Officials with the UK watchdog agency Her Majesty’s Revenue and Customs have seized three non-fungible tokens they suspect were used as part of a tax evasion fraud. The seizure is the first instance of the UK government confiscating NFTs as part of official law enforcement business.
Officials with HMRC say they’ve arrested three suspects in the case, alleging they were using the NFTs to avoid paying value-added taxes. “Our first seizure of a non-fungible token serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC,” says HMRC deputy director of economic crime Nick Sharp.
“We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets.”
If the term “NFT” sounds alien to you, you’re not alone. Non-fungible tokens are a form of digital tokens that are created on the Ethereum network. Ethereum is the second most popular cryptocurrency, and its blockchain network allows users to verify digital transactions in a public forum.
This public verification makes digital ownership easy to check. This means that users can buy the rights to digital art, music, video clips, and other media.
In essence, it’s a method of verifying ownership of digital art. This ostensibly could help smaller artists make money while allowing enthusiasts to show off their dedication–and cash.
Opponents of NFTs argue that they’re wasteful, as they require significant amounts of energy to create and verify. Others have suggested that NFTs are largely worthless as users pay money to have their names in a register, but they don’t own any tangible evidence of their purchase. Other opponents point out that NFTs are helpful for laundering money and evading taxes.
HMRC confirms that it’s the first UK law enforcement agency to seize NFTs as part of an official investigation. All three NFTs represent digital visual art pieces.
The investigation is still ongoing, and experts have not yet appraised the NFTs to determine their market value. The watchdog group also tells reporters it seized some £5,000 worth of other crypto assets during the bust.
Lawmakers in Europe and abroad don’t agree regarding NFTs’ status as digital assets. Some regulators want to treat NFTs as securities, while others think they should be treated as art assets. Either way, the authorities agree that the new technology is useful for evading taxes, making regulation necessary in the short term.