The US Treasury Department has expressed concern that art NFTs can be used for money laundering and terror financing activities. The department recently released a paper on this topic. It suggested that the digital artworks being used as financial assets or investments can be misused for money laundering. According to it, the emerging digital art market presents new risks.
The Study Discusses the Potential of NFT Digital Art Assets
The study underscored the increasing use of NFTs for owning physical and digital properties controlled and managed through digital wallets and smart contracts. It pointed out that the NFT prices are not calculated by the market but by the sellers and buyers. In the initial three months of year 2021, the NFT market trading was at a record high of $1.5 billion. It was a growth of 2627% over the preceding quarter. The NFT market was already valued at over $20 billion in 2020.
The treasury suggested that NFTs can be purchased by criminals using illicit funds. The buyers purchasing these NFTs may not know the art was purchased with such a fund by the seller. This way, a criminal can convert illicit money into a good one.
NFTs are also being sold through peer-to-peer sales channels, bypassing the registered intermediary. It eliminates the need to record the transactions in any public ledger. The report points out that the ecosystem of NFT can be used for various illicit activities, including money laundering.
The report expressed concern that genuine galleries and art auction houses may not be well-versed in the technical knowledge of NFT space. They may not understand the technology of distributed ledgers. It is not easy for them to verify the customer ID and comply with other KYC requirements.