Whatever your opinions on generative art sold as NFTs, the lack of regulatory clarity seems pretty stifling.
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.
It seems that the criminal complaint is related to money laundering (ie concealing the true source and/or beneficial owner of the funds) rather than tax evasion. If that is the case, then tax compliance is expected (as the point of money laundering is to produce a clean post-tax cash flow).
I have no opinion as to the legitimacy of the criminal accusations, but having correctly paid tax liabilities would not be a defence.
Right, it seems that they want a KYC list for everyone who bought his art, which isn't possible given the medium. Some announcement of that policy would be better than letting it become known through surprise enforcement.
> Right, it seems that they want a KYC list for everyone who bought his art, which isn't possible given the medium.
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.
I don't think the mint prices for any works by shvembldr have ever exceeded €10k. I looked up the mint price for The Blocks of Art and it was 0.1eth (maybe $300 at the time), the closest I could find was the high point of an auction for Alien Insects was 3eth (~$9k at the time).
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).
He could possibly sue for them forcing him to devalue his crypto. It is a security like stocks really. The fact that they recognize it has no relevancy unless he attempted to use it as currency in their country which it he did then they are mostly right it is taxable income and they had every right to demand payment in local currency and even force the payment. If he simply posessed crypto as income but relied on other fiat income or arrangement to make ends meet then I think he can contend their actions.
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.
Whether or not you suspect he is guilty, according to the timeline, the police seized his property without justification delivered to him or his lawyer, which appears to be required by law. If you are ok with that for a suspected guilty person, I hope you aren't ever wrongly accused.
I get that this blog is one sided because it's literally from one of the sides, but not providing any details of the allegations seems sketchy, and makes me wonder what other important details he is omitting. Are we to assume that because this guy has a blog, he must not be guilty?
Is the implication then that if I sell lemonade out on the street and you give me cash for one that my funds should be seized because I don't know the provenance of the cash?
If the transaction value at your lemonade stand exceeds €10,000, then in the EU, you are required to verify the identity of the beneficial owner of the funds, thanks to AML5.
Devastating to see a government come after an artist with no justification. Shvembldr has been such a positive force for good in the generative art space. Stay strong
I haven't read the entirety of the page, but I think I got the main points. The artist claims he's in the clear because he paid taxes on his income he made by selling NFT artpieces created by him.
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.
I'm not sure your argument makes sense - Does conducting your business in a serious way as an artist involve finance-levels of know-your-customer regulatory compliance? Most business, aside from finance, do not know much about who's buying whatever product they're selling. Individual artists shouldn't be on the hook to do background checks on art buyers.
With respect, since the introduction of AML5, art dealers and auction houses are subject to KYC/AML requirements (as so-called "high value dealers"). If the transactions exceeded €10,000, the company would be obliged to be compliant or, as many do, hire a dealer who is compliant to act on their behalf.
But why? I realize that there is an arbitrary 10000 number that governments use to spy on it's people. But why? Why should the people follow these insane rules?
In the us this is potentially unconstitutional unless it is interstate trade.
I am not a fan of the ever increasing state surveillance of private transactions, so don't expect a justification from me.
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.
This is not fundamentally possible in peer to peer permissionless blockchains. 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 not fundamentally possible in peer to peer permissionless blockchains.
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?
I am not saying KYC is not possible - I am saying the requirement that the seller does KYC - such as an invoice with customer details - on every transaction is not possible. Once an NFT is listed for sale through a permissionless contract, there is no way the seller can block a particular buyer, or demand an invoice or their private details before or after the sale. The buyer's tokens may have originated from a KYC-d exchange such as Coinbase or Kraken, but that information is not available to the NFT seller, and this is where the problem is with the OP website.
> 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.
As a business you have to issue invoices and you also have a responsibility to stop obviously criminal behavior.
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.
Neither of your examples seem obvious or objectively criminal, or uncontroversial for that matter. If you pull back from Lambo to a Civic, is this still obviously criminal?
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.
Getting customer invoices per transaction is fundamentally not possible with the blockchain and peer-to-peer payment networks. What you suggest is that every individual and corporate entity who has sold a NFT should also be treated as criminal and have their assets seized, because they are not able to provide purchaser invoices per sale?
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.
Why should he did any of those things? Why is it his responsibility to make sure his customers are not crooks? Why does he need to get any info from his customers? Why does he need names, addresses and phone numbers?
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?
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.
A bar can prove that fairly easily. Show expenses, show receipts. Show auditors that the place is packed every weekend.
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.
The author is showing expenses and receipts of purchases. They are extremely clear and in some cases easier to track to owners than dollar bills. A bar selling alcohol for dollar bills would have a far thinner paper trail than what this author is providing.
In countries where free expression is actually a crime, people don’t just get their money seized, they get arrested. There’s probably a due process issue here but that doesn’t mean “art is a crime.” If anyone speaks Latvian I would love to know what those legal documents he posted say the crime he committed was.
From a quick machine translation, the documents basically say that NFTs (as crypto) are high risk transactions often associated with criminal enterprises, and untraceable money flows.
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.
I don’t believe him. It sounds to me like he played the usual scheme, having people pay for his NFTs to inflate their value- while sending the funds back.
This isn't true, and also makes no sense. (How would he have paid taxes? What money would the police have seized?) Speaking from first-hand experience, there's a significant community of collectors who like and will buy Shvembldr's work.
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.
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.