Newsflash: NFTs and Money Laundering
Recently attention was drawn to an article* by Gavin Phillips, Junior Editor for Technology Explained which took us through the twist on how NFTs are used for ML. Philips points out that (NFTs) and cryptocurrency trading simply add a handy layer of abstraction for criminals because they are simple to use, effectively free at the point of service and enjoy numerous privacy features.
What’s a NFT you ask?
NFT is a unique digital asset/token that is permanently linked to a real-world artefact and with the customary immutable and traceable features that use DLT. NFT can represent any digital object.
Once created the owner of the NFT can sell the unique token across a wide network of digital marketplaces, completing transactions in cryptocurrency.
The typical steps in such a ML process involve the criminal organisation:
- creating a unique NFT and advertises it on an NFT marketplace
– (placement phase in money laundering);
- purchasing its own NFT from the NFT marketplace, using an identity that obscures its link to itself
– (layering phase in money laundering);
- repeating the first two steps several times;
- swapping out the crypto in the final wallet for fiat currency
– (integration phase in money laundering).
The main element of concern, and one highlighted by Phillips, is that in an environment where all NFT marketplaces are not subject to AML regulation, anyone can open an account, make a sale and keep their identity hidden.
Although blockchain technology makes tracing back to the original wallet easy, it is figuring out who actually owns the wallet that could present the challenge. The effect is that the more NFTs appear, the same AML controls become important, as does the need for compliance monitoring and support.
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