The U.S. Department of the Treasury published a risk assessment that examines vulnerabilities associated with Non-fungible Tokens (NFTs) and NFT platforms.
The Treasury’s 2024 Non-fungible Token (NFT) Illicit Finance Risk Assessment explores how these vulnerabilities may be exploited by illicit actors for money laundering, terrorist financing, and proliferation financing.
The assessment finds that NFTs are highly susceptible to use in fraud and scams and are subject to theft. The report determines that illicit actors can use NFTs to launder proceeds from predicate crimes, often in combination with other methods to obfuscate the illicit source of proceeds of crime. It also found little evidence of the misuse of NFTs by terrorists or proliferators, in contrast to fraudsters, to date.
“This risk assessment demonstrates Treasury’s commitment to analyze illicit finance risks of newer technologies and communicating them to industry and law enforcement,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “I encourage the private sector to use the findings of this assessment to inform their own risk mitigation strategies to prevent illicit actors from abusing NFTs and NFT platforms.”
The assessment had several major findings. Among them, it said that inadequate cybersecurity protections, challenges related to copyright and trademark protections, and the hype and fluctuating pricing of NFTs could enable criminals to perpetrate fraud and theft related to NFTs and NFT platforms.
In addition, it found that some NFT firms and platforms lack appropriate controls to mitigate risks and combat money laundering and terrorist financing. Further, it recognizes that mitigation measures, such as industry tools, law enforcement authorities, and analysis of public blockchain data, can partially mitigate such risks.
To address the risks, the assessment recommends the following U.S. government actions:
• Raising awareness within the industry of existing obligations;
• Continuing to enforce existing laws and regulations related to NFTs and NFT platforms; and
• Considering further application of regulations to NFTs and NFT platforms.
The assessment of NFTs builds upon recent National Risk Assessments and the 2023 Illicit Finance Risk Assessment on Decentralized Finance, all published by the Treasury Department.