It has been more than ten years since cryptocurrencies, blockchains, and non-fungible tokens (NFTs) entered our lives. Cryptocurrencies, which provide anonymity, have given their users a serious area of freedom, unlike the traditional banking system, where all transfer transactions are recorded. However, the fact that cryptocurrencies and NFTs can be used for money laundering has opened up space for increased international crime.

What is an NFT?

An NFT, or non-fungible token, is a digital asset that exists on a blockchain, typically the Ethereum blockchain. Unlike cryptocurrencies such as Bitcoin or Ether, which are fungible and interchangeable, each NFT is unique and represents a specific digital asset, such as an image, video, or piece of music. NFTs are stored on a blockchain, which provides a secure and transparent ledger of ownership and transaction history.

According to Reuters, one of the world’s most respected newspapers, NFT sales exceeded $25 billion. Hacking is also common in this huge market where a single NFT finds buyers for $90 million or more. Because of all this, high-profile scammers are known to turn to NFTs.

To address these risks, the US Justice Department has warned that NFTs should fall under anti-money laundering law. Criminals may use NFTs for illicit financing by “self-laundering” – purchasing an NFT with illicit funds and then reselling it to a purchaser who pays for it with clean funds unconnected to a prior crime.

What is NFT Money Laundering?

NFT Money Laundering refers to the use of non-fungible tokens (NFTs) to conceal the proceeds of illegal activities, such as money laundering and tax evasion, through buying, selling, and trading NFTs. NFTs are unique digital tokens that can represent various types of assets, including artwork, music, and in-game items. The NFTs can be purchased, held, and sold for cryptocurrency or even real-world fiat currency, making them an attractive tool for illegal activities. The use of NFTs for money laundering is still relatively small but has been growing. Some common techniques used in NFT money laundering include wash trading, phishing and virus attacks, identity fraud, and forgeries.

Can NFT Money Laundering be Prevented?

There are ways to mitigate NFT Money Laundering, but it is a small but growing sector. To prevent NFT Money Laundering, recommended actions include: setting a baseline for companies that want to focus on NFTs, implementing KYC policies and ongoing monitoring, similar to those used in the traditional art market and compliant cryptocurrency exchanges, and ensuring there is an option for two-factor authentication for consumers. However, as of now, the regulation of NFTs is still evolving, and there is no mechanism in place to prevent launderers from creating multiple accounts and transferring assets between them to further obfuscate the trail.