Britain's tax authority became the first law enforcement agency in the country to seize nonfungible tokens (NFTs).
Have regulators finally caught up with the crypto Wild West? The UK’s tax authority, HM Revenue and Customs (HMRC), became the first UK law-enforcement agency to seize nonfungible tokens (NFTs) in a suspected value-added tax (VAT) fraud probe.
After securing a court order, HMRC detained three digital artwork NFTs (not valued) and approximately £5,000 (about $6,700) worth of other crypto assets as part of an investigation into a suspected VAT repayment fraud involving 250 alleged fake companies. Authorities also arrested three people on suspicion of attempting to defraud HMRC of £1.4 million.
According to David Carlisle, head of Policy and Regulatory Affairs at blockchain analytics firm Elliptic, the case brought by HMRC demonstrates that criminals are bringing tried-and-tested fraud techniques to the NFT space, which is marked by gaps in regulatory oversight that they are eager to exploit. “This is a major win for HMRC, and shows that the agency is adapting rapidly and effectively to evolving criminal techniques in this space,” says Carlisle.
There is little clarity on the tax treatment of NFTs, although it is suspected to be like taxes imposed on cryptocurrency, which can be subject to income tax and capital gains tax if the crypto is bought and sold as an investment.
HMRC’s actions, announced on February 14, came just a week after the largest-ever seizure by the US Department of Justice of $3.6 billion in stolen cryptocurrency directly linked to the 2016 hack of virtual currency exchange Bitfinex.
However, Shane Rodgers, CEO of PDX Coin, a digital currency backed by the value of energy assets, notes that it is the federal government and the Securities and Exchange Commission’s (SEC’s) fault that the crypto industry can operate without guardrails.
“It is crucial to have tighter regulation,” he says. “This [Bitfinex] theft wouldn’t have happened if there were clear regulations, starting with the president and the cabinet. The SEC needs standards that can be enforced.”