The U.S. Treasury is looking into the potential for nonfungible tokens, (NFTs) to be used in financial crimes.
In a new report, the Treasury posits the ways government can mitigate risks to the high-value art market.
The report says there are several specific qualities of art – including the high-dollar values of single transactions, easy transportability and a culture of privacy – which make the market attractive.
While money laundering isn’t an inherent risk to art as a whole, it could crop up in the purchasing of NFTs.
Because of that, some institutional art market participants have procedures for due diligence on possible buyers and sellers. That can cut down on money laundering, but the programs are voluntary and can be suspended or disregarded.
And, the Treasury notes, they are less common in digital art transactions.
To address the risks of money laundering, the Treasury suggests options like government support for private sector information sharing programs to encourage transparency, or updating the guidance and training for those tasked with recovering assets and going after criminals.
There could also be regulatory options like record-keeping and reporting requirements.
NFTs have been involved with criminal activity before, such as claims of stolen tokens worth millions.
There have been reports of traders artificially driving up the price – wash trading – and money laundering with NFTs.
But PYMNTS reported that, with wash trading and money laundering, the token’s value comes from its traceability — a hurdle especially in wash trading, where an NFT owner repeatedly buys and sells one to dummy accounts in order to drive up the value.
Read more: Criminals See NFTs as a Lucrative Target — They May Be Wrong