Keeping Up With Crypto
If you don’t know what a NFT – or Non-Fungible Token – is, you are not alone. But it seems law enforcement agencies have heard of them, and are starting to look into their use as money laundering vehicles and their worth when it comes to confiscation.
NFTs are a type of crypto token. You can’t hold them in your hand and they have no physical form of their own. Owning a NFT has been described as owning a “pointer” to something else. So, instead of actually possessing an item, you own a digital file recorded on blockchain which demonstrates the history of ownership. Whilst there is clearly controversy about NFTs and their real financial and cultural value, there is no doubt that this has become big business – last year alone the market for these items was worth a reported £16 billion. And it’s against this background that last month Her Majesty’s Revenue and Customs confirmed it had “seized” three NFTs as part of its investigation into a suspected VAT fraud. The items in question were said to be digital artworks.
The interest of law-enforcement agencies is that whilst the NFT might appear to exist in the ether – recorded as yours, but untouchable – real money pays for it. That may be crypto currency or the traditional kind, but at some stage there is a financial transaction. And so the concern will be that these represent the perfect vehicle for transferring ill-gotten gains. What this case indicates is that the law enforcement agencies may be becoming more sophisticated in their outlook and more capable of following the money on digital journeys. Nick Sharp of HMRC is recorded as saying, with respect to this recent case, that it “serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC”.
Cryptocurrency has already been found to be ‘realisable property’ under the Proceeds of Crime Act so it can be restrained or confiscated. The issues here are far from straightforward as the parties must wrestle with how to price these items in an environment with huge fluctuations in value. But in recent years, we have seen the Courts willingness to engage with these issues, value crypto-currency as assets and include these within confiscation orders. In the same way that law enforcement agencies are gradually getting used to engaging with digital currencies, we can expect to see NFTs feature more often in financial crime case and related matters. As defence lawyers, we must keep up with these changes so that we can obtain the best possible outcomes for our client.
If you want advice on this new and evolving area of law call one of our financial crime experts in the Crime team for advice on 0808 252 5231.