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The U.S. Treasury raises the alarm: NFTs are a Way to Launder Money


In research released on Friday, the US Department of the Treasury cautioned that non-fungible tokens (NFT) might become a tool for money laundering in the high-value art market.

The 40-page assessment, produced in compliance with the Anti-Money Laundering Act of 2020, discovered that there is some indication that high-value art is involved in money laundering, but not probable in terrorist funding. The study did, however, warn that NFTs may be used to promote more criminal transactions in the art market.

In research released on Friday, the Treasury discovered some evidence of money laundering risk in the high-value non-fungible token market.

In the first quarter of 2021, the NFT market witnessed $1.5 billion in trade, compared to the $20 billion observed in the US art market for the entire year of 2020. Nonetheless, the research observed that genuine auction houses and art dealers “are increasingly providing NFTs,” as well as the rise of platforms like Dapper Labs, OpenSea, and SuperRare.

Due to their artistic aspect, NFTs have a very subjective value. The price of an NFT is essentially set by how much someone is prepared to pay for it, and, unlike traditional artwork, where an artist may spend weeks on a single piece, several NFTs may be generated in minutes.

Someone seeking to launder money could potentially generate anonymous NFTs, list the artwork for sale on the blockchain, purchase it with illicit funds from an anonymous, unregulated digital wallet, and then acknowledge the money as legitimate funds from the sale of the artwork.

It should be noted that NFTs are purchased and sold using cryptocurrencies, which adds another layer of complication to the process of tracing these transactions. As cryptocurrencies have become more generally embraced and exploited, they have been linked to a broad variety of fraud schemes, but possibly none more so than money laundering, according to the ACFE’s 2021 Fraud Examiners Handbook.

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