The Department of the Treasury steered that the increasing use of art as an investment or monetary asset may build the high-value art trades vulnerable to money laundering.
The U.S. Department of the Treasury released a study on the high-value art market, light the potential within the nonfungible tokens (NFT) space to conduct illicit concealment or terror finance operations.
The treasury’s “Study of the facilitation cash|of cash} lavation and terror finance through the trade in works of art” prompt that the increasing use of art as an investment or money plus might create the high-value art trades liable to money laundering:
“The emerging online art market may present new risks, depending on the structure and incentives of certain activity in this sector of the market (i.e., the purchase of NFTs, digital units on an underlying blockchain that can represent ownership of a digital work of art).”
The study underlines the importance of NFTs in representing ownership of the digital and physical property that's managed and controlled via sensible contracts and digital wallets. The treasury additionally points out that the worth of NFTs is decided by the buyer and seller and not the market:
“According to U.S. authorities, in the first three months of 2021, the market for NFTs generated a record $1.5 billion in trading and grew 2,627 percent over the previous quarter.”
However, the NFT market in 2020 alone was valued at more than $20 billion. The U.S. treasury suggested a chance wherever criminals should buy NFTs with illicit funds and resold to an unwary collector “who would compensate the criminal with clean funds not tied to a previous crime.”
NFTs may also be sold via peer-to-peer (P2P) sales, that bypasses the necessity for an intercessor or recording the dealings over the general public ledger. whereas underscoring the varied concealing vulnerabilities created possible by the NFT ecosystem, the treasury concluded:
“Moreover, traditional industry participants, such as art auction houses or galleries, may not have the technical understanding of distributed ledger technology required to practice effective customer identification and verification in this space.”
(Arijit Sarkar, Cointelegraph, 2022)