US Department of Treasury Reports issues warning that NFTs can be used for Money Laundering
A new report released
by the United States Department of the Treasury issued a warning to investors
that non-fungible tokens (NFTs) could be used for money laundering in the
high-value art market.
The report says, that the rise in the use of digital art as an investment or financial asset is allowing bad players to launder money and finance terrorism. In addition to being able to transfer some NFTs across borders without concern for geographical distance. Digital art can also be exploited by those seeking to launder illicit proceeds of crime since the movement of value can be accomplished without incurring potential regulatory, financial, or investigative costs. “The emerging online art market may present new risks, depending on the structure and incentives of certain activity in this sector of the market (i.e., the purchase of non-fungible tokens).”
As per the report, Department confirms that ownership of a particular property connected to a wallet can be identified through NFTs. Although the risk related to the sector is determined by the treasury, the buyers and sellers determine the price of a product instead of the market.
As per the department, one well-known method to launder money using NFTs is during a transaction to create a record of sales for it on a blockchain, one entity acting as both the buyer and seller of an asset. Based on U.S. authorities' statistics, the study found that the space experienced exponential growth within the first three months of 2021, and by the end of the year, it reached over $20 billion.
Based on this, the Treasury deduced that a bad actor could purchase an NFT with illicit funds that could be later laundered through sales to unaware collectors. As the record of the purchase is not stored over a public ledger, the ability to trade NFTs using P2P is identified as another money laundering vulnerability.
CBW - External Analyst