Nfts
Treasury Department Releases Risk Assessment on NFT Vulnerabilities
The U.S. Department of the Treasury has released a risk assessment that examines vulnerabilities associated with non-fungible tokens (NFTs) and NFT platforms.
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Treasury’s 2024 Non-Fungible Token (NFT) Illicit Financing Risk Assessment explores how these vulnerabilities can be exploited by illicit actors for money laundering, terrorism financing, and proliferation financing .
The assessment reveals that NFTs are highly susceptible to use for fraud and scams and are prone to theft. The report determines that illicit actors may use NFTs to launder the underlying proceeds of crime, often in combination with other methods to mask the illicit source of the proceeds of crime. To date, it has also found little evidence of misuse of NFTs by terrorists or proliferators, unlike fraudsters.
“This risk assessment demonstrates Treasury’s commitment to analyzing the illicit financing risks of new technologies and communicating them to industry and law enforcement,” said Treasury Under Secretary for Terrorism and of Financial Intelligence, Brian E. Nelson. “I encourage the private sector to use the results of this assessment to inform their own risk mitigation strategies to prevent illicit actors from abusing NFTs and NFT platforms.”
The evaluation reached several major conclusions. Among them, he said inadequate cybersecurity protections, challenges with copyright and trademark protection, and the hype and fluctuating prices of NFTs could allow criminals to commit fraud and thefts linked to NFTs and NFT platforms.
Additionally, the study found that some NFT companies and platforms do not have appropriate controls in place to mitigate risks and combat money laundering and terrorist financing. Additionally, it recognizes that mitigation measures, such as industry tools, law enforcement authorities, and public blockchain data analysis, can partially mitigate these risks.
To address the risks, the assessment recommends the following actions by the U.S. government:
• Raise industry awareness of existing obligations;
• Continue to enforce existing laws and regulations related to NFTs and NFT platforms; And
• Consider further application of regulations to NFTs and NFT platforms.
The assessment of NFTs builds on recent National Risk Assessments and the 2023 Illicit Finance Risk Assessment on Decentralized Finance, all published by the Department of the Treasury.