"NFT art is considered a crime in Latvia" - Eastern European artist's seven million euro income frozen

Renowned international generative artist Shvembldr has had his seven million euros in assets illegally frozen and is currently seeking international help.

This article is authorized and reproduced from the founder of FAB DAO, Huang Dou Ni, who designed the title and annotations.

When digital artists finally have the opportunity to turn their lives around through NFTs, why do the Latvian police see them as criminals and freeze their assets?

Yesterday, Shvembldr publicly revealed his six-month battle with the Latvian police on Twitter. To this day, he still has over seven million euros frozen in the bank. All this income comes from his NFT art sales. He painstakingly disclosed every income data of NFT and the misconduct of the Latvian police on the website "Art is Crime." Based on the public and transparent nature of blockchain transaction records, Shvembldr is accusing the world in a unique way through web3, but it seems that the artist and the Latvian police are two parallel lines that cannot communicate.

I believe that this incident will have significant implications in the global history of cryptocurrencies, so I have written an article outlining the causes and consequences, hoping to draw more attention. Can cryptocurrency holders really file taxes legally? This is a question that every government will inevitably face in the digital transformation. Shvembldr's bloody case serves as a cautionary tale for us.

Shvembldr is no ordinary person. Born Ilja Borisovs, the Latvian artist Shvembldr is a generative artist who has generated high trading volume in the NFT art market. Known for his prolificacy and willingness to try new forms of NFT, Shvembldr earned 4,253 Ether (ETH) in 2021 alone, equivalent to over 93 million New Taiwan Dollars at the current exchange rate. He had exported about 8.7 million euros of art income through the cryptocurrency exchange Coinbase to the largest bank in Latvia, SEB Latvijas Unibanka, but it has been frozen since February this year.

In March 2021, Shvembldr released his first work on Tezos and sold over five thousand works in the following year, covering Ethereum and Tezos, mostly in generative art. Shvembldr's main battleground includes well-known generative art platforms like Artblocks, invitation-only platform Foundation, and he even established his own collector's club TOBA Club. He was a very successful generative artist in the 2021 trading market. I also own two of his works. He is truly a passionate and prolific generative artist, with both quality and quantity being remarkable. (You can see a very detailed timeline of his publications and each transaction data on his website)

Shvembldr detailed the interaction with the bank on the "Art is Crime" website, discussing the legal withdrawal process (converting cryptocurrency into legal currency) together and clearly declaring taxes. So far, he has to pay up to 2.2 million euros in taxes to the country. In October 2021, he was taken to the Latvian National Security Bureau for a chat, where officials emphasized that it was not an interrogation but an attempt to understand how an artist could earn such a large income. In the end, the officials expressed their fondness for his story and wished Shvembldr all the best.

In February 2022, Shvembldr's bank account was frozen without warning, and the police refused to provide any information. At that time, the police believed that the artist had received a large amount of funds from Coinbase, and since the source of these funds could not be traced back, there was an implied possibility of financial crime. As the police did not send any written notice, the artist missed the opportunity to appeal within the deadline. From February to the present, the police have never attempted to understand how the artist could earn such a huge wealth.

After the efforts of the artist and his lawyer, this matter was ruled illegal by the court in June 2022, leading to the dismissal of relevant personnel. Although Shvembldr seemed to be vindicated, the situation took a turn for the worse. The bank still refused to lift the freeze on Shvembldr's assets after the court ruling, and over a weekend, the head of the police's organized crime division, Pēteris Bauska, issued a new arrest warrant, and the artist's bank account remained frozen. In the tens of thousands of words of public confession, we can see that the artist, who has been struggling for half a year, has transformed from a patriotic taxpayer and law-abiding citizen to a skeptic who distrusts public authority.

Ironically, even though Shvembldr's assets are frozen, he still has to continue paying high taxes to the country. This is a major absurdity for cryptocurrency holders who are willing to report their income sources legally and comply with regulations. This case will set a precedent in European and global law, where any artist selling NFTs could be next.

This incident presents us with two unresolved perspectives. First, the communication between the cryptocurrency world (the so-called web3 world) and the real-world public authority is difficult, not only in terms of income and tax recognition, job identification (Shvembldr was asked to register as a freelancer), the emerging industry and regulators are almost unfamiliar with each other, and so far, cryptocurrencies are still considered as "currency" rather than "money" in mainstream countries. Secondly, the public sector itself is complex, and the same incident will result in different positions among different regulators, leading to a breakdown in communication across departments in the Shvembldr incident.

From my biased perspective, when a large amount of funds is controlled by atypical credit institutions or individuals, traditional authorities often stifle emerging industries while upholding their legal principles. Even though Shvembldr's flow of funds is insignificant in front of commercial giants, money laundering industries, top art auction markets, and national budgets, this undoubtedly deals a heavy blow to the web3 community in the realm of crypto art.

When crypto art empowers wealth to individual producers, but policies have not caught up, pioneers in emerging fields become victims, which is not something that a society fostering an innovative atmosphere would welcome. Looking back, Taiwan's generative art field is growing steadily and has gained a foothold in the global market. It is essential for relevant departments to pay more attention to how to avoid falling behind like Latvia.