BACK

18 Feb 2022

Article by Deepak Vij, Director and Head of the Fraud and Financial Crime department at ABV Solicitors.

Deepak Vij has been formally instructed by several suspects recently arrested by HMRC for their part in a Non-Fungible Token (NFT) fraud. They have all been released under investigation.

The NFT market is a colossal multi-billion-pound industry across the world.

For the very first time, HMRC seized 3 NFT’s as part of a large probe into a suspected fraud of circa £1.4 million. This value will almost certainly be substantially more as the investigation by HMRC continues together with the numbers of persons involved in this fraudulent enterprise.

This fraud involved the attempt by the suspects to seek repayment from HMRC of VAT on their sales far beyond than what they were owed in respect of NFT trading together with committing offences including fraud by false representation and cheating the public revenue.

The fraud purportedly involved the use of over 250 fake companies and was said to be sophisticated and perpetrated over a lengthy period. The suspects claimed to be involved in legitimate business activities but allegedly used stolen and fake identities and addresses, burner phones, including the use of fake Virtual Private Networks (VPN’S) to disguise both the offending and the offenders.

For some time, many experts had warned that the NFT business was fraught with dangers making it susceptible to illegality for example by committing tax fraud or allowing fraudsters to conceal and launder their money using crypto assets. It seems they were right.

Trends of offending have shown the artificial inflation of the value of tokens through a process known as wash trading, thereby making millions. This is a manipulation of the market where investors buy and sell the same financial instruments.

Significantly, in this recent case HMRC also secured a Court Order to prevent the NFT digital artworks from being sold on. They have in essence frozen the virtual asset, notwithstanding that NFT’s usually have no real tangible form.

These monumental arrests will no doubt open the floodgates for law enforcement agencies across the U.K to investigate, arrest and prosecute these serious NFT digital fraud offences. Those involved could expect a ‘knock’ sooner than they think.

This is a novel, evolving and complex area which will no doubt involve new legal challenges for the entire U.K criminal justice system for those both prosecuting and defending.

Deepak Vij and his expert team of Partners and solicitors at ABV Solicitors are at the forefront in representing and defending those accused of NFT and other crypto digital frauds.

ABV Solicitors have for some time been retained to advise many clients on seized crypto currencies by law enforcement agencies under the Proceeds of Crime. Auction houses have realised hundreds of thousands of pounds by selling these digital assets on.

NFT’s are very popular and part of a thriving market across the globe and a seemingly effective armoury for law enforcement to seize and then sell digital assets and recover the proceeds of crime from individuals, worldwide is of course attractive.

The law enforcement agencies also have a vested interest in pursuing these actions as they seek to profit personally from these applications which entitle them under the Proceeds of Crime Act 2002 legislation to keep the value of half of the spoils, the other half benefiting the Home Office. A clear incentive for them to pursue this course and an indication of their appetite to intensify their investigations resulting in more arrests.

Time will tell whether the methods of valuing these assets are accurate and proportionate. It is likely that this will subject of much legal challenge and debate.

ABV Solicitors continue to ‘gear up’ on their substantial expertise in crypto fraud and NTF fraud to meet these new challenges on behalf of their clients, advancing their defences and protecting their interests.

If you require professional advice and assistance on this topic contact Deepak Vij, head of the Fraud and Financial Crime department at ABV Solicitors or his team on 0344 587 9996.

READ MORE…

What is an NFT

 NFT’s have rapidly evolved since they first appeared in 2014. They can be purchased with either crypto or conventional currencies.

NFT are classified as a virtual and digit asset. They are non-interchangeable and exclusive. No two NFT’s are alike that cannot be swapped like for like, unlike crypto coins which are fungible namely, they can be interchangeable and can be exchanged.

Traditional works of art such as paintings are valuable because they are unique but digital files can be easily and endlessly replicated making it more appealable and obviously more profitable for collectors/investors to deal with rare commodities.

NFT’s can include real world objects including artwork, gaming characters, animation, music and videos which can be tokenised to create a secure digital certificate of ownership which can be traded.

The ownership of NFT’s is secure and similar to crypto currency, they are recorded on a digital ledger known as a Blockchain, which is stored on thousands of computers across the entire the world making the records of ownership difficult to forge, change or manipulate therefore purporting to be a unique and safe platform.

Blockchains are the support mechanism used by the majority of crypto currencies.