Sweden Shuts Down 18 Data Centers for Illicit Cryptocurrency Mining

Sweden’s tax authority has detected irregularities in 18 companies operating locally, revealing that they concealed their participation in cryptocurrency mining, as stated on Wednesday.

The inquiry, which took place from 2020 to 2023 and concentrated on data center operations, uncovered that these companies intentionally took advantage of tax incentives for which they were not qualified.

Patrik Lillqvist, the head of the agency’s intelligence division, clarified that the actions of these companies represented an effort to obtain improper tax benefits. Consequently, the agency is seeking an additional 990 million Swedish krona ($91 million) in taxes, which includes value-added tax (VAT) and penalties.

The report emphasized the challenges investigators faced in ascertaining the actual purpose of data center operations and the identities of individuals utilizing the computing resources. In numerous instances, investigators struggled to determine the nature of the business activities conducted at these facilities.

Unreported Income from Crypto Mining in Sweden

Additionally, the report outlines cases where crypto mining data centers provided misleading or incomplete details about their business operations.

“There is an incentive for dishonest actors to hide their cryptocurrency mining activities and instead assert that they are engaged in VAT-liable business operations. This results in tax revenues vanishing from the country due to erroneous state payments, unpaid output VAT, and unreported crypto assets,” Lillqvist noted.

The tax authority also raised alarms about possible money laundering activities. As crypto mining data centers are not covered by the Money Laundering Act, they currently function outside the realm of regulatory oversight. This absence of supervision heightens the risk of unlawful financial transactions.

Furthermore, it was noted that quantifying the total volume of crypto mined and subsequently sold, along with the related sales figures, proved challenging. As a result, there is a considerable risk of unreported sales leading to additional income tax losses for the government.

Companies Employ Misleading Tactics to Hide Crypto Mining

The report indicated that ten decisions were appealed to higher authorities. In eight cases, the courts upheld the original findings and dismissed the companies’ appeals. One appeal resulted in a partial victory for the company, with the court issuing a modified ruling.

In one case, Datorhall AB reported its business activities to the authorities as consulting services, data center operations, and the development of high-performance computing products. However, the investigation revealed that Datorhall had a single customer – a foreign company with a related party. Notably, Datorhall’s computing infrastructure was exclusively comprised of equipment dedicated to crypto mining.

Another company, Datacenter AB, claimed its business activities included selling computing power for graphic design and artificial intelligence applications. However, the tax agency obtained web browsing history and chat messages from various company representatives. This analysis uncovered a significant discrepancy – 93% of the company’s online searches were related to crypto mining, with less than 1% clearly associated with graphic film production.

In one chat message, a Datacenter AB representative stated: “How computers are used can never be controlled, so they can ban it as much as they want, it will not make any difference.”

A few days later, another representative remarked: “Yes, and crypto will be the last word we mention to anyone from day one. We are a data center with operations and computers that customers use for graphic films and artificial intelligence.”

Swedish Central Bank Chief Wary of Bitcoin Integration

The Governor of Sweden’s Central Bank expressed concerns last month regarding Bitcoin’s deep integration into the nation’s financial system. Their apprehensions arose from the speculative nature of Bitcoin and the potential for substantial investor losses.

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