Update 02/08/2022: This article has been updated to add additional data on money laundering and its relationship to digital assets.
The United States, through the Treasury Department, has published a document in which it expresses its concern about the possible use of art in NFT format for money laundering. The argument is that if traditional art has been used for this purpose, NFTs will too.
The document was published this February 4th. Compare how traditional art has served as vehicle for money laundering, which opens the way for NFT art to become another alternative for criminals. The text cites some examples, such as the case of two Nigerian citizens who bought high-value art to hide the embezzlement from the Alison-Madueje company.
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The department is concerned about how easy it is to move art through NFT markets. Many of these do not require any type of identity verification, which would facilitate its use as a means for money laundering.
Because of this, concerns are raised about how easy it is to move digital art. However, “physical” art has not been a limiting factor for criminals to use for money laundering.
NFTs as a vehicle for money laundering
Due to this intrinsic characteristic of NFTs, there have been several striking cases in which NFT prices have been inflated by rigged bids. One of them was the case of an NFT from the CryptoPunk collection, which was sold for more than USD 500 million, which would make it the most expensive NFT ever sold. However, after what happened, it was shown that the buyer of the NFT had been the same owner of the original piece.
This type of practice has alerted the US authorities, who observe the ease with which it is possible to move such amounts of money under the concept of “digital art”.
However, despite the concerns that the Treasury Department might have, whose qualification as a “money laundering vehicle” has also been applied to the Bitcoin ecosystem and cryptocurrencies, in an investigation by the firm Chainalysis it was shown that less than 0.1% of the total money laundered in 2021 was through the use of cryptocurrencies.
Although it is not to deny that NFTs could serve as a means of laundering money, physical art remains the main attraction for criminals, elucidating then, that the concerns would be more a way of promoting the regulation of NFTs for the control of the State, than as a protection measure.
They ask to regulate the NFT markets
The main sales windows for digital art are marketplaces such as OpenSea and Rarible, among others. OpenSea, for example, in just the first half of January, had trading volumes above USD 4 billion, as reported by CriptoNoticias.
Given these market volumes, the Treasury Department has called for “considering” certain regulatory measures. One of these is in applying the concept of VASP (virtual asset service providers) to these platforms, which would basically make any user who wants to register and use it need to go through a mandatory identity verification process.
Due to the number of entities that interact in this market, the Treasury Department considers how the regulations should be applied, and measure the costs and benefits that this would entail. In this sense, the state entity is convinced that, taking into account the threshold of USD 5,000 that banking entities have to report transactions, according to the document itself, this could be the minimum trade value limit in which a user needs to go through an identity verification system.