On May 29, 2024, the U.S. Department of the Treasury published its first risk assessment of non-fungible tokens (“NFTs”) to make the public aware of the tactics that illicit actors may use to exploit NFTs to obfuscate funds from predicate crimes like money laundering, terrorist financing and proliferation financing (“AML/CFT”). According to the assessment, the most prevalent crimes involving NFTs are theft of the NFTs themselves, and concealment of fraud and scams. When concealing the proceeds of these crimes, illicit actors frequently use NFTs in combination with other methods. However, the Treasury Department reported that there was little evidence, to date, to suggest that NFTs had been used to hide proceeds linked to terrorist or proliferation financing.
According to the assessment, illicit actors are able to use NFTs to disguise criminal proceeds because of the inadequate cybersecurity protections on NFT platforms, challenges related to copyright and trademark protections, and “the hype and fluctuating pricing” associated with these tokens. The assessment also indicated that some NFT firms and platforms lack sufficient internal controls to mitigate AML/CFT and other financial risks.
After examining several mitigation measures, including industry tools, the role of law enforcement authorities, and the analysis of public blockchain data, the Treasury Department concluded that these measures only partially mitigate the identified risks. Therefore, to further mitigate these risks, the Department recommends that the U.S. government and the private sector take steps to 1) raise awareness of existing obligations within the industry, 2) continue to enforce existing laws and regulations related to NFTs, and 3) consider the further application of regulations to NFTs and NFT platforms. The assessment also suggests that the U.S. government and private NFT operators work together to assess and address crimes that utilize NFTs, and to educate consumers about their financial risks. The assessment also encourages U.S. authorities to work with foreign partners to address and mitigate the criminal use of NFTs on a global scale.
U.S. Department of Treasury Press Release | Illicit Finance Risk Assessment of Non-Fungible Tokens