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NFT and Money Laundering: Compliance Professionals should learn from this.

When non-fungible tokens came out in 2014, most people didn’t know much about them. People are now using NFTs more and more to buy and sell digital art because they’re a good way to buy and sell digital art. DappRadar, a digital analytics firm, says that in the second quarter of 2021, around $2.4 billion worth of NFTs were trade. That’s a little more than the $2.3 billion worth that was sold in the first quarter. Major auction houses and galleries now sells NFT art. Beeple’s $69 million NFT still holds the record. Dozens of online art-selling platforms are springing up looking for artists and collectors to join the NFT art craze, and they want artists and collectors to sign up.

Today’s compliance professionals need to stay up to date on the most recent changes and twists that crypto-related assets can make. That means knowing what NFTs are and why they’re important, as well as how to keep an eye out for possible abuses from a compliance point of view, so you can use them properly.

NFTs: Benefits and Risks

So, what is an NFT, and why should NFT money laundering be a big deal to us? In order to make NFTs, the same technology and programming language is use to make cryptocurrencies like Bitcoin and Ethereum are use to make them. The only thing they have in common is that they are both from the same place. Currency in the form of physical (fiat) money and cryptocurrency in the form of digital currency are both “fungible,” which means they may be trade or swap for one another. There is always a value for a US dollar, and there is always a value for a Bitcoin.

Another type of digital asset is an NFT. An NFT is a digital asset that is unique to itself. This means that every NFT makes its own unique digital signature. However, just like cryptocurrencies, NFTs lives on a blockchain, which is a public record of transactions is share by many people. NFTs are keep on the Ethereum blockchain, but other blockchains can also hold them.

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People spending million of dollars on something

But why people spends millions of dollars on something that they could easily take a picture of or download for free? There is a simple reason for this: An NFT allows the buyer to own a single, unique asset. I can show that I own it thanks to its built-in authentication. Basically, NFTs are the digital equivalents of things that people likes to keep. Buyers don’t get a one-of-a-kind oil painting. Instead, they get a unique digital version of the work.

Many different types of things are use as NFTs, such as art and GIFs. This includes videos and sports highlights as well as designer sneakers and music. In fact, even tweets are important. He sold his first ever tweet as an NFT for more than $2.9 million.

But there are a lot of legal loopholes that makes NFTs look a little iffy. A lot of people have already used and cheated on NFTs because they are so easy to get hold of. When new technology like NFTs become more popular, compliance professionals need to know how it works and how new tools to fight NFT art money laundering and fraud are coming together around this new platform.

You can also read: How to Buy NFT Art Finance and Get Your First NFTART

The current situation

According to compliance professionals, the anonymity that NFTs enjoy because of blockchain technology has made it easier for people to hide their money and hide it from the government.

A big part of the threat is the fact that NFTs are bought and sold with cryptocurrencies, which makes it even more difficult to track these transactions down. Inadvertently, this leads to more people who aren’t tech-savvy making and trading NFTs, which in turn leads to more great art being bought and sold.

A few examples of abuse and scams show how difficult it is for governmental enforcement bodies and compliance professionals to keep people safe and follow the rules.

Classic Phishing and Virus Attacks (NFT Money Laundering Scenario 1)

These scams and viruses can take money and other important information away from people who use digital wallets, which are online accounts where people can store their money and cryptocurrency wealth. Decentralization, which is a big part of the cryptocurrency market, makes it hard to figure out how big and wide these attacks are. This makes it hard to figure out how many people was scam. Because NFTs makes it easy to keep track of their ownership and sales on the digital ledger known as the blockchain, they have a lot of people interested in them. This is a little ironic, though.

Monitors your NFT and Cryptocurrency here

In any case, many scams are simple attempts to get people’s credit card information or put viruses on their computers that drain their digital wallets, so they don’t have enough money. Email hygiene rules are in place in situations like this to keep people from being taken advantage of by phishing or other attempts to get private information by relying on common trust and a certain level of naivete.

People who work in compliance know a lot about safety measures because they use it in businesses for a long time. The fact that they’re still around, especially in the context of the misuse of NFTs, calls attention to the importance of spreading good email hygiene practices across the whole company.

Identity Theft (NFT Money Laundering Scenario 2)

A lot of people know that NFT art money laundering is a big problem because the conditions for ID theft are known. A fake Banksy sold $900,000 worth of NFT artwork on the OpenSea platform before the real Banksy found out about the scam. In this case, the artist comes forward to say that he wasn’t involve in the sale at all. Platform: (The seller couldn’t use the platform, but the scammer kept the money).

