HM Revenue and Customs (HMRC), the U.K.’s tax department, seized three NFTs as part of an investigation into potential tax fraud.
And while regulators celebrated the move as it was the first time U.K. law enforcement took possession of the asset class, there’s a high chance the seizure is purely theoretic.
We are yet to see whether warrants work on NFTs
The seizure of the NFTs stemmed from an investigation into a VAT tax fraud involving 250 fake companies. According to HMRC, three people have been arrested as part of the investigation and are suspected of attempting to defraud the tax authority of $1.9 million.
The suspects allegedly used VPNs, false addresses, unregistered prepaid mobile phones, and stolen identities to hide from the authorities. They also issued false invoices and pretended to engage in legitimate business activities in order to avoid paying value-added taxes (VAT), HMRC said.
Following the arrest, HMRC said that they have also “seized” around $6,700 worth of cryptocurrencies and three NFTs.
Nick Sharp, the deputy director for economic crime at the HRMC, said that the seizure serves as a warning to anyone who thinks they can use cryptocurrencies to hide money from the tax authorities.
“We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets,” he told Sky News.
And while HMRC’s move was celebrated by regulators, as it was the first time non-fungible tokens were seized by law enforcement, the effort could be short-lived.
Sky News reported earlier today that HMRC hasn’t “physically taken control” of the NFTs, but it has secured a court order that will prevent the digital artworks from being sold again.
A report from Business Insider noted that the court order was obtained only to detain the NFTs and cryptocurrencies while HMRC continues its investigation.
It’s still unclear what HMRC’s warrant looks like and whether it will manage to prevent the NFTs from being sold.
Unless the NFTs were stored on a centralized platform registered in the U.K., there is little chance that HMRC’s warrant will bear any weight. If the NFTs were to be sold while the suspects remain in custody, U.K.’s law enforcement will have a hard time sanctioning the transaction.
The only way HMRC would be able to get a hold of the NFTs would be by obtaining the suspect’s wallets. However, unless they also obtained their private keys, they couldn’t access the tokens stored on them.
If HMRC manages to access the NFTs, they will most likely be auctioned off by Wilsons Auctions. Wilsons Auctions is the largest independently owned auction house in the U.K. and Ireland and has previously auctioned off cryptocurrencies seized by law enforcement in the U.K.
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