On May 16, 2024, the U.S. Department of the Treasury released its first Non-fungible Token (NFT) Illicit Finance Risk Assessment. The report examines how vulnerabilities associated with NFTs and NFT platforms may be exploited by illicit actors for money laundering, terrorist financing, and proliferation financing.
The assessment indicates that NFTs are highly susceptible to fraud and scams and are prone to theft. It concludes that illicit actors can use NFTs to launder proceeds from predicate crimes, often combining them with other methods to obscure the illicit source of funds. However, it found little evidence of misuse by terrorists or proliferators compared to fraudsters.
“This risk assessment demonstrates Treasury’s commitment to analyze illicit finance risks of newer technologies and communicating them to industry and law enforcement,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “I encourage the private sector to use the findings of this assessment to inform their own risk mitigation strategies to prevent illicit actors from abusing NFTs and NFT platforms.”
The report identifies inadequate cybersecurity protections, challenges related to copyright and trademark protections, as well as the hype and fluctuating pricing of NFTs as factors enabling criminals to commit fraud and theft related to NFTs. Additionally, some NFT firms and platforms lack appropriate controls for mitigating risks related to market integrity, money laundering, terrorist financing, and sanctions evasion. The assessment acknowledges that mitigation measures such as industry tools, law enforcement authorities, and analysis of public blockchain data can partially address these risks.
To mitigate outstanding risks, the risk assessment recommends several actions for the U.S. government:
- Raising awareness within the industry about existing obligations
- Continuing enforcement of existing laws and regulations related to NFTs
- Considering further application of regulations to NFTs
This assessment fulfills a commitment made in the 2022 Digital Asset Action Plan to Address Illicit Finance Risks. It builds upon recent National Risk Assessments and the 2023 Illicit Finance Risk Assessment on Decentralized Finance published by the Treasury Department.
Click here to read the “Non-fungible Token Illicit Finance Risk Assessment.”
###
