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.
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.
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