HMRC becomes first UK law enforcement body to seize non-fungible tokens, as authorities warn that crypto assets pose money-laundering risk
The UK revenue authority has carried out its first seizure of Non-Fungible Tokens (NFTs) as part of an investigation into suspected VAT fraud.
HM Revenue and Customs (HMRC) said three people were arrested in an alleged VAT repayment fraud estimated at £1.4m believed to involve some 250 fake companies.
Officials said the action should be considered a “warning” to people looking to use crypto assets to hide money.
HMRC said the suspects used “sophisticated” methods to conceal themselves, including stolen identities, pre-paid mobiles, false addresses and invoices, and pretending to carry out legitimate business activities.
Three unvalued NFTs and £5,000 in other crypto assets were seized as the investigation continues. HMRC said it is the first UK law enforcement agency to seize an NFT.
The digital tokens, which emerged in 2014, have made headlines in recent months after some sales reached into the millions of pounds.
NFTs are hosted on a blockchain, making each one a unique asset that can be bought and sold.
They can be considered a certificate of ownership of a digital or physical asset, even as the digital asset itself may remain freely available for others to view or duplicate.
Even as NFTs gain mainstream success they have their share of detractors, with some calling the technology a bubble and saying that owners are basically purchasing a receipt.
The British Museum is selling NFTs of JMW Turner paintings while Twitter co-founder Jack Dorsey sold an NFT of his first tweet for nearly $3m (£2.2m). Last year Christie’s sold a digital-only artwork as an NFT – Everydays: The First 5000 Days, by artist Beeple – for $69m.
Chainalysis last month estimated the overall market for NFTs at more than $40bn, but tax authorities say they and other digital assets have opened a new frontier in money laundering, with the US Treasury warning of such risks for NFTs earlier this month.
Authorities have issued similar warnings about cryptocurrencies for years, but the boom in crypto during the pandemic has seen firms dealing in them claim increasing legitimacy, with crypto exchange giant Binance now proposing to take a $200m stake in media firm Forbes.
Nick Sharp, deputy director of economic crime at HMRC, said the NFT seizure “serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC”.
“We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets,” he said.