UK Tax Case Marks First Ever NFT Seizure

In what is believed to be the first such action by British law enforcement, the U.K.’s tax watchdog has seized three non-fungible tokens (NFTs).

As CNBC reported Monday (Feb. 14), Her Majesty’s Revenue and Customs (HMRC) commandeered the NFTS amid a probe into an alleged value-added tax (VAT) fraud case worth 1.4 million pounds ($1.9 million). The agency said three people have been arrested in the case, accused of tax fraud.

According to HMRC, the suspects allegedly tried to claim back more VAT — a type of sales tax — than they were owed through a mixture of fake invoices, unregistered phones and stolen identities and 250 bogus companies.

“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,” Nick Sharp, HMRC’s deputy director of economic crime, said in a statement.

“We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets.”

NFTs are unique digital assets designed to keep track of who owns virtual items, like a work of art or video game character, on the blockchain. Demand for the tokens has scored recently, with NFT sales surpassing $40 billion last year.

But as CNBC notes, the market is a target for scams, with concerns that a lot of NFT trading has been the result of manipulation practices like wash trading.

HMRC says it is the first U.K. law enforcement agency to seize NFTs, taking hold of three NFTs representing digital art, plus another 5,000 pounds in other crypto assets. The agency said the NFTs still need to be appraised, and the probe is ongoing.

Read more: eMarketplace Cent Stops Selling Most NFTs Due to Fraud

The news comes just days after a report that Cent, a platform for selling NFTS, had suspended most of its trading because users had been selling content they didn’t own.

Buying and selling on the Cent marketplace was halted earlier this month. Cameron Hejazi, the platform’s founder, has said this fraud is a “fundamental” problem in the world of digital assets, telling Reuters this weekend there’s “a spectrum of activity that is happening that basically shouldn’t be happening — like, legally.”