A new report by the United States Department of the Treasury has revealed that the burgeoning non-fungible token space could be a conduit for money laundering.
He states in the report that the increasing use of digital art as an investment or financial asset can enable bad actors to launder money and finance terrorism.
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 NFTs, digital units on an underlying blockchain that can represent ownership of a digital work of art).
According to the report, the Department acknowledged that NFTs help identify ownership of a particular property linked to a portfolio. However, the Treasury also identifies the risk associated with the sector because buyers and sellers determine the price of a product and not the market.
The research referenced the statistic released by the U.S. authorities showing the exponential growth the space saw within the first three months of 2021, which later grew to as high as over $20 billion by the end of 2021.
Judging from this, the Treasury deduced that bad actors could buy an NFT with illicit funds, which can then be laundered by selling them to ignorant collectors.
It identifies the ability to trade NFTs using P2P as another money laundering vulnerability available in the use of non-fungible tokens, as the record of the purchase is not stored over a public ledger.
Additionally, traditional industry players, such as art auction houses or galleries, may lack the technical understanding of distributed ledger technology required to practice effective customer identification and verification. in this space.
The report by the U.S. Department of Treasury is unsurprising considering that Chainalysis, a crypto analysis firm, also recently published a report that says NFT trades could be facilitating money laundering.
