British tax officials with Her Majesty's Revenue and Customs reported that three NFTs had been seized as part of a fraud case. The first action against Non-Fungible Tokens by a regulator underscores a major growing issue with the NFT market; lawlessness.

Three suspects have been detained on suspicion of tax fraud. According to HMRC officials, the group allegedly used NFTs and the blockchain to hide money from tax officials and attempted to claim back more Value Added Tax (VAT) from the British government than owed. The suspects allegedly hid over £1 million.

"Our first seizure of a Non-Fungible Token serves as a warning to anyone who thinks they can use crypto-assets to hide money from HMRC," the HMRC's Deputy Director of Economic Crime Nick Sharp said in a statement.

The penalty serves as a regulatory beachhead, likely setting the stage for further actions by other world governments to pursue crypto-asset fraud and to tighten regulations. Hiding money from tax authorities and the possibility of being used for money laundering, as some regulators have suggested, are far from the only issues facing the broader NFT market, however.

Earlier this month, US-based crypto-asset market Cent suspended sales due to a "spectrum of activity...that shouldn't be happening," according to the company's founder, Cameron Hejazi. Hejazi noted large numbers of counterfeits of popular NFTs and unauthorized tokens linking to content the seller doesn't own.

Cent is far from alone, with competitor OpenSea facing similarly high levels of fraud.

The underlying issue facing both companies, and other fledgling NFT markets, is the nascence of the token itself. With Non-Fungible Tokens having entered the mainstream within the last few years and possessing little to no regulatory oversight, not understanding these tokens work is just as rampant as fraud.

Take the $3 million purchase of Alexander Jodorowsky's Dune artbook. Crypto bros threw millions of dollars at a single copy of a rare art book, misunderstanding the nature of their purchase and believing to have purchased the intellectual property of the Dune franchise.

While comedic, this misunderstanding of what NFT ownership entails, and the blurred lines that make differentiating between legitimate and fake difficult to the uninitiated consumer, has also burned many innocent would-be investors and art collectors.