U.S. Treasury Department: NFTs may pose money laundering and terrorist financing risks

The U.S. Department of the Treasury has released a study on the high-value art market, noting a growing trend of funds being allocated to art investments or using art as financial assets. This trend may increase the risk of high-value art transactions being used for money laundering or terrorist financing activities, with NFTs posing a significant potential threat. According to a report by Cointelegraph, the Treasury's study titled "Facilitating Money Laundering and Terrorist Financing Through Art Trade" highlights that in emerging online art markets like NFTs, prices are determined by buyers and sellers rather than the market itself, depending on the structure and incentives of the market activities, thus potentially introducing new risks.

The U.S. Department of the Treasury has released a study on the high-value art market, noting the increasing use of art as an investment or financial asset, which could potentially facilitate money laundering or terrorist financing activities, with NFTs posing a significant risk. According to a report by Cointelegraph, the Treasury's study titled "Facilitating Money Laundering and Terrorist Financing Through Art Trade" points out that in emerging online art markets like NFTs, prices are determined by buyers and sellers rather than the market, depending on the structure and incentives of market activity, thus potentially introducing new risks.

The report reveals that based on U.S. authorities' statistics, the NFT market was valued at over $20 billion in 2020 alone, and in the first three months of 2021, it generated a record-breaking $1.5 billion in transactions, marking a 2,627% increase from the previous quarter. Therefore, the U.S. Treasury boldly suggests a scenario where criminals could use illicit funds to purchase NFTs and then resell them to collectors, effectively laundering money.

The Treasury believes that since NFTs can be sold peer-to-peer, bypassing the need for intermediaries or recorded transactions through public ledgers, the NFT ecosystem may present various money laundering vulnerabilities. Furthermore, the Treasury argues that traditional art auction houses or galleries may lack the distributed ledger technology required for effective customer identification verification in this field.

The Treasury also suggests that as long as NFTs serve a payment purpose or substantial investment objective, platforms facilitating NFT transactions may be considered Virtual Asset Service Providers (VASPs) akin to exchanges, requiring user identity verification through KYC procedures.

This article is authorized reprint from Horizon News Network