Nfts
US Treasury Says NFTs ‘Highly Susceptible’ to Fraud, Scams, Calls for Platform Controls to Combat Money Laundering
A US government report released Wednesday reveals non-fungible tokens (NFT) be “highly likely to be used for fraud and scams”, calling for consideration of more regulations on these digital units.
Although NFTs and NFT platforms have so far rarely been used for acts such as terrorist financing, they can be used to launder the proceeds of crimes, the US Treasury Department report said.
“This risk assessment demonstrates Treasury’s commitment to analyzing illicit financing risks related to new technologies and communicating them to industry and law enforcement,” said Brian Nelson, Under Secretary of the Treasury for terrorism and financial intelligence.
NFTs, which became popular in 2021, are digital works that cannot be replaced or modified and are therefore unique.
Each has a digital certificate of authenticity which in theory is tamper-proof – it is recorded in a blockchain, like cryptocurrencies.
But “cybersecurity vulnerabilities, copyright and trademark protection challenges, and the hype and fluctuating prices of NFTs may allow criminals to commit fraud and theft,” says the Treasury report.
He also noted that some NFT companies and platforms lack appropriate controls to combat money laundering, terrorist financing and sanctions evasion.
Measures such as law enforcement and “analysis of public blockchain data” can help mitigate risks, the report adds.
He called on the US government to also work with foreign partners to encourage them to combat the risks of illicit financing of NFTs.
The Treasury report follows a national risk assessment and action plan which identified illicit financing risks linked to virtual assets.