A US government report released on Wednesday (May 30) found non-fungible tokens (NFTs) to be “highly susceptible to use in fraud and scams,” urging for more regulations to be considered on these digital units.
While NFTs and NFT platforms have so far rarely been used for acts such as terrorist financing, they can be used to launder proceeds from crimes, said the report by the US Treasury Department.
“This risk assessment demonstrates Treasury’s commitment to analyse illicit finance risks of newer technologies and communicating them to industry and law enforcement,” said Brian Nelson, Treasury Under Secretary for terrorism and financial intelligence.
NFTS, which became popular in 2021, are digital works that cannot be replaced or modified and are therefore unique.
Each has a digital certificate of authenticity which in theory cannot be tampered with – it is registered in a blockchain, like cryptocurrencies.
But “cybersecurity vulnerabilities, challenges related to copyright and trademark protections, and hype and fluctuating pricing of NFTs can enable criminals to perpetrate fraud and theft,” said the Treasury report.
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It also noted that some NFT firms and platforms do not have the right controls to counter money laundering, terrorist financing and sanctions evasion.
Measures such as law enforcement and “analysis of public blockchain data” can help to mitigate risks, the report added.
It called for the US government to work with foreign partners as well, to nudge them towards addressing the illicit finance risks of NFTs.
The Treasury report followed a national risk assessment and action plan that identified illicit finance risks relating to virtual assets. AFP
