The UK's tax watchdog has made its first seizure of crypto non-fungible tokens (NFTs), in a crackdown on suspected criminal activity to hide money.
The HMRC seized three NFTs after investigating an attempt to defraud the public purse of £1.4m ($1.9m).
Three people were arrested on suspicion of attempting to defraud the authority, allegedly using a web of 250 fake companies.
Nick Sharp, Deputy Director Economic Crime at HMRC, said the seizures of the NFTs, which had not yet been valued, served as a warning.
"We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets," he said in a statement.
“Our first seizure of NFTs serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC."
It has also seized £5,000 worth of other crypto assets.
NFTs are a form of crypto asset that uses blockchain technology to record the ownership status of digital files such as images, videos and even items within online games.
The market is worth about $16 billion.
The most popular NFTs take the form of digital avatars that owners can use as their profile picture online, like those featured in collections from the Bored Ape Yacht Club or CryptoPunks.
These assets can be worth millions of dollars, and have attracted celebrity attention in recent months from the likes of Paris Hilton, Reese Witherspoon and Serena Williams.
The UK seizure comes a week after the US seized $3.6bn in stolen Bitcoin, in the largest financial seizure ever.
“This case demonstrates yet again that criminals can’t hide in the world of crypto,” said David Carlisle, the head of policy and regulatory affairs at crypto research company Elliptic.
“Enforcement agencies are able to track and trace criminals’ transactions, and seize NFTs and crypto assets used in illicit activity, robbing criminals of their profits.”
The suspected fraudsters are alleged to have used sophisticated methods including false and stolen identities, false addresses, prepaid unregistered mobile phones, Virtual Private Networks, false invoices and pretending to engage in legitimate business activities, HMRC said.
“Fraudsters typically thrive where asset values inflate rapidly, so it’s no surprise to see them capitalising on the growth of NFTs,” said Sam Roberts, a partner at law firm Cooke, Young and Keidan.
“While removing the need for lawyers may have been one of the lofty goals of public blockchains and the asset classes on which they are based, in practice that has not happened – frequently, because of thefts and fraud."
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