Despite the industry’s recent growth, non-fungible tokens (NFTs) have also been a source of controversy, as they contribute to the rise of illegal activity. As a result, businesses and lawmakers around the globe expect to see regulations surrounding NFTs become stricter, in a fashion similar to how laws have controlled the cryptocurrency industry.
We will delve deeper into the money laundering crimes processed through or brought on by NFTs and discuss how this may affect the regulations imposed on NFTs.
Brief Introduction to NFTs and Money Laundering through NFTs
An NFT is a digital asset that depicts real-world components, such as art, music, in-game items, and films. These tokens are purchased and traded online, often with the use of cryptocurrency, and they’re commonly encoded with the same programs as other cryptocurrencies. In addition, NFTs are extremely volatile, whereby determining a fair value on them proves incredibly difficult. The NFT marketplace could be an appealing way for hackers and other illicit actors that utilise cryptocurrency and related assets to launder money.
Akin to how traditional art marketplaces function, the value of the art is given by the buyer, which will determine the art’s worth based on how much they are willing to pay for it. This means that an NFT with a simple art style can be quoted a random or unreasonable amount. Following that, money launderers can easily quote an exorbitant amount in order to make their funds appear to be traceable to a lawful source. But that’s not all; there are other ways to use NFTs for criminal purposes as well.
Crackdown on Money Laundering Involving NFTs
This issue becomes more and more pressing every day. Within the first quarter of 2022, the taxation body of authority in the United Kingdom, who are namely Her Majesty’s Revenue and Customs (HMRC), had seized three NFTs valued at a price of USD 1.9 million. This is only one of several instances where NFTs have been subjected to restrictions or seizures. However, cases are skyrocketing. Not to mention, the methods of money laundering through NFTs are getting more sophisticated. Law enforcement is skeptical of the industry and harbors distrust towards it.
What Does the Future of Regulation on NFTs Look Like?
In the future, it is likely that more regulations will restrict the trading or purchase of NFTs. There is also the likelihood that it will become an increasingly centralised type of asset and would have to adhere to stricter compliance laws. This is because more crimes are being discovered to occur through NFTs and authorities are definitely concerned about it. So, what better way to control the spread of crimes than to introduce harsher penalties?
Regtank’s Role in Preventing Such Crimes for You and Your Business
Regtank offers a broad suite of capabilities. |The Know-Your-Transaction (KYT) and Transaction Monitoring module would be the best solutions for combating crimes brought on by NFTs. For instance, the former provides you with a risk score of a wallet and allows you to visually scan for any suspicious patterns that may exist in the screened wallet through viewing the wallet’s history. The transaction monitoring function would notify you if the transaction amount exceeded a specified threshold, allowing you to analyze why such a sizable transaction occurred. The two modules can work hand-in-hand to prevent money laundering, as they have different focus areas.
We develop our products per compliance laws so that we can aid you in staying compliant. Contact us at info@regtank.com for a complimentary demonstration today!
