UK tax watchdogs after NFT

The U.K.’s tax watchdog has seized three non-fungible tax tokens in an investigation into a tax fraud case that was worth 1.4 million pounds ($1.9 million) which is the first-ever enforcement of this kind.

Three suspects have been detained for attempting to defraud the authorities by allegedly using a website of fake companies worth $250, Her Majesty’s Revenue and Customs said by email. Authorities also confiscated cryptocurrency assets, estimated to be worth five thousand pounds, and NFTs are still to be evaluated.

NFTs, which is a form of digital asset that can be traded via the blockchain network, gained a lot of acceptance among crypto traders and enthusiasts of all kinds this year and even made their way into the most prestigious auction houses like Christie’s as well as Sotheby’s which have multimillion-dollar sales. This market has around $16 billion, an analysis of NFTGo data from cryptocurrency research firm Messari revealed this month.

The tokens, which represent the ownership of digital artifacts such as images or music, are typically purchased and sold through the Ether cryptocurrency. Most popular tokens come in the form of avatars which owners can put as their profile pictures on the internet, similar to those used in the collections of the Bored Ape Yacht Club or CryptoPunks. These can be worth millions and have drawn the attention of celebrities in recent months, from stars like Paris Hilton, Reese Witherspoon, and Serena Williams.

The concerns on NFT legitimacy have been fueled since the beginning of 2022. The beginners within the industry find it difficult to differentiate between the original and copied digital assets, especially with NFT avars. Other NFT projects, like AdRunner, which is a metaverse advertising project seem to be safer in terms of validity. The utility NFT projects focus on building a strong and dedicated community and deliver tokens with value.

The scam NFT cases are growing in number. Unfortunately, with the blockchain technology criminals believe it is much easier to deceive the government. Hence, they get involved in numerous money laundering, identity theft and related criminal activities. However, authorities are cautious, as well and are quite quick to seize any such occurrences at first notice.

“Our first arrest of a Non-Fungible Token is as a cautionary tale to anyone who believes they can use crypto assets as a way to conceal money away from HMRC,” said Nick Sharp, the Deputy Director of HMRC’s Economic Crime. “We constantly evolve to meet the demands of new technologies to make sure we stay in step with the ways that criminals and evaders seek for ways to conceal their assets.”

This comes just one day after the U.S. seized $3.6 billion in stolen Bitcoin in the most significant financial seizure to date, showing police determination to prove Bitcoin isn’t a secure location for criminals to commit crimes.

“This incident proves that criminals aren’t able to hide in the crypto world,” said David Carlisle. He is the Director of Policy & Regulatory Affairs at crypto research firm Elliptic. “Enforcement agencies can monitor and trace criminals’ transactions and also seize NFTs and crypto assets that are used in illegal activity, depriving criminals of their money.”

The fraud suspects are said to have employed sophisticated techniques to conceal their identities. HMRC said that this includes false and stolen identities, fake addresses, pre-paid, unregistered cell phones, Virtual Private Networks (VPNs), fake invoices, and claiming to be engaged in legitimate business transactions.

“Fraudsters generally thrive when the value of assets rises rapidly, and it’s no surprise that they are benefiting from the rapid growth of NFTs,” said Sam Roberts, who is a partner at Law company Cooke, Young and Keidan. “While eliminating legal fees might be one of the main goals of blockchains that are public as well as the asset classes on which they are based but in actual practice, it is not the case – often due to thefts and fraudulent activities.

Legally-adherent creators and owners “should be encouraged to know that courts are still promoting rights to digital ownership, and we can be expecting an increase in this trend soon,” he said.