Art is crime [NFT artist funds seized]
art-is-crime.com
art-is-crime.com
The author asked for guidance:
>I called the VID (Latvian State Revenue Service) and asked in detail what I should do. I was told that I should first register as a self-employed person with the profession of an artist. And I have to convert my income into fiat and pay tax on the income in fiat because cryptocurrency is not money in Latvia.
...followed it by converting to Euros and paying taxes and then still had his bank account frozen for half a year without any further clarification on what he did wrong or how to fix it.
I have no opinion as to the legitimacy of the criminal accusations, but having correctly paid tax liabilities would not be a defence.
If that's true, then the medium does not appear to be a lawful method for transactions above €10,000 in the EU.
> Some announcement of that policy would be better than letting it become known through surprise enforcement.
AML 5 - the Directive which introduced this regulation - is not exactly a secret. Especially if transacting through a company, it is very difficult to argue ignorance as a defence to non-compliance.
Traditionally, dealers and auction houses would require and assist with KYC/AML compliance, which was part of the value they offered. Relying on non-compliant permissionless contracts does not absolve the vendor of their responsibilities.
In addition to primary sales, there are also royalty payments for secondary sales but I don't think any of his pieces have ever sold for €200k (which would be required for a €10k royalty).
...but maybe this goes against the spirit of AML-D5 since popular generative art still drives many millions of dollars/euros in sales, but often split across smaller transactions (since a collection may contain hundred to thousands of individual pieces).
Point being, if you have income and you call it income then your government can tax you and they can demand payment in their local currency. Forget crypto, they can force you to convert dollars to euros as well.
As for NFTs I don't think they need regulation, a person sells another person the golden gate bridge as a concept, so long as they pay sales tax who cares. No false advertisement there.
However, it's an inherent risk with crypto if the law requires all your income to be explicable. i.e.
>> The decision to arrest stated that I was receiving money from Coinbase, and therefore it is impossible to trace the source of funds
It's not clear if he knew who his counterparties were? (natural persons, not accounts)
I see the comment thread is going to be people just assuming guilt or innocence based on a cursory reading of this, which is going to be a mess.
Disappointing.
However, he gives no indication (as far as I can tell) that he has any kind of information on his customers. Does he have invoices? Did he collect name, address, and phone number for each customer? Did he make a reasonable effort to see if his customers were not obvious crooks? He published transactions from various crypto chains, but that doesn't prove anything except that crypto transactions have taken place.
The author rants extensively about how corrupt and illegal the government's actions are, but he provides no evidence that he conducted his business in a serious and professional way. He feels like his actions should be legal, but it's not obvious that he hasn't inadvertently facilitated money laundering. After all, if he's a popular NFT artists then people with illicitly gained crypto could easily have been trading his NFT art to launder their money.
I think it's pretty likely that much of last year's NFT bubble was the result of scammers/fraudsters/ponzi operators looking to obscure the source of their new wealth, and this guy happened to be a big beneficiary of it.
<edits for clarity>
A car dealership can’t sell somebody a Lamborghini if they want to pay with crumpled $20 notes. An art dealer can’t buy a Mondrian that the seller claims they found in their granny’s attic.
I don’t understand how this is controversial.
classifying suspicious transactions is a weird and dangerous path to legislate.
Domestically, cash above $10k is already subject to a reporting requirement, a new Honda Civic is $22k, and that much cash has been deemed suspicious due to the war on drugs.
That's nonsense. There's nothing preventing KYC for any business transaction. It won't happen on the blockchain, but entities operating in the EU who forgo compliance will end up subject to investigation when they interact with the financial system, as may have happened in this case (again, I'm not supposing that the OP did anything wrong).
> The law as it is currently defined is not compatible with the technology and will need to be revised if the law wishes to consider NFT as high value art sale.
This is complete nonsense. The medium of transaction is neither inherently compatible or incompatible with the law, and entities which try to use it as an excuse to avoid their compliance obligations will find themselves subject to government investigation and sanction.
The idea that you can pretend that a technical implementation can exempt you the law is so outlandish and absurd that I wonder if you're trolling?
> The idea that you can pretend that a technical implementation can exempt you the law is so outlandish and absurd that I wonder if you're trolling?
I am not suggesting this exempts anybody from the law, I am suggesting the law is outdated and not compatible with current technology. If the law is that you must handle KYC upon receiving $10K USD in tokens, and an anonymous wallet sends you 10ETH in tokens, you should not automatically become a criminal and have your assets seized because of a law that was written before permissionless blockchain networks existed.
> I am not suggesting this exempts anybody from the law, I am suggesting the law is outdated and not compatible with current technology.
AML 5 came into law on the 10th January 2020 (with an enforcement window for transposition into national laws). The law is, as said before, partly designed to close loopholes in the previous Directives that allow high-values transactions to avoid regulation. The law is - for better or worse - keeping up to date. It's simply the case that you don't like the regulation being imposed.
> If the law is that you must handle KYC for > 10ETH purchase, and an anonymous wallet sends you 10ETH in tokens, you should not automatically become a criminal and have your assets seized because of a law that was written before permissionless blockchain networks existed.
I think this really puts your bias front and centre.
The goal of this is not to avoid the KYC laws. Unfortunately the technology makes it impossible to comply with them as the laws do not account for permissionless smart contract functionality.
Many artists and corporations are now selling NFTs without the ability to get KYC on every transaction, because this data does not exist on the blockchain and cannot be acquired unless you are a legal authority that has the ability to request private data from a CEX. Saying it “must” be acquired for 10K+ transfers is basically saying those transfers must be criminalized.
