NFTs
US Treasury says NFTs are “highly susceptible” to fraud and scams and calls for platform controls to combat money laundering
A US government report released Wednesday found non-fungible tokens (NFTs) be “highly susceptible to use in fraud and scams”, calling for more regulations to be considered on these digital units.
Although NFTs and NFT platforms have rarely been used so far for acts such as terrorist financing, they can be used to launder criminal proceeds, the US Treasury Department report stated.
“This risk assessment demonstrates Treasury’s commitment to analyzing the illicit financial risks of the latest technologies and communicating them to industry and law enforcement,” said Brian Nelson, Treasury Under Secretary 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 one has a digital certificate of authenticity that, in theory, cannot be tampered with – it is registered on a blockchain, like cryptocurrencies.
But “cybersecurity vulnerabilities, challenges related to copyright and trademark protections, as well as hype and fluctuating prices of NFTs can allow criminals to commit fraud and theft,” the Treasury report stated.
It also noted that some companies and NFT platforms do not have adequate controls in place 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 added.
It called on the US government to also work with foreign partners to encourage them to address the illicit financial risks of NFTs.
The Treasury report followed a national risk assessment and action plan that identified illicit financial risks related to virtual assets.