red flags

US interstate tax consortium J5 lists NFT marketplace red flags

A global joint operational group that combats transnational tax crimes has issued its first-ever guidance on NFTs. The Joint Chiefs of Global Tax Enforcement (J5) listed some red flags that law enforcement authorities must watch out for as they police NFT marketplaces, including fake token giveaways and phishing scams.

Formed in 2018, J5 is composed of tax officials from five countries spread across three continents—the U.S., Canada, the U.K., the Netherlands, and Australia. These officials work together to gather information, share intelligence and conduct joint operations that build towards cracking down on tax-related crimes.

In its new report, J5 said it sought to alert law enforcement authorities, banks, and even private citizens about the dangers that lurk within the NFT industry. 

“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. We tried to put together a product that would help keep people safe while law enforcement catches up to these particular concerns,” Special Agent Oleg Pobereyko, J5 Crypto Group Lead, noted.

The group divided its red flags into ‘strong’ and ‘moderate’ indicators depending on the severity and popularity among criminals. The strong indicators include fake token giveaways, phishing scams, and social media impersonations. These are quite common in the overall digital asset ecosystem, even beyond NFTs. Famous figures are impersonated on social media every day, from Elon Musk to Donald Trump and Bill Gates, while phishing campaigns have been reported to lead to the loss of tens of millions of dollars from unsuspecting victims.

The moderate indicators include re-used code within the NFT project, non-existent contact addresses, and missing information in the project’s description fields.

While these indicators can signal fraud or other crimes, they are not definitive by themselves, with J5 noting that there are legitimate projects that have exhibited some of these red flags. 

“This paper provides a suite of indicators that financial institutions can reference to help them identify illicit financial activity concerning NFTs,” Will Day, the Australian Taxation Office Deputy Commissioner and J5 Chief, commented. 

“It’s intended to be the first of many that can be used by financial institutions to assist in the fight against tax crime and money laundering involving virtual assets. This report is a unique and progressive initiative and the J5 looks forward to working closer with the virtual assets industry to meet the rapidly evolving and highly complex environment which we share,” he added.

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