WASHINGTON, Thursday, May 30, 2024 – The US Department of Treasury warned on Wednesday, May 29 regarding the vulnerability of non-fungible tokens (NFTs) to fraud and illicit financing in its first-ever Non-Fungible Token (NFT) Illicit Finance Risk Assessment report.
The report, titled “2024 Non-fungible Token (NFT) Illicit Finance Risk Assessment” examines how criminals might exploit weaknesses in NFTs and NFT platforms for money laundering, terrorist financing, and proliferation financing.
The assessment finds that NFTs, unique digital assets stored on blockchains, are susceptible to fraud, scams, and theft.
Criminals, the report suggests, could use NFTs to launder money from illegal activities, often by obfuscating the source of the funds through complex transactions. Notably, the report found limited evidence of terrorist or proliferation financing using NFTs.
“This assessment demonstrates Treasury’s commitment to analyzing emerging technologies for illicit finance risks and communicating those risks to industry and law enforcement,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson.
“We encourage the private sector to use these findings to develop strategies to prevent illicit actors from abusing NFTs and NFT platforms.”1
The report identified several vulnerabilities that could be exploited by criminals. These include inadequate cybersecurity protections, challenges in enforcing copyright and trademark rights, and the volatile nature of NFT pricing.
Additionally, the assessment found that some NFT platforms lack sufficient controls to prevent money laundering, market manipulation, and sanctions evasion.
The Treasury Department acknowledges that existing tools employed by industry, law enforcement, and blockchain analysis can mitigate some of these risks.
However, the report recommends further actions by the U.S. government, including raising awareness within the NFT industry about existing anti-money laundering regulations, continuing to enforce existing laws and regulations related to NFTs and NFT platforms, and considering the need for additional regulations specific to NFTs and NFT platforms.
This NFT risk assessment builds upon previous Treasury Department reports on digital assets and illicit finance, including the 2022 Digital Asset Action Plan and the 2023 Illicit Finance Risk Assessment on Decentralized Finance.
The assessment highlights several key concerns:
Fraud and Scams: The report finds NFTs are especially susceptible to fraudulent activity and theft. Criminals may use NFTs to launder money obtained illegally, often employing additional methods to conceal the origin of the funds.
Cybersecurity Gaps: Inadequate cybersecurity measures associated with NFTs and NFT platforms create openings for criminals.
Copyright and Trademark Issues: Uncertainties surrounding copyright and trademark protections in the NFT space pose further risks.
Market Instability: The hype and price fluctuations surrounding NFTs can facilitate criminal activity.
Lax Controls on Some Platforms: The report identifies a lack of appropriate controls on some NFT platforms, potentially enabling market manipulation, money laundering, terrorist financing, and sanctions evasion.
The full “Non-fungible Token Illicit Finance Risk Assessment” is available on the Department of the Treasury website: https://home.treasury.gov/news/press-releases/jy2382]2
- home.treasury.gov: https://home.treasury.gov/system/files/136/Illicit-Finance-Risk-Assessment-of-Non-Fungible-Tokens.pdf[↩]
- home.treasury.gov: https://home.treasury.gov/news/press-releases/jy2382[↩]
