IRS Highlights Potential Risk of Fraud in NFTs and Cryptocurrencies

  • Richard Marley
  • January 27, 2022
  • 3 minutes read
  • 2292

IRS highlights Non-Fungible Token (NFTs) and crypto as the potential risk of financial crimes, including market manipulation, tax evasion, terrorist financing, and money laundering. 

As virtual assets are becoming mainstream, there has been a rising concern for government agencies along with financial watchdogs, making efforts to develop laws for their safe use and are carrying out enforcement activities to stop individuals and businesses from involving in criminal activities.

“We’re just seeing mountains and mountains of fraud in this area,” said Ryan Korner, special agent in charge of the Los Angeles field office at the IRS’s criminal investigation division. The division is tasked with probing tax crimes and related financial crimes.

In addition to this, Korner at a virtual event hosted by the USC Gould School of Law also stated that celebrities are also not immune to the IRS’s criminal inquiries.

“We’re not necessarily out there looking for celebrities, but when they make a blatant or open comment that says ‘Hey, IRS, you should probably come to look at me,’ that’s what we do.”

IRS investigators seized $3.5 billion worth of digital currencies involved in financial crimes during the fiscal year 2021, a figure that accounted for over 93% of all cryptocurrencies confiscated by the division in the time frame. The agency ended the year with a total of 80 cases in its inventory that it was still working on where the financial violation was directed connected to the cryptocurrencies, said Korner.

However, Korner stated the regulatory bodies and government are quite worried about the emerging range of criminal activities. They stress out when investors pay millions of dollars for NFTs, which doesn’t seem to have that kind of inherent value. In addition to this, criminals can also utilize them to launder money gained from illicit ways.

Federal law enforcement authorities have been tracking down cryptocurrency companies and exchanges in the past that used celebrities to advertise illegal activities and products. For instance, the US Securities and Exchange Commission settled charges against the boxer Floyd Mayweather and DJ Khaled as they failed to disclose the source of transactions that have been paid through social media campaigns to promote a scheme.

IRS CI is making efforts to come up with training programs for its agents regarding crypto and NFTs concerns because “this space is the future”, Korner said. Furthermore, the IRS is also looking to increase information sharing and collaboration with other federal law enforcement authorities, including the Justice Department, aiming to ensure that every department stays on the same page to curb the risk of financial crimes, said Korner.

Suggested Read: IRS Criminal Investigation Uncovers Approx. $10 Billion Worth of FinCrime