NFT sales were not on anybody’s radar before 2021, especially not EU lawmakers. In the next few years it seems likely there will be more regulatory clarity so that people can make taxable income on NFTs without being treated as criminals as in the OP case.
> I think this really puts your bias front and centre.
How so? It is clear to me this law is not compatible with the way the blockchain works and the OP being criminalized for selling art is a good example of how it will hurt regular citizens. Meanwhile corporations and brands selling NFTs probably will be fine as they have larger legal teams and regulators are less likely to try and fight them.
The solution to this AML law is either to treat all these blockchain transactions as illegal and continue to criminalize the behaviour, as you are suggesting, or to define new laws that take into consideration the way that blockchain transactions do not allow sellers to request KYC, and instead push that AML reporting requirement on the CEXes.
If so, you are delusional. Lawmakers are not going to carve out an exemption for blockchain transactions when the explicit goal of the EU is to bring them under robust regulation.
Once again, the outcome that is upsetting you is the intended goal of the Directives. If in doubt, Google “AML5 crypto”. After all, it is the Directive that brought crypto exchanges under AML rules and almost certainly is the reason that the OP (irrespective of whether they broke any rules) came under investigation.
Finally, I believe your own biases hide from you how similar this legislation is when applied to fiat, barter, and crypto transactions.
In the EU, you cannot lawfully undertake high-value transactions without KYC. Whether you agree with that or not (and I don’t), it is the law of the land, widely accepted and implemented, and not unpopular. Sort of a legislative change of tack, regulation will continue in this vein.
That’s why companies have to report who their Ultimately Beneficial Owners are, and that’s why there are reporting requirements for the kinds of transactions that are used for money laundering.
Money laundering is a big deal and governments around the world are fighting hard against it. Crypto has gotten too big and now it’s getting regulated. People who believed wrongly that the law wouldn’t apply to them are now getting a wake-up call.
If I sold a car that was deliberately unsafe, I wouldn't expect people to come to my company's defense and say that being safe in my car isn't possible and therefor the law is outdated and not compatible with current technology.
> many people and companies are now exploring NFTs as legal and taxed income, and most celebrities and companies selling NFTs in the last two years are not going through the same hardships as the OP.
Which is, of course, a breeding ground for money laundering if exempt from KYC/AML regulation.
Eventually a democratic society decides on its laws. If the citizens and taxpayers want to buy and sell NFTs on permissionless blockchains like Ethereum without being treated as criminals, the laws will have to change.
Globally, the trend is towards stricter and more comprehensive regulation of blockchain-based transactions. While you may prefer (as may I) a freer regulatory environment, the pendulum is swinging in the opposite direction.
Correct. The technology must be changed or you accept that you're evading the law.
Blockchain advocates have long claimed that blockchain would destroy the state. They never seem to have thought about what the state might do in response to threats to its power.
Presumably €10,000 is the trade-off value which the member states decided would be sufficient to make an impact on money laundering without imposing too much bureaucracy on small transactions.
> Why should the people follow these insane rules?
I don't necessary like them, but AML 4/5/6 are well-reasoned Directives that were written and negotiated in public and agreed on by all member states. They didn't receive much pushback during their drafting periods. If anything, leaks like the Panama Papers have made them popular.
As for why people should follow the law, that should be obvious. The state won't leave you alone to transact as you wish. Compliance failures lead to civil and criminal sanctions.
> In the us this is potentially unconstitutional unless it is interstate trade.
Fortunately, the EU is not in the US.
His records and sales are public on the site and easily traceable, far more transparently given than most corporate and celebrity NFT sales that have happened without issue in the last two years.
A bar that takes cash cannot prove they're not money laundering, therefor it doesn't matter if the government seizes their assets. That is essentially what your argument says.
It's obvious you're not on board with NFTs, and that's fine. What isn't fine is making blanket assumptions that everyone who sells art in the space is a fraud or a scammer. It's a very stupid opinion, with no basis in knowledge of the space, the ability to track transactions, due process, etc.
This isn’t about honest businesspeople having to meet some impossible burden of proof. This is about selling 10 million worth of product and not bothering to figure out where the money came from.
money laundering laws in germany require banks to verify every transfer above 1000 euro. cash payments of more than 10000 euro need to be documented as well.
i believe the rules are similar across the EU.
what's unclear is how that relates to cryptocurrency. does the source of the cryptocurrency have to be verified, or just the source of the fiat currency when cryptocurrency is sold for?
They think instead of being legit art sales, the NFT sales where part of a complex scheme through which he was laundering money. (Likely this scheme amounts to selling the art to himself. It is not especially difficult to have your various criminal wallets buy NFTs from yourself, making it look like legit purchases. Alternatively he and a ring of criminal associates could be buying nfts from each other with their dirty funds.)
The documents provide basically no indication of them having any evidence of this beyond "large amounts of money" moved via crypto. The documents even make it sound like that is their only evidence. But the documents claim that because they have reasonable suspicion that the money came from crimes, they can seize it.
The documents make it sound like money laundering is technically only illegal if the original source of the money is illegal, but make no effort to establish that the pre-laundered funds are criminal, and point out that the law does not require them to identify the crime from which the funds were originally obtained.
The assertion in the arrest documents seems to be basically that making a lot of money by selling NFTs is in itself sufficient cause to believe that money laundering of illegal funds was occurring, which provides sufficient justification for seizing the funds.
That's the thing about scams. You don't have to listen to a word of anybody's rationalizations about these kinds of things. You just look at the money flows. If it banks like a scam, it's a scam, end of story.
Art is not illegal. Money laundering is.