The UK’s HM Revenue & Customs tax authority has ‘seized’ three Non-Fungible Tokens (NFT) after an investigation into suspected VAT tax fraud involving 250 alleged fake companies.
HMRC reported that three people had been arrested on suspicion of attempting to defraud it of £1.4m, in what was the first such case of enforcement in the UK.
The digital tokens, which emerged in 2014, can be thought of as certificates of ownership for virtual or physical assets. NFTs have a unique digital signature so they can be bought and sold using traditional currency or crypto currency, such as Bitcoin.
According to a report in the Telegraph, the suspects used “very sophisticated” methods to hide themselves and pretend to be legitimate businesses. HMRC ‘sized’ three NFTs and £5’000 of other crypto assets as it continued the probe into a suspected fraud involving the 250 alleged fake companies.
The deputy director for economic crime at HMRC, Nick Sharp, said “we constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets”.
In comments to the BBC’s Today programme, former senior civil servant Sir Edward Troup declared: “The ability to hide assets away either for tax fraud or money laundering is not new.” But HMRC is always chasing market developments. These are particularly challenging assets but 100 years ago, finding where the cash was buried in the garden was as difficult as it is now proving to be to track NFTs.
We spoke with Fabien Bénédicte Suant, Partner at CHAPLIN, BÉNÉDICTE & Co, a boutique firm specialised in new technologies and crypto due diligence.
According to Fabien, “HMRC did not physically ‘seize’ the artworks in question. It obtained a court order that prevents the NFTs from being sold on the online marketplace. But such orders would prove insuffisant with many exchanges located outside of the scope of the UK. Another option for HMRC might have been to physically seize the electronic device on which the NFTs were locally stored, but again this would only apply if the electronic device was physically located in a jurisdiction when the UK court has jurisdiction. HMRC has successfully denied the fraudsters from making any further income on the targeted NFTs, but it’s failing to actually collect assets that can be used to compensate victims. Without the ability of HMRC to actually reach a stage when the NFT can be controlled and sold by themself, this victory is more symbolic than efficient in recouping funds. NFTs clearly challenge the traditional notions of possession and ownership, but at least this victory for HMRC shows that the UK legal framework is successfully adapting to handle the ongoing development of digital ownership rights.