HMRC has arrested three individuals and seized three NFTs along with £5,000 worth of crypto-assets in a suspected case of VAT fraud amounting to £1.4 million. HMRC is the first UK authority which has seized NFTs, but with the NFT industry recently valued at around US$16 billion it is unlikely to be the last.
NFTs are non-fungible tokens – unique digital assets stored on a blockchain making them difficult to hack or change.
HMRC stated the individuals involved in this alleged defrauding used 250 fake companies and a process known as ‘wash trading’ to artificially inflate the value of the NFTs in order to claim back the overstated levels of VAT. While HMRC does not have physical possession of the NFTs, it has secured a Court order to prevent resale.
This case follows calls for regulation of crypto-assets due to widespread concern over their use for criminal activity. Many question whether the UK legal framework is robust enough to tackle the evolving criminal activity associated with NFTs. However, this seizure of NFTs demonstrates the authorities are tackling crypto-based cybercrime and stands as a stark lesson for fraudsters attempting to hide money with crypto-assets that law enforcement agencies can trace their activities.
For individuals and businesses who are interested in legally investing in NFTs and other crypto-assets, this case acts as a reminder of the high value of NFTs and growing use. At Hamlins we are advising our clients to consider how they could utilise NFTs in their businesses to stimulate additional revenue streams. If you would like more information about structuring NFT arrangements, then please contact Matthew Pryke.