A report released by the United States Department of Treasury claims a connection between non-fungible tokens (NFTs) and money laundering schemes that occur through the art market.
The Argument Raised By The Treasury
Тhe treasury recognizes that NFTs offer a new opportunity for exploring creativity in social media and developing an income through trading those tokens. Nevertheless, they claim that NFTs allow criminals to use funds from illegal activities to purchase NFTs and launder the money. The transactions that happen are technically legal, but they hide money that was not legally acquired.
The treasures cite the specific characteristics of NFTs as a reason for their use in money laundering. They claim that transfers happen “via the internet without concern for geographic distance and across borders nearly instantaneously,” which is a very convenient way to move financial assets while avoiding not only economic costs but also any regulations and investigations into the origins of the money.
Are NFTs Really Used For Money Laundering?
This argument is logical, but it faces critique from crypto experts, such as the blockchain analysis firm Chainalysis, who claim that NFTs are a tiny part of the financial crimes in the crypto market. The most considerable amount of money from such wallets came in the last quarter of 2021 when $1.4 million was traded, which pales compared to the $8.6 billion crypto assets associated with money laundering in 2021.
Even if this is a rising trend and NFTs will face more money laundering, there is a lot of uncertainty about how unique of an opportunity this is for criminals. Furthermore, even taking the whole sum that was laundered through crypto, it’s at least 15 times less than the financial assets transferred in regular transactions.
The reason is that money laundering is often more convenient in real life for criminals and because the blockchain is not as anonymous as many perceive it to be. Technically, nobody knows your identity, but you remain semi-anonymous. The transactions in the blockchain are open for everybody, even federal authorities, so they can trace and find where illicit money is coming from and where it is going.
NFTs are a marginal part of money laundering, but more profitable schemes happen in the art market. Many criminals do wash trading – trading among themselves to artificially drive the prices up. This illicit scheme is hard to trace, easy to perform if you establish the social network, and is profitable.
The United States Department of Treasury raises a valid point about the potential ways in which NFTs can be exploited for money laundering. The problem is that NFTs are not the easiest way to do money laundering in many cases, nor are they statistically a significant percentage of illegal transactions.
