A CryptoPunk NFT on display at Sotheby’s on June 4, 2021 in New York City.
Cindy Ord | Getty Images

LONDON — Britain’s tax watchdog has seized three non-fungible tokens, in what is thought to be the first seizure of NFTs by a U.K. law enforcement agency.

Officials at Her Majesty’s Revenue and Customs say they seized the NFTs during an investigation into a suspected value-added tax (VAT) fraud case worth £1.4 million ($1.9 million).

The suspects allegedly tried to claim back more VAT, which is a type of sales tax, than what they were owed, using a mix of stolen identities, unregistered phones and false invoices to hide their identities. The scheme involved 250 alleged fake companies, according to HMRC.

“Our first seizure of a Non-Fungible Token serves as a warning to anyone who thinks they can use cryptoassets to hide money from HMRC,” Nick Sharp, HMRC’s deputy director of economic crime, said in a statement Monday.

“We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets,” Sharp added.

NFTs are one-of-a-kind digital assets designed to track ownership of virtual items, like a work of art or video game character, on the blockchain. Blockchains are the digital ledger systems that underpin most major cryptocurrencies.

Demand for NFTs has soared lately, with sales of such tokens topping $40 billion in 2021. However, the market is prone to thefts and scams, and there are concerns that much trading activity in NFTs has been fueled by market manipulation tactics such as wash trading.

HMRC says it is the first law enforcement body in the U.K. to make a seizure of NFTs. Authorities seized three NFTs representing digital art, as well as another £5,000 in other crypto assets. The NFTs are yet to be appraised, and the probe is ongoing, HMRC said.