Head of Financial Crime David Savage appeared on Sky News on 15 February 2022 to discuss the growing market of non-fungible tokens (NFTs) and the potential risks involved in the booming trade.
HMRC was the first UK law enforcement agency to seize an NFT. Speaking to Saima Mohsin on Ian King Live, David noted that “it is great to see HMRC tackle this area head-on.” The cryptocurrency world has been on HMRC’s radar for some time, and therefore “it is hardly surprising that they are moving on to NFTs” as a potentially lucrative next step.
David pointed out that some members of the public purchasing NFTs “will not understand the tech or what goes on behind the scenes.” Taking the example of an artist (the subject of a report on NFTs that aired prior to the interview), David said: “She mints and lists [her work], but people can then copy and sell them as originals. If you were not savvy enough, you may not look behind the piece of art to realise that what you are buying is counterfeit.”
Calling for better regulation of NFTs and cryptoassets, David suggested that “there is currently a lot of room for criminals to take advantage of cryptocurrency and virtual assets, making a quick profit at the expense of people legitimately trying to invest in these assets. The best way to deal with that is regulation, and to ensure that our money laundering laws are up to scratch. Cryptoasset exchanges should all have KYC and customer due diligence on their books, so that everyone is protected.”
Saima asked about other potential risks involved in buying and selling NFTs. David listed “the obvious example of a ‘pump and dump’, where a group of traders artificially increase prices by collectively bidding on NFTs. Non-insiders will bid thinking they are on to a winner, after which the value of the asset will depreciate.” Other issues include ‘catfishes’, where the buyer is purchasing the asset from someone masking their identity, wallet hacks, social media scams and a “whole raft” of other potential methods of defrauding cryptoasset customers.
Outside of the interview, David offered this summary: “Much like high value art, NFTs are a fraudster’s dream, particularly when the hype around them is so visceral. However, NFTs each carry a unique identified on the blockchain which means that they can be relatively easily linked back to their owner.
“HMRC and other authorities already have subject matter expertise around blockchain-linked assets and technologies, so those looking to conceal or launder funds using NFTs and cryptocurrencies should think twice.”
David was also quoted in articles by the Telegraph noting that HMRC has opened multiple criminal investigations related to crypto assets, and that it has taken greater interest in fraud involving NFTs. He noted that crypto assets are an “obvious candidate” for a wave of investigations. “HMRC have been ramping up their activity in respect to crypto assets for quite some time now,” he said.
The NFT market grew to more than $40bn globally in 2021, nearing the value of the traditional fine art market. David suggested that NTFs and other crypto assets are an “obvious candidate for investigations, people to be hauled before an investigator or hauled before the courts if they’re actively evading tax”. As for the future, he made this prediction: “I would expect that as the tech develops, HMRC will continue to want to get its coffers filled up with taxes from those who are trading or otherwise benefiting.”
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