J5 Releases Red Flag Indicators to Warn of NFT Risks

​The J5 (Joint Chiefs of Global Tax Enforcement) has released an intelligence bulletin warning banks, law enforcement personnel and private citizens of the dangers of dealing with NFTs.

Fazzaco Live Webinar on 12th May: Vladimir Moshkov on How to Start a Crypto Exchange from Scratch​

The J5 was formed in 2018 to gather information, share intelligence and conduct coordinated operations to combat transnational tax crime.

The intelligence bulletin provides a list of best practices from investigations in the five countries in the J5 (Australia, US, UK, Canada, Netherlands) to address risks from dealings with NFTs, including a set of red flags indicators to help detect fraud and exploitation by criminals.

The suite of indicators is intended to help financial institutions identify illicit financial activity concerning NFTs and assist in the fight against tax crime and money laundering involving virtual assets, said J5 Chief Will Day, who is also a deputy commissioner at the ATO (Australian Taxation Office).

The intelligence bulletin provides a list of account and transaction attributes from NFT marketplaces that may indicate illicit activity.

Some of the strong indicators of fraud include:

• Newly minted or secondary market transactions worth more than USD 100,000 with no observable community

• A network of sending and receiving parties to the same transaction or group of transactions

• Newly minted NFTs held by subjects being sold at high price points immediately which is not in line with others in the collection

• NFTs being sold for large sums and reacquired from the same party or a third party for smaller amounts would be a strong indicator

• Fast turnover of low value NFTs, which could indicate an intention to launder money