The U.S. Treasury Department has released its first-ever risk assessment on NFTs, stating that they are highly likely to be associated with fraud and scams. The 29-page report also notes that although NFTs are not often associated with terrorist financing, they are vulnerable to being used as money mules.
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The assessment, released on Wednesday, found that illicit actors use NFTs to facilitate money laundering, although they occasionally integrate this technique with other techniques to conceal the sources of ill-gotten income. In addition, the report also said that due to the anonymity of buyers and sellers, theft and misuse in the NFT market are high, making it difficult to track stolen NFTs or NFTs obtained through unlawful means.
The Treasury said
“The assessment finds that NFTs are highly susceptible to use in fraud and scams and are subject to theft. The report determines that illicit actors can use NFTs to launder proceeds from predicate crimes, often in combination with other methods to obfuscate the illicit source of proceeds of crime.”
Treasury Reveals Money Laundering and Fraud in NFT Market
The Treasury pointed out that most money laundering and the financing of terrorist activities are conducted through fiat currency. However, it raised various issues, including fraud and money laundering in the NFT market. Different criminals can quickly sell or exchange stolen NFTs in the market to avoid identification and hide the identity of the actual owners. Another issue is that many NFT platforms do not require customer information, which hinders tracing in the case of money laundering.
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The report also discussed the risks of fraud and scams in the NFT market, including cases like “rug pulls” and fake sales. Furthermore, there are questions of piracy, particularly in the case of an artwork where a criminal impersonates the rights granted by an NFT and increases its value.
Treasury Recommends Rules for NFT Marketplaces
The Treasury suggested that all the appropriate authorities set up specific rules on NFTs to clarify the compliance requirements for NFT marketplaces. This could involve releasing circulars, notices, and directives focusing on digital assets, including details on how existing laws govern NFTs and the trading platforms for these assets.
It also recommended reaching out to the private sector to make the relevant parties aware of regulatory requirements that could, in turn, contribute to the growth of compliant NFT platforms. The assessment examined the financial side of the NFT market and highlighted the problem of inadequate measures to prevent money laundering and sanctions violations on NFT marketplaces.
United States Government Studies Crypto Market for Illicit Financing
Moreover, the U.S. government has studied money laundering and terrorist financing in the crypto market for several years. Anti-money laundering and illicit financing have been a concern for U.S. legislators, with Democrats and Republicans in the House and Senate addressing provisions and bills on this matter.
In March, another study by the United States’ government about NFTs also stated that there was no need for a specific copyright and trademark violation law. On the other hand, the Treasury’s latest assessment is more directly concerned with the monetary dangers of the NFT market.
Cryptopolitan reporting by Damilola Lawrence
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