A special agent from the Internal Revenue Service has warned that non-fungible tokens (NFTs) and cryptocurrencies are highly susceptible to fraud and manipulation as they grow in popularity.
Speaking at a virtual event held on Tuesday by the USC Gould School of Law, Ryan Korner from the IRS Criminal Investigation’s Los Angeles field, said that both NFTs and cryptocurrencies are becoming a growing area of concern for regulators and tax collectors as they’ve steadily become more mainstream.
“We’re just seeing mountains and mountains of fraud in this area,” Korner said, according to Bloomberg.
An NFT is a digital asset that uses blockchain technology to record the ownership status of digital objects like artwork, music, and even memes. They are non-fungible, meaning they are one-of-a-kind and are generally purchased using the cryptocurrency of the Ethereum blockchain.
Interest in the global NFT market has surged in recent years, hitting $22 billion in 2021 compared to just $100 million in 2020, according to data from DappRadar.
Due to their rising popularity, regulators are struggling to police how the tokens are used and prevent them from being utilized for criminal activity such as fraud, money laundering, market manipulation, and tax evasion.
In December, former First Lady Melania Trump released her first NFT and launched a new platform that will release NFTs regularly, called “Melania’s Vision.”
The venture combines her “passion for art and commitment to helping our Nation’s children fulfill their own unique American Dream,” the former first lady said, noting that some of the proceeds will go to help children in the foster care community.
With the move, the former first lady joined a growing list of celebrities who have launched their own NFT collections, including award-winning director Quentin Tarantino and electronic music artist Deadmau5.
However, Korner warned Tuesday that celebrities, who are capable of swaying the price of digital assets given their huge following, aren’t immune to the IRS’s criminal probes.
“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.