HM Revenue and Customs (HMRC) have confirmed that 3 people were arrested on suspicion of VAT fraud (estimated to be $1.9 million) involving 250 alleged shell companies. Three Non-fungible Tokens (NFTs) were seized and approximately $6,700 worth of crypto assets.
According to reports, it is the first time NFTs have been seized through law UK enforcement. The NFTs are not linked directly to any criminal activity but to a case of tax evasion. The value of the seized NFTs is unknown.
The suspects used false identities, false addresses, VPNs, bogus invoices and pre-paid unregistered smartphones while pretending to operate a legitimate business.
The Deputy Director of HMRC, Nick Sharp stated on the arrest, "We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets."
Some headlines from the US Internal Revenue Service (IRS) are likely to be made in 2022. The IRS sees a sharp rise in fraud and tax evasion in NFTs.
NFTs and Money Laundering
Non-fungible tokens are extremely popular. In fact, certain NFTs are currently worth millions of dollars. From pixel art to real estate, the concern for money laundering through NFTs is present.
Although at the time of writing, there are few indications that suggest the seized NFTs are related to the VAT fraud, regulators are very concerned with money laundering through NFTs.
On 4 February, the US Treasury released its study on 'money laundering risks in the art world' focusing on NFTs. The primary concern is that NFTs will be used for financing terrorism and money laundering.
Research conducted by Chainalysis displays illicit funds that were used to purchase NFTs in 2021.
source: chainalysis
Stolen funds used for buying NFTs were still limited in 2021. As we head into 2022, the amount of NFT fraud cases may increase. However, NFT traders may become more aware of potential scams.
At the time of writing, US regulations on cryptocurrencies and NFTs may only take place in 2023. Though there are various methods of securing NFTs and cryptocurrencies, Trezor and Ledger are very popular wallets that add an additional layer of security.
