The Joint Chiefs of Global Tax Enforcement (J5) released a list of “NFT red flags,” warning investors against “some of the dangers” related to NFT trading. According to a press release, the bulletin is a set of “best practices” based on the member countries’ investigative experience rather than an “all-inclusive” list of risks associated with NFTs, but it signals the J5's growing interest in the NFT sector.
Special Agent Oleg Pobereyko of the J5 Crypto Group admitted that the fast pace of change on the NFT market makes it difficult to formulate long-lasting guidelines. He expressed hope that the document would help "banks, law enforcement personnel and private citizens" understand the risks while "law enforcement catches up."
More to come
The bulletin outlines strong and moderate fraud indicators, but notes that “any single indicator in isolation will not be a definitive indication of fraud.” Strong indicators include well-known scam strategies like phishing, fake airdrops and social engineering, but also vague warnings about “clearly” overpriced or underpriced NFTs or collections “from high-risk area,” not to mention wash trading, which the NFT community has largely come to accept as a standard practice.
None of these indicators have been explained in detail, although IRS Criminal Investigation chief Jim Lee said he hoped this bulletin would be one of “several” of such documents, hinting at a long-term effort.
The report comes as the J5 prepares for another edition of Challenge, a yearly focus session that brings together the five member countries, plus industry experts and analysts. This year’s edition will be dedicated to decentralized crypto exchanges and the NFT market, Jim Lee said in March.
The Challenge will be held in London in mid-May, around the time the UK's Financial Conduct Authority hosts CryptoSprint, a two-day event intended to brainstorm ideas for “regulatory policy changes based on evolving technologies.” The J5 press release did mention other meetings the J5 expects to attend in May, so it’s possible that some of the Challenge attendees will also join CryptoSprint.
From pro enablers to NFT traders
The J5 is an international tax enforcement group whose members include tax authorities from the US, Australia, Netherlands, the UK, and Canada. The idea is to tackle tax crime and money laundering through intelligence sharing and joint investigations.
Thanks to the collaboration, the member countries exchange more data in the space of a year than they had used to over a decade before the group was formed, according to an earlier report.
It’s no secret that the J5’s attention has been steadily shifting from professional tax evasion enablers to the “the threat of cryptocurrencies to tax administration.” In the previous editions of Challenge, they consulted with cryptocurrency experts and data analysts, including the crypto intelligence firm Chainalysis.
