As NFTs rise, US Treasury warns of money laundering through art

The US Treasury Department on Friday issued a set of recommendations to combat illicit financing in the high-value art market and warned that the emerging digital art market, such as NFTs (non-fungible tokens), may present new risks.

In a study published on Friday, the Treasury concluded that there is some evidence of money laundering risk in the high-value art market, but limited evidence of terrorist financing risk, the agency said in a statement.

The survey shows that the most vulnerable in the market are companies offering financial services that are not committed to combating money laundering or terrorist financing, warning that asset-based lending “can be used to disguise the original source of funds and provide liquidity to criminals”.

A senior US Treasury official told reporters that among the next steps is getting feedback from stakeholders such as Congress or the industry, adding that the Treasury hopes the study will encourage industries to take additional steps to make money laundering through the art market. The official added that the Treasury will give further thought to whether additional regulatory measures are needed in this market.

The study also said that depending on the market structure and incentives, the digital art market, such as NFTs, could present new risks as its characteristics make it vulnerable to money laundering.

NFTs are a form of crypto that has gained a lot of popularity in the last year. All kinds of digital objects—from art to videos to even tweets—​can be bought and sold as NFTs. These non-fungible tokens have unique digital signatures that ensure their exclusivity.