NFT regulation probes for money laundering and fractional lending launched by the Treasury and SEC
NFT transactions are increasingly starting to attract more regulatory scrutiny. Not nearly as much as the rest of the crypto universe, but this may all change in a jiffy given a new Security and Exchange Commission (SEC) probe as well as a Department of Treasury study into NFTs. The Treasury recently published a memo which says that "emerging digital art market, such as the use of non-fungible tokens (NFTs), may present new risks" similar to money laundering via "high-value art," hence the need to keep a watchful eye on them as on laundering via regular art pieces. The Treasury even suggests the next steps which it says have been developed with the collaboration of "auction houses, galleries, financial institutions, art advisors and academics."
- NFTs, like anything else of value, can be used to conduct “self-laundering,” a process by which criminals purchase a thing of value using tainted funds and proceed to sell and repurchase that thing of value to themselves in order to create seemingly legitimate sales. In the case of NFTs, the record of sale lives on the blockchain. The criminal then sells the “washed” thing of value to an unrelated party and receives untainted funds in return.
- The structure of NFTs allows parties to transfer digital art without incurring potential financial, regulatory, or investigative costs related to the physical shipment of the art...
- Applying AML/CFT requirements (such as suspicious activity reporting and know-your- customer procedures) to certain art market participants and/or obligating them to create and maintain AML/CFT.
That last part measure could eventually apply to NFT platforms like OpenSea but the government isn't stopping here when it comes to regulating the financial side of the digital art market. The SEC is now probing whether NFTs have been used for fractional lending or to raise business funds which would eventually mean they'd have to be treated like stocks with all the regulatory compliance stemming from that fact.