A risk assessment conducted by the U.S. Treasury Department found that non-fungible tokens ( NFTs) and related platforms are highly susceptible to use in fraud and scams. The risk assessment also warns that criminals can exploit NFTs to launder illicit proceeds or “obfuscate the source of funds.”
US Treasury: NFTs and NFT Platforms Highly Susceptible to Fraud and Scams
This article was published more than a year ago. Some information may no longer be current.
WRITTEN BY
SHARE
NFTs Likely to be Used in Fraud and Scams
While non-fungible tokens ( NFTs) and NFT platforms are not used for proliferation financing or terrorist financing, an assessment conducted by the U.S. Treasury Department has concluded that they “are highly susceptible to use in fraud and scams.” The assessment also asserts that criminals use NFTs to launder crime proceeds or “obfuscate the illicit source of funds.”
According to the 29-page Illicit Finance Risk Assessment on NFTs, U.S. officials are aware that most money laundering, terrorist financing, and proliferation financing occur outside the digital asset ecosystem. However, despite acknowledging this fact, the risk assessment report warns that criminals can exploit vulnerabilities in NFTs when attempting to move funds undetected.
“Criminals can exploit vulnerabilities related to characteristics of NFTs, the assets or entitlements that they reference, and regulatory frameworks in the United States and abroad. In particular, cybersecurity vulnerabilities, challenges related to copyright and trademark protections, and hype and fluctuating pricing of NFTs can enable criminals to perpetrate fraud,” the U.S. Treasury’s risk assessment report warned.
Mitigating Money Laundering or Terrorist Financing Risks
In addition to exploiting vulnerabilities, criminals can also take advantage of NFT firms whose platforms lack internal controls to mitigate against market integrity or money laundering risks.
Meanwhile, the risk assessment identifies several key steps that can be taken to mitigate some of these risks. Industry solutions can help NFT platforms and customers identify possible scams. Additionally, law enforcement announcements and an analysis of blockchain data can contribute to mitigating money laundering or terrorist financing risks.
The risk assessment report also emphasizes the importance of private sector engagement in understanding developments within the NFT ecosystem. Furthermore, it recommends that both the U.S. government and the private sector take further steps to educate consumers about NFTs and the associated risks.
What are your thoughts on this story? Share your views in the comments section below.
