The Internal Revenue Service is cracking down on crypto-related scams as the agency has seized $3.5 billion in the past fiscal year, Yahoo Finance reported.

“It was all money-laundering cases and that’s still part of our portfolio of crimes,” said Jarod Koopman, the IRS-CI's acting executive director of cyber forensics.

The IRS says 93% of the money they have seized this year came from crypto scams as the money stolen from investors in 2021 will likely eclipse the amount of money that was stolen the previous year. The reason for this is that the asset class has quadrupled, according to data from Trading View. “All they need is to exploit a single smart contract vulnerability,” Koopman added.

Many crypto-related scams occur when the victims hand over their money with the expectation it will be invested in digital currency, only to have the scammers run out the back door with all the money. This process is called an “exit scam” or a rug pull.

Crypto’s unregulated market has caused Sen. Elizabeth Warren, D-Mass., and Securities and Exchange Commission chair Gary Gensler to call on Congress to regulate the market and provide protections for consumers.

The Justice Department announced on Tuesday that it will reimburse $56 million worth of cryptocurrency to the victims of a Ponzi scheme that was committed by crypto-trading platform Bit Connect. Glenn Arcaro plead guilty to fraud charges in September and was ordered to pay $24 million to his victims. He is facing a maximum prison sentence of 20 years.

Advocates of cryptocurrency maintain that illicit funds represent 1% of crypto-related transactions and that digital currency is an overall safe market to invest in.

They argue its value will only grow over time as the value of paper money will decrease because of inflation, whereas inflation will not affect crypto. Crypto investors believe cryptocurrency will be the main currency in the future because of flaws in the traditional banking systems.

The $1.2 trillion bipartisan infrastructure bill contains specific reporting requirements for cryptocurrency and applies a tax code for the transactions.

Any exchange worth $10,000 or more is to be verified with the identification and Social Security number of the sender. The new law will begin in 2024 and failing to do so will result in a felony charge.

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