FinCEN’s Sextortion Advisory: What It Means for Federal Tax Compliance, M&A Due Diligence, and Business Litigation.

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently issued an advisory warning financial institutions and businesses about the alarming rise in financially motivated sextortion schemes. While these schemes are often discussed as individual crimes, they also carry serious implications for tax compliance, mergers and acquisitions (M&A), and business litigation exposure.

Federal Tax Law and Financial Crime Risks

Sextortion schemes frequently involve illicit money flows, through peer-to-peer payment platforms, prepaid cards, and cryptocurrency transactions. These methods raise federal tax law concerns, as proceeds from illegal activity are subject to taxation, reporting obligations, and potential IRS enforcement. Businesses and financial institutions that inadvertently facilitate such transactions without proper compliance controls may face:

• IRS scrutiny for tax reporting failures.

• Penalties under the Bank Secrecy Act (BSA) for not flagging suspicious activity.

• Increased audit risk, especially where foreign accounts or virtual currencies are involved.

This underscores the need for robust AML/CFT compliance programs that align with federal tax law requirements.

Mergers & Acquisitions: Due Diligence in the Age of Sextortion Risks

In today’s regulatory environment, M&A deals must account for hidden risks tied to financial crimes and cybersecurity weaknesses. If a target company has exposure to sextortion-related payments, or lacks strong anti-money laundering safeguards, buyers could inherit:

• Regulatory liability under the BSA and related laws.

• Civil litigation exposure if shareholders allege inadequate due diligence.

• Reputational damage, which can erode deal value.

Thorough M&A due diligence now requires evaluating whether a company has strong policies in place to detect and report suspicious financial transactions.

Business Litigation Risks: From Shareholders to Enforcement Actions

Beyond regulatory fines, businesses that fail to address sextortion-related risks may face business litigation on multiple fronts:

• Shareholder lawsuits claiming directors ignored red-flag risks.

• Contract disputes where counterparties allege non-disclosure of financial crime exposure.

• Government enforcement actions for failure to file Suspicious Activity Reports (SARs) as directed by FinCEN.

  
  

The recently enacted TAKE IT DOWN Act, which criminalizes the non-consensual distribution (or threat of distribution) of intimate images, including deepfakes, further expands potential liability.

Why Businesses Need a Proactive Compliance Strategy

FinCEN’s advisory reinforces that sextortion isn’t only a personal crime, it’s a financial systems abuse that can entangle legitimate businesses. To protect against liability, businesses should:

• Strengthen AML/CFT compliance programs.

• Conduct enhanced due diligence in M&A transactions.

• Prepare for potential tax and litigation consequences tied to financial crime exposure.

  
  

At Spizzirri Law LLC, we help clients navigate these complex intersections of federal tax law, mergers and acquisitions, and business litigation. FinCEN’s latest notice is a reminder that safeguarding against financial crime is not only a compliance obligation but also a strategic necessity for long-term business success.

Thanks for reading.

MD

Reference: FinCEN (September 8, 2025). FinCEN Issues Notice on Financially Motivated Sextortion. U.S. Department of the Treasury, Financial Crimes Enforcement Network.