exchanges, mixing services, gambling domains, and Dark Web markets. 

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An interesting point to note is that HMRC's award weighting requirements places cost ahead of security. While the quality of a proposed product is worth 50 percent, the cost comes in at 30 percent -- and security is in last, at 20 percent. 

Interested bidders have until 31 January 2020 to apply. 

A study published last week by 2gether examined if, and how, the blockchain is changing spending habits across Europe. 

The research found that the majority of cryptocurrency users -- made possible with transactions stored on the blockchain and funds loaded onto prepaid cards -- are between 26 and 45 years old, with average monthly spending coming in at €132.65. 

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Previous and related coverage

• Cryptocurrency executives charged with running $11 million Ponzi scheme
  
• Executive dies, taking investor cryptocurrency with him. Now they want the body exhumed
  
• In this country, your cryptocurrency must go through your bank
  

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