Nathan Chastain, the product manager for OpenSea, later said that the platform is taking steps to stop fraud. This is what he said. It is very important to us that we don’t let fraud happen at OpenSea. “We move quickly to remove this content from the platform as soon as we learn about it,” he said. This could help people know when people are selling copies of other people’s work. Chastain said the platform is planning to add a system that can tell when people try to sell copies of other people’s work.

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Forgeries (NFT Money Laundering Scenario 3)

It’s well-known that Mike Winkelmann, better known as Beeple, is a fraudster. This $69 million NFT called “Everydays: The First 5000 Days” still holds the record for the most expensive NFT sold to date. Major auction houses sells this.

“Mr. Person” is a digital artist who says he made copies of Beeple’s record-setting NFT and fooled several NFT platforms into thinking the pieces came from Beeple. This is what happens after “Everydays.” Some websites tries to sell these fakes before the scam is discover. The websites blocks people from trying to buy the fakes because they thought the scam was real.

It’s possible for bad people who want to “clean” dirty money to do things like make an NFT, put it up for sale on the blockchain, and then buy it from someone else with dirty money in an anonymous, unregulated digital wallet. Then, when the artwork is sold, the money comes out of the wallet as legitimate funds.

What Can I Learn?

When it comes to the art world, anti-money laundering rules aren’t very uncommon these days. Almost all of the big auction houses have anti-money laundering rules set up. But, for example, there isn’t enough due diligence done on the people who will get the money from purchases.

Are NFTs antiques or works of art?

There have been some changes to anti-money laundering laws in the United States recently. They now apply to some dealers of antiquities and art works. How will NFTs representing rights in art and antiquities affects these laws? This is an important question that has no answers yet.

The government has very strict rules about how money can be launder, so many money launderers have use art and antiquities to hide their activities from people who know about them. This is especially true because it’s hard to figure out what a piece of art or an old thing is worth, and there is often a lot of secrecy around these kinds of transactions.

People in the US worries about money laundering, so the government recently adds anti-money laundering provisions to the National Defense Authorization Act (NDAA). This act takes effect in January 2021. Many anti-money laundering laws has updates or changes in the NDAA. These include the Bank Secrecy Act (BSA), the Anti-Money Laundering Act (AMLA), and the recently passed Corporate Transparency Act (CTA).

In what sense is art?

There are some differences in how these new laws are applies to the art trade, and different US government agencies looks into how money laundering and terrorist financing can be done through the art trade.

Assessment: This includes looking at whether regulations should be limit to high-value art, whether there is a need to identify beneficial buyers of art, how this new regime is use in criminal, tax, and regulatory investigations, and how this new regime is use in these investigations. People who works in the art industry aren’t sure what to expect from new federal rules that are suppose to come out in 2022.

Digital money: Are NFTs?

Like virtual currencies, NFTs are cryptographic tokens that may or may not be used to help people hide money. If authorities apply AML rules to NFTs, they could say that this would help the NDAA’s goal of stopping the laundering of illegal funds. It all depends on whether the NDAA is use. If it can’t, then NFTs will be treated more like cryptocurrency than art or antiques.

Working with a Reliable Compliance Partner is a Step Forward

To deal with the possibility that NFTs could be a major money laundering threat, compliance professionals will have to widen the scope of both existing and possible new laws. These might be:

To figure out which laws (e.g., cybersecurity, securities) might apply, compliance professionals work with traditional art dealers and auction houses to figure out which laws might be relevant.

  • Cybersecurity insurance providers will consult about policies for digital artworks that are stole and then sold.
  • Using blockchain analytics, we’ll keep an eye out for wallets that is use to steal NFTs.
  • The creation of a list of NFTs that was stole or bought fraudulently (like existing databases maintained by FBI, Interpol, the Art Loss Register)

The compliance professionals who have to deal with the anti-money laundering consequences of NFTs are in new, uncharted waters right now. Markets, private sellers, and auction houses aren’t subject to the same rules as other businesses. There aren’t any clear answers about what rules should or should not apply.

Compliance professionals face a lot of risk in the current situation because of all the confusion. Lack of guidance means that NFTs, as a type of asset, that one should see as an area that is use for bad things.


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