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With all the crypto speculation I was wondering: How do countries differenciate between "dirty" money and speculation gains?

I know that in Switzerland you don't have to pay taxes on capital gains (as opposed to income taxes from dividends). So at the end of the year, the tax payer is to declare his assets and his income (but not his specific trades and capital gains).

Now: If in one year I declared assets of 10,000$ and the next year, I suddenly declared assets of 50,000,000$ (and in both years, at the end of the year, I owned it in $-cash because maybe I made a gain of 500,000% in crypto but I sold them before the end of the year) - don't I have to somehow justify those gains?

It could be a speculation gain but it could also have been some illegal dirty money.

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  • 2
    That's a matter of tax law in Switzerland, not personal finance.
    – chepner
    May 19 at 15:43
  • Not a full answer, but this is exactly why crypto is a preferred medium for ransomware attacks, blackmail, and general money laundering - because there is a certain level of 'justifiability' in cashing out large sums of might that theoretically might have come through speculation. May 19 at 16:46
  • Is total assets a reported item in Switzerland? `if In one year I declared assets of" is that actually declared on your taxes?
    – quid
    May 19 at 23:12
  • @quid Yes - You declare your total assets and your total income for one year and pay taxes on those. But the asset tax is relatively small (something in the 0.1%) and only from a certain point (I think around 70,000$)
    – NoRyb
    May 20 at 8:01
  • @NoRyb Whoa, I didn't know that. Do all assets contribute to the calculation? Like how would you value your house or a piece of art or is this just bank accounts and the like?
    – quid
    May 20 at 17:51
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Broadly speaking, authorities looking for money laundering focus on transactions not on assets. It is generally much more interesting to look at where the money is moving from and to than at the actual monetary amounts.

If you're looking for money laundering, someone walking into a bank with $10,000 in cash is suspicious because you have no idea where that money came from. Someone transferring $100,000 from their brokerage account to their checking account is not. Both the broker and the bank know the customer and the government knows that both sides have reasonably strict controls in place to prevent money laundering. If you make a huge gain in your brokerage account, that isn't indicative of money laundering (it could be indicative of other financial crimes like insider trading). Someone transferring $10,000 from some fly-by-night crypto exchange the government has never heard of operating out of a country whose regulatory environment is known to be problematic would likely produce a similar level of suspicion to walking into the bank with that same amount of cash.

Different governments, of course, have different protocols for how regulated entities like banks need to screen customers and to alert authorities to suspicious transactions in a way that balances privacy and security. But any country that is part of the established Western financial system will have a system by which regulated entities like banks and brokers report suspicious transactions for the government to investigate. If there were $50 M in transactions from the suspicious crypto exchange to your bank account during the year, the bank would have filed suspicious activity reports with the Swiss government long before tax time and the authorities would be able to investigate whether you were a lucky speculator, a money launderer, or something else. They're not going to wait for tax time to start investigating.

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@Justin is right, in addition:
The point is not that you declare that you own now 50 million - the point is in what form you owe it? Money laundry is primarily the movement of (illegally accrued) cash into electronic money.

You have 50 million in cash under your mattress, fine, but you cannot use the majority of it unless it enters a bank - try buying a villa with a suitcase of cash, or a yacht, or even a car - this is where they get you. Basically, your 50 million in dollar bills are relatively worthless unless you manage to get them into a bank account - and for that, you need to physically bring the into a bank, which is the trigger for the governments to ask where you got it.

Crypto is of little help there, as your cash still needs to go in a bank to be able to buy Bitcoin - nobody will sell you bitcoin and you mail them a package with cash for it.

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  • Are you aware of localbitcoin?
    – Dave
    May 20 at 13:51
  • @Dave: I am now. What does it change?? There are somes offers with electronic money, and some with cash that you have to bring in a bank. You think the bank is not telling the government that you brought 42000$ in just because you are buying bitcoin with it??
    – Aganju
    May 20 at 14:37
  • You say"nobody will sell you bitcoin and you mail them a package with cash for it" but you can meet someone near you and buy bitcoin for cash. You do not need to go to a bank.
    – Dave
    May 20 at 18:21
  • Sure. Once or twice. Try it with 50 million.
    – Aganju
    May 20 at 22:22

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