The UK's HM Revenue & Customs tax authority has seized three Non-Fungible Tokens (NFT) after an investigation into suspected VAT fraud involving 250 alleged fake companies.
It said three people had been arrested on suspicion of attempting to defraud it of £1.4m, in what was the first such case of enforcement in the UK.
The digital tokens, which emerged in 2014, can be thought of as certificates of ownership for virtual or physical assets.
NFTs have a unique digital signature so they can be bought and sold using traditional currency or crypto currency, such as Bitcoin.
According to a report in the Telegraph, the suspects used "sophisticated" methods to hide themselves and pretend to be a legitimate business.
HMRC took custody of three NFTs and £5,000 of other crypto assets as it continued the probe into a suspected fraud involving 250 alleged fake companies.
Nick Sharp, the deputy director for economic crime at HMRC, said "we constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets".
Robin Henry, partner at Collyer Bristow LLP, said in response to HMRC's move into this space: "Although NFTs certainly challenge traditional notions of possession and ownership, the actions of HMRC show that our current legal framework is able to facilitate and support the ongoing development of digital ownership rights.
"HMRC did not physically 'seize' the artworks in question. It obtained a court order that prevents the NFTs from being sold on the online marketplace. Another option for HMRC might have been to physically seize the electronic device on which the NFTs were locally stored."
In comments to the BBC's Today programme, former senior civil servant Sir Edward Troup said: "The ability to hide assets away either for tax fraud or money laundering is not new." But inevitably HMRC is always chasing market developments. So, it's really good to read that they're catching up.
"These are particularly challenging assets. But, you know, I'm sure that 100 years ago, finding where the cash buried in the garden was as difficult as it is now proving to be to track NFTs."