On Monday, February 14, British tax authorities reported making their first seizure of Non-Fungible Tokens (NFTs) as part of an investigation into a suspected criminal activity to hide money.
Her Majesty’s Revenue & Customs (HMRC) seized three NFT’s and arrested three people on suspicion of attempting to defraud it of £1.4 million. The HMRC said the seizure was part of a probe involving 250 alleged fake companies. Alongside the NFTs, HMRC also seized roughly £5,000 worth of other crypto-assets as part of the probe.
The digital assets are stored on the blockchain, and HMRC has not taken physical control of them yet, but they have been prevented from being sold onwards.
The suspects allegedly used “sophisticated” methods to cover their tracks and appear as a legitimate business, such as pre-paid unregistered phones, fake and stolen identities, and fake addresses and invoices.
HMRC is the first law enforcement body in the UK to seize an NFT.
NFTs, which emerged in 2014, can be regarded as digital certificates of ownership that can be bought and sold online, typically with cryptocurrency such as Bitcoin. The tokens can represent any real-world object, from audio and video files to artwork and even in-game items.
NFTs have surged in popularity over the last few years, with the NFT market surpassing $40 billion in 2021 alone.
The deputy director of economic crime in HMRC’s Fraud Investigation Service, Nick Sharp, stated that the seizure of the NFTs should serve as a warning to anyone considering using crypto assets to hide money from HMRC.
He said in a statement: “We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets.”
This news comes amid growing fears that criminals are becoming more and more sophisticated in their use of digital assets for money laundering. Just earlier this month, the Treasury Department of the US released a report on how the NFT art market is vulnerable to money laundering schemes.
A recent example of an NFT scam that made global headlines is when a hacker tricked a collector into buying a fake Banksy NFT for roughly £244k after hacking into the artist’s official website.
Sill, the amount of funds laundered through NFTs is still just a tiny fraction of the total cryptocurrency-based crime, which hit an all-time high in 2021. Namely, the latest report from Chainalysis shows that criminals laundered a total of $8.6 billion (£6.4 billion) of cryptocurrency in all of 2021, which is a 30% increase from the previous year