U.S. Treasury Identifies Serious Risks Posed by NFTs

The U.S. Treasury Department has identified significant risks associated with non-fungible tokens (NFTs), highlighting the vulnerabilities users face. The department also noted that many NFT firms and platforms lack robust money laundering controls, making them susceptible to exploitation by malicious actors.

NFTs, digital assets that verify digital ownership, gained immense popularity during the last cryptocurrency bull market. While market size estimates vary, cryptocurrency and derivatives exchange OKX valued the total NFT market at approximately $36 billion, a considerable decline from $66.7 billion in November 2023.

In its inaugural ‘NFT Illicit Finance Risk Assessment,’ the Treasury found that NFTs are “highly susceptible to use in fraud and scams and are subject to theft.” The report stated, “Illicit actors can use NFTs to launder proceeds from predicate crimes, often in combination with other methods to obfuscate the illicit source of proceeds of crime.”

Furthermore, the report criticized some NFT firms and platforms for lacking adequate controls to mitigate risks to market integrity and to combat money laundering, terrorist financing, and sanctions evasion. However, it did note that there was minimal evidence “of the misuse of NFTs by terrorists or proliferators, in contrast to fraudsters.”

Brian Nelson, the Under Secretary of the Treasury for Terrorism and Financial Intelligence, emphasized the importance of the risk assessment, saying it “demonstrates the Treasury’s commitment to analyze illicit finance risks of newer technologies.” He urged the private sector to use the findings of this assessment to enhance their risk mitigation strategies to prevent illicit actors from exploiting NFTs and NFT platforms.

The risk assessment recommends several actions for the U.S. government, including:

- Raising awareness within the industry of existing obligations.

- Continuing to “enforce existing laws and regulations” related to NFTs and NFT platforms.

- Considering “further application of regulations to NFTs and NFT platforms.”

The full risk assessment is available to read here.

By fLEXI tEAM