In the UK, money laundering risks are reflected in the NFT market
The Royal United Services Institute (RUSI) has released a report assessing the money laundering risks inherent in the NFT market, questioning whether the burgeoning digital art craze has become a “new frontier” for money laundering. “For starters, NFTs are most often bought with cryptocurrencies on online markets. Cryptocurrencies are routinely exploited for illicit purposes, such as hiding the source of criminal proceeds and, although transactions are traceable, more sophisticated criminals use a variety of techniques to stop law enforcement investigations, “reads the RUSI report.
RUSI also argues, as Decrypt outlined earlier, that NFTs can be exploited by money launderers in a similar way to the traditional art market. “Criminal actors can hack user accounts on NFT Markets and transfer NFTs to their own shares. After transferring the NFTs, the hacker can quickly sell the stolen tokens and try to launder the proceeds, “RUSI explained.
RUSI also states that the digital aspect of these tokens also creates space for “other new risks”. These include creators who “hide” information within tokens, which, in theory, could relate to software vulnerabilities. The NFT could therefore be used as a “transfer mechanism to share this information between two criminal parties”.
RUSI suggests that the regulatory framework applied to cryptocurrencies at the time of trading “can be applied” to online auction houses for NFTs. “There is a need to establish a baseline for companies that want to focus on the NFT industry. A system of “know your customer” (KYC) policies and continuous monitoring, similar to those used in the traditional art market and compliant cryptocurrency exchanges, must be implemented “, states the RUSI article.
The British think tank also suggests the creation of a register of stolen or fraudulent NFTs, which mimics the Art Loss Register in the world of traditional art. Furthermore, RUSI is not the only UK organization aware of the money laundering risks associated with this type of token. Earlier this year, a spokesperson for the London Metropolitan Police’s Arts and Antiques Unit told Decrypt that he was “very aware” of these risks and that blockchain technology “allows ultimate beneficial owners to hide their identities.”