Cryptocurrencies and NFTs are swarming with mountains of fraud: IRS

  • An IRS special agent says digital assets, including NFTs, are overrun by fraud such as money laundering, market manipulation, and tax evasion.
  • The agency plans on cracking down on these crimes, including celebrities endorsing illegal products and services.

Criminal investigators from the US Internal Revenue Service (IRS) reckon that cryptocurrencies and non-fungible tokens (NFTs) are teeming with fraud. This includes money laundering, market manipulation, and tax evasion.

“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 latter is charged with probing tax and related financial crimes.

Speaking at a virtual event hosted by the USC Gould School of Law, Korner said the agency seized $3.5 billion in digital assets linked to financial crimes during the fiscal year 2021. This amount accounts for 93 percent of the assets the IRS confiscated at that time. The agency’s law enforcement branch, Criminal Investigation (CI), closed the year with 80 crypto-related cases in its register, he adds.

The IRS’ interest in crypto and NFTs

Certain activities in the crypto industry have pulled the attention of the IRS, according to Korner. For instance, the fact that a number of NFTs have sold and continue to sell for millions of dollars. Football superstar Neymar recently purchased two Bored Ape Yacht Club NFTs for over $1 million. These digital assets don’t seem to hold any inherent value, he adds. For this reason, bad actors such as money launderers and drug traffickers can use them to conduct a crime.

Related: PSG superstar Neymar Jr. spends $1M on Bored Ape Yacht Club NFTs for Twitter profile image

Additionally, Korner says the digital asset market is easily manipulatable, with high-profile investors having the ability to move markets with a single tweet. The likes of Elon Musk, the world’s richest man, fall in this category. Last year, Bitcoin (BTC), Dogecoin (DOGE), and Shiba Inu (SHIB) saw some of their rises and falls being attributed to Musk’s comments about them on his favorite social platform – Twitter.

Other than that, Korner warned that the agency would specifically come after celebrities who engage in or propagate financial crime. Legal action would also be taken against crypto companies that pay celebrities to endorse illegal products and activities.

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.

Last year, renowned boxer Floyd Mayweather and music producer DJ Khaled had to settle charges with the SEC after they failed to disclose that they were paid to promote a certain scheme through social media. The former and socialite Kim Kardashian are currently facing a lawsuit for an alleged crypto pump-and-dump scheme.

Further notes

The IRS is intensifying efforts to fight against financial crime by training all its agents in matters of crypto and NFTs. “This space is the future, ” Korner notes the reason for the training.

Even more, the agency plans to collaborate with other federal agencies such as the Justice Department. This will improve information sharing, keeping every law enforcer on the same page and staying ahead of criminals.

Just recently, CNBC’s Squawk Box reported that the IRS plans to crack down on tax reporting from crypto and fiat payment service providers Venmo, PayPal, and Cash App.

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