The cryptocurrency exchange Bitfinex recently sent some customers an email informing them that they are "required" to provide the digital marketplace with certain information by May 24. Bitfinex said that, in accordance with local law, it plans to share those data with the government of the British Virgin Islands, where the exchange is based.
The firm also related that the government might then share that information with tax authorities in customers' own countries of residence.
The message instructed US-based customers to produce information required under the US Foreign Account Tax Compliance Act (FATCA) and for all other recipients to make disclosures recommended under the Organisation for Economic Co-operation and Development's Common Reporting Standard (CRS).
The British Virgins Islands offers its own set of FATCA- and CRS-compliant self-certification forms, both for individuals and entities, all of which contain one field for "tax identifying number" and another for the "taxreference number" of respondents based outside the US.
It's unclear whether Bitfinex will also share records of customer account activity with authorities, as a US court ordered American cryptocurrency exchange Coinbase to do after it received a summons from the Internal Revenue Service.
In response to a tweet critical of the company's announcement, which appeared to imply that the reporting requirement would apply to all Bitfinex customers, a verified Twitter account for the firm wrote:
"We have not sent this message to all users. We have deliberately targeted users that we believe have an obligation to self-disclose. If a user has _not_ received a message from us, she need _not_ self-certify anything to us at this time."
One feature that distinguishes Bitfinex from many other exchanges is the fact that it shares a CEO with Tether, a company that issues cryptocurrency. Both firms have come under significant scrutiny over the past year.
The US Commodity Futures Trading Commission reportedly subpoenaed both entities on December 6, 2017, and following the publication of a piece of investigative journalism that examined the two firms, a Dutch MP submitted several questions about Tether to his country's minister of finance.
In the popular arena, Tether created a small uproar in late 2017 when its relationship with Friedman LLC, a firm that was in the process of auditing the supply of issued tokens in comparison to Tether's fiat currency holdings, was terminated. Tether claims that its cryptocurrency, known as the US dollar tether, is "backed 1-to-1" by actual US dollars held in reserve. Those tokens are pegged in value to the dollar, meaning that a single token should always be worth one dollar.
While the company maintains that it has more than enough money in its possession "to redeem all existing tethers," it's issuance of some $633 million worth of tokens over the course of five minutes this past January gave fuel to allegations that the company is creating digital assets without regard for the size of its reserves. In September 2017, before its falling out with Tether, Friedman LLP had drafted a memorandum indicating that the cryptocurrency firm had about $440 million worth of funds.
Other cryptocurrency watchers have alleged that tethers are being used to pump the prices of other cryptocurrencies, including bitcoin, and have even gone so far as to accuse Bitfinex of complicity in the supposed scheme.
In March of this year, it emerged that Bitfinex was considering relocating from the British Virgin Islands to Switzerland, both of which have been described by critics as tax havens.
Besides the United States and the British Virgins Islands, government agencies in other jurisdictions have also sought to acquire exchange customer data, or at least make activity on exchanges more transparent.
In early February, India's tax authority revealed that exchanges in the country had cooperated with the agency in identifying customers. On January 30, the South Korean government implemented know-your-customer rules forbidding exchanges from processing trades on behalf of customers whose bank accounts do not bear their legal names.