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The IRS has warned that the cryptocurrency space and related non-fungible tokens are ripe for financial crime, alerting potential traders to exercise caution and be aware of the tax implications.
Ryan Korner, special agent in charge of the Los Angeles field office at the IRS criminal investigation division, delivered the warning during an event hosted by the USC Gould School of Law on Tuesday.
‘We’re just seeing mountains and mountains of fraud in this area,’ Korner said, according to Bloomberg.
Korner said that digital assets were a growing area of concern for regulators and tax collectors, and that the space was rife with money laundering, market manipulation and tax evasion.
Non-fungible tokens, or NFTs, are a trendy new technology that involves a unique digital token encrypted with an artist’s signature, which verifies its ownership and authenticity.
NFTs can represent ownership of digital assets, including images, video, music, trading cards, cryptocurrency wallet names and even land within online virtual worlds.

A gif of the meme known as Nyan Cat sold for $587,000 last February

One NFT artwork, a massive collage by Beeple, fetched a record $69.3 million at a Christie’s sale in March

LeBron James NBA Top Shot Moment NFT

Banksy style NFT owned by Pest Control is seen above

IRS special agent in charge Ryan Korner warned of fraud in crypto and NFTs
Prior high-profile digital assets to go up for sale as NFTs include Twitter CEO Jack Dorsey’s first tweet, which fetched $2.9 million, as well as the classic viral video ‘Charlie bit my finger’ which brought in $761,000.
The space has attracted the interest of a number of celebrities, as has cryptocurrency, which has seen numerous celebrity endorsements of new tokens or services.
Korner warned on Tuesday that celebrities would not be immune from investigation and prosecution if they became involved in financial crimes, though.
‘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 look at me,’ that’s what we do,’ he said.
Last year, boxer Floyd Mayweather and music promoter DJ Khaled settled SEC charges alleging that they failed to disclose that they had been paid to promote a crypto scheme through social media.
Korner said that the IRS is now working to train all of its agents on the nuances of NFTs and cryptocurrency because ‘this space is the future.’
Although many digital assets and services related to crypto are legitimate, the novelty of the space has attracted some criminal activity, and some crooks view it as an opportunity to hide assets from authorities.
A new report from blockchain analysis firm Chainalysis on Wednesday estimated that cybercriminals laundered $8.6 billion in cryptocurrencies last year, up 30 percent from 2020.
Overall, cybercriminals have laundered more than $33 billion worth of crypto since 2017, Chainalysis estimated, with most of the total over time moving to centralized exchanges.

A new report from blockchain analysis firm Chainalysis on Wednesday estimated that cybercriminals laundered $8.6 billion in cryptocurrencies last year
The firm said the sharp rise in money laundering activity in 2021 was not surprising, given the significant growth of both legitimate and illegal crypto activity last year.
Money laundering refers to that process of disguising the origin of illegally obtained money by transferring it to legitimate businesses.
About 17 percent of the $8.6 billion laundered went to decentralized finance applications, Chainalysis said, referring to the sector which facilitates crypto-denominated financial transactions outside of traditional banks. That was up from 2 percent in 2020.
Mining pools, high-risk exchanges, and mixers also saw substantial increases in value received from illicit addresses, the report said.
Mixers typically combine potentially identifiable or tainted cryptocurrency funds with others, so as to conceal the trail to the fund’s original source.
Wallet addresses associated with theft sent just under half of their stolen funds, or more than $750 million worth of crypto in total, to decentralized finance platforms, according to the Chainalysis report.
Chainalysis also clarified that the $8.6 billion laundered last year represents funds derived from crypto-native crime such as darknet market sales or ransomware attacks in which profits are in crypto instead of fiat currencies.
‘It’s more difficult to measure how much fiat currency derived from off-line crime – traditional drug trafficking, for example – is converted into cryptocurrency to be laundered,’ Chainalysis said in the report.
‘However, we know anecdotally this is happening.’
Source: Daily Mail