UK Think Tank Identifies NFT Money Laundering Risks
The Royal United Services Institute (RUSI) has published 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.
“To start with, NFTs are most often purchased with cryptocurrencies on online marketplaces. Cryptocurrencies are routinely exploited for malicious means, such as obfuscating the source of criminal proceeds and, despite transactions being traceable, more sophisticated criminal actors use a variety of techniques to disrupt investigations by law enforcement,” the RUSI report reads.
RUSI also contends—as Decrypt has outlined previously—that NFTs can be exploited by money launderers in a similar way to the traditional art market.
“Criminal actors can hack into user accounts on NFT marketplaces and transfer NFTs to their own actions. After transferring the NFTs, the hacker can quickly sell the stolen token(s) and attempt to launder the proceeds,” RUSI said.
RUSI also claims the digital aspect of these tokens also creates room for “other novel risks.”
These include creators “hiding” information within the tokens, which, in theory, could be about software vulnerabilities. The NFT could then be used as “the transfer mechanism to share this information between two criminal parties.”
Tackling NFT laundering
RUSI suggests that the regulatory framework applied to cryptocurrencies at the point of exchange “can be applied” to online auction houses for NFTs.
“A baseline needs to be set for companies that want to focus on the NFT Industry. A system of ‘know your customer’ (KYC) policies and ongoing monitoring, similar to those used in the traditional art market and in compliant cryptocurrency exchanges, needs to be implemented,” the RUSI article says.
The British think tank also suggests the creation of a registry of stolen or fraudulent NFTs, which mimics the Art Loss Register in the traditional art world.
What’s more, RUSI is not the only British organization aware of the money laundering risks associated with these kinds of tokens.
Earlier this year, a spokesperson for the London Metropolitan Police’s Arts and Antiques Unit told Decrypt they were “very much aware” of these risks, and that blockchain technology “allows ultimate beneficial owners to conceal their identity,” the spokesperson said.Source