International Tax Consortium Lists ‘Red Flag Indicators’ of Fraud in NFT Marketplaces

The guidance, which is the first of its kind from the Joint Chiefs of Global Tax Enforcement, lists both strong and moderate indicators of fraud.

AccessTimeIconApr 29, 2022 at 3:47 p.m. UTC
Updated May 11, 2023 at 4:58 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

An international tax consortium has issued a list of “red flag indicators” of fraud in non-fungible token (NFT) marketplaces to help banks, law enforcement and private industry crack down on criminal activity.

The guidance is the first of its kind from the Joint Chiefs of Global Tax Enforcement, also known as the J5. Founded in 2018, the J5 is made up of representatives of tax agencies from Australia, Canada, the Netherlands, the United Kingdom and the U.S., and is tasked with sharing information and coordinating operations to fight international tax crime.

Scams and fraud abound in the crypto markets, and NFTs are no different. Various crimes and bad behavior, from wash trading to forgery to money laundering to straight-up theft, have become increasingly common in the NFT markets.

In the document released Thursday, the J5 listed 24 “red flags” for NFT marketplaces, split between “strong” and “moderate” indications of potential fraud.

In the J5’s “strong” indicators of potential fraud, law enforcement is encouraged to watch out for phishing scams, fake token giveaways, social media impersonation and other signs of potential wash trading and money laundering, such as “NFTs being sold for large sums and reacquired from the same party or a third party for smaller amounts.”

The “moderate” indicators include things such as non-existent contract addresses, missing information in the project’s description fields and re-used code within the NFT. The document notes that all these indicators have appeared in real projects, and are not alone indications of crime. However, they should be taken into consideration when deciding whether a project is legitimate.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.

Cheyenne Ligon

Cheyenne Ligon was a CoinDesk news reporter with a focus on crypto regulation and policy. She has no significant crypto holdings.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.


Read more about