The UK tax department has seized three non-fungible tokens (NFTs) as part of an investigation into a suspected VAT fraud scheme involving 250 fake companies.
HM Revenue and Customs said on Monday it had seized the NFTs and arrested three people on suspicion of attempting to defraud it out of £1.4m. It is the first time a UK law enforcement agency has seized an NFT.
NFTs are unique digital tokens that first appeared in 2014 and can be bought and sold in crypto or traditional currencies but which have no tangible form of their own.
Nick Sharp, HMRC’s deputy director economic crime, said the NFT seizure “serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC”.
He said: “We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets.”
HMRC said it had secured a court order to seize the three digital artwork NFTs, which have not yet been valued, and other crypto assets worth about £5,000.
The suspects are alleged to have used “sophisticated methods to try to hide their identities including false and stolen identities”, HMRC said.
Jake Moore, an adviser at the cybersecurity firm ESET, said the seizure showed the police are fast adapting to the threat of cybercrime and how to seize digital assets that are designed to avoid law enforcement.
“A key element of cryptocurrencies’ design is to keep them secure and protected against interception by anyone, whether that be a threat actor or law enforcement,” Moore said. “But with a fast-moving digital world where mistakes can be made, police forces are beginning to buck the trend in how they investigate digital crime, locate evidence and finally seize digital assets.
“Confiscation also comes with a very tempting reward due to the Proceeds of Crime Act where the investigating police force can request to keep half of the forfeited goods and the other half will go to the Home Office. So with digital currencies, this can be extremely appealing indeed.”
The market for NFTs grew to an estimated $22bn (£16bn) last year. Data from DappRadar, a firm that tracks sales, showed that trading in NFTs reached $22bn in 2021, compared with $100m in 2020, and that the floor market cap of the top 100 NFTs ever issued – a measure of their collective value – was $16.7bn.
