J5 tax authorities warn on risk of NFTs
The Joint Chiefs of Global Tax Enforcement (J5) has released an intelligence bulletin, warning banks, law enforcement personnel and private citizens of some of the dangers when dealing with non-fungible tokens (NFTs)
The J5 NFT Marketplace Red Flag Indicators is the first of its kind from the J5. It lists items that should draw concern when dealing with NFTs or planning to purchase one.
While the majority of cryptocurrency owners and those purchasing NFTs are doing so for righteous reasons, criminals look for any way to exploit new technologies. Cryptocurrencies and NFTs are not immune.
‘This space is changing so fast and technologies and products have the ability to become the ‘next big thing’ without any due diligence or regulation on the part of the creator of the product,’ said special agent Oleg Pobereyko, J5 crypto group lead.
‘We tried to put together a product that would help keep people safe while law enforcement catches up to these particular concerns.’
Some of the issues to consider when handling NFTs include:
- newly minted or secondary market transactions of more than $100,000 in value with no observable community;
- a network of sending and receiving parties to the same transaction or group of transactions;
- newly minted NFTs held by subjects being sold at high price points immediately which is not in line with others in the collection (potentially hiding the true reason for purchase); and
- NFTs being sold for large sums and reacquired from the same party or a third party for smaller amounts.
The purpose of this document is to provide insight to banks, law enforcement partners and private industry regarding potential red flags in NFT marketplaces. The J5 seeks to continuously improve fraud detection measures in place to detect and prevent criminal activity. NFTs can be anything digital including drawings, music or anything that can be seen as art. They have been described as an evolution of fine art collecting, only digital.
Later this month, J5 members will meet in London for the J5 Challenge. The event brings together experts from each country with the aim of optimising data from a variety of open and investigative sources available to each country, including offshore account information. Using various analytical tools, members of each country will be put into teams and tasked with generating leads and finding tax offenders using cryptocurrency based on the new data available to them through the data sharing exercise.
The J5 includes the Australian Taxation Office, Canadian Revenue Agency, Dutch Fiscal Information and Investigation Service, HMR and Inland Revenue Service.
Story wrote by Sara White.