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US Treasury warns NFTs may be used for money laundering

In accordance with the Anti-Money Laundering Act of 2020, the U.S Department of the Treasury published a 40-page report on non-fungible tokens called ‘Study of the facilitation of money laundering and terror finance through the trade in works of art’, emphasizing the risks of the emerging digital art space in terms of financial crimes.

‘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)’, the document stated. 

The study also focuses on the likelihood of wash trading with NFTs, where cybercriminals can buy an NFT using illegal funds to manipulate sales records within the network.

‘Furthermore, NFTs can be used to conduct self-laundering, where criminals may purchase an NFT with illicit funds and proceed to transact with themselves to create records of sales on the blockchain,” the report said. “The NFT could then be sold to an unwitting individual who would compensate the criminal with clean funds not tied to a prior crime’, the treasury wrote.

As an attempt to curb the risks associated with NFTs, the study proposes a number of alternatives, including the improvement of private-sector information for better transparency, training of authorities in law and customs, as well as the application of anti-money laundering requirements for the users within the NFT sphere.

Although NFTs are continuously flourishing in the market, the popularity of these cryptographic tokens is also gaining attention from scammers, targeting investors and causing an alarm for regulators.

Even the administrator of the Division of Financial Regulation of the U.S. state of Oregon T. K. Keen has announced the same warning for the public. He stated that thorough research of these digital assets is required before attempting to invest in them.

‘Scams promising big returns on cryptocurrencies and NFTs are flooding the Internet. Investors wanting to purchase cryptocurrencies and NFTs should do their homework to make sure they fully understand these investments and their risks before getting involved,’ he warned.

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