Money Laundering and High-Value Art: Treasury’s Study Discusses Financial Crimes and NFTs – JD Supra

With the advent of blockchain technology, vendors are increasingly accepting payments of goods, including artwork, with digital currency. The decentralized nature of digital currency makes it attractive for a lot of reasons, but it also makes legal oversight a challenge. Add to that the emerging (or already emerged) high-value market for digital art. For example, Beeple’s Non-Fungible Token (“NFT”) collection sold for more than $69 million at an auction, and a CryptoPunk NFT sold for $23 million.
NFTs, which are often used as a digital tokenized representation of a physical item, are susceptible to money laundering risks just like traditional high-value art. The money laundering risks presented by NFTs are not unique to NFTs, they are simply another avenue that criminal actors attempt to exploit. However, because NFTs are on a blockchain, they are publicly verifiable, auditable, and digitally unique which makes thwarting bad actors possible. In fact, a report from a blockchain analytics firm found that in 2021 there was “small but visible” money laundering activity in NFTs. The report continued, “[o]ur report demonstrates that thanks to the inherent transparency of blockchains, NFT platforms with the right data and tools can effectively monitor their platforms to shut down and prevent abuse such as money laundering.” These recent developments prompted the Treasury Department to take a closer look.
On February 4, 2022, the Department of the Treasury published a study on the facilitation of money laundering and terrorist financing through the art trade. Among other considerations, the report discussed the risks of financial crimes in connection with high-value art, including NFTs (see our previous blogs about NFTs here and here). The study found that the high-value art market has certain inherent qualities that make it potentially vulnerable to a range of financial crimes, as we noted above. NFT purchasers, marketplaces, issuers, and other intermediaries in NFT transactions should be aware of the Treasury Department’s interest in regulation and the potential for abuse through NFT transactions.
Monitoring the movement of artwork is inherently more difficult than tracing currency because there is no automated, mandated electronic registry for artwork. This risk could be magnified in the NFT context:
Digital art is one of the fastest growing sector of use-cases for NFT technology. The Treasury study states that “in the first three months of 2021, the market for NFTs generated a record $1.5 billion in trading and grew 2,627 percent over the previous quarter.” As a result, regulators are increasingly focused on preventing the illicit use of the technology. The Treasury study includes several considerations going forward for NFTs and other high-value art market participants:
Key Takeaways:
Regulation is lagging behind this revolutionary technology. This Treasury Department report is the latest in a series of studies and reports by federal regulatory agencies that aim to warn investors about the potential for abuse and provide a path for mainstream adoption. This is a quickly-evolving area and we will continue to update you on regulatory and compliance trends as they evolve.
See more »
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Sheppard Mullin Richter & Hampton LLP var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + ” “); | Attorney Advertising
Refine your interests »
This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.
Back to Top
Explore 2021 Readers’ Choice Awards
Copyright © var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + ” “); JD Supra, LLC

source

With the advent of blockchain technology, vendors are increasingly accepting payments of goods, including artwork, with digital currency. The decentralized nature of digital currency makes it attractive for a lot of reasons, but it also makes legal oversight a challenge. Add to that the emerging (or already emerged) high-value market for digital art. For example, Beeple’s Non-Fungible Token (“NFT”) collection sold for more than $69 million at an auction, and a CryptoPunk NFT sold for $23 million.
NFTs, which are often used as a digital tokenized representation of a physical item, are susceptible to money laundering risks just like traditional high-value art. The money laundering risks presented by NFTs are not unique to NFTs, they are simply another avenue that criminal actors attempt to exploit. However, because NFTs are on a blockchain, they are publicly verifiable, auditable, and digitally unique which makes thwarting bad actors possible. In fact, a report from a blockchain analytics firm found that in 2021 there was “small but visible” money laundering activity in NFTs. The report continued, “[o]ur report demonstrates that thanks to the inherent transparency of blockchains, NFT platforms with the right data and tools can effectively monitor their platforms to shut down and prevent abuse such as money laundering.” These recent developments prompted the Treasury Department to take a closer look.
On February 4, 2022, the Department of the Treasury published a study on the facilitation of money laundering and terrorist financing through the art trade. Among other considerations, the report discussed the risks of financial crimes in connection with high-value art, including NFTs (see our previous blogs about NFTs here and here). The study found that the high-value art market has certain inherent qualities that make it potentially vulnerable to a range of financial crimes, as we noted above. NFT purchasers, marketplaces, issuers, and other intermediaries in NFT transactions should be aware of the Treasury Department’s interest in regulation and the potential for abuse through NFT transactions.
Monitoring the movement of artwork is inherently more difficult than tracing currency because there is no automated, mandated electronic registry for artwork. This risk could be magnified in the NFT context:
Digital art is one of the fastest growing sector of use-cases for NFT technology. The Treasury study states that “in the first three months of 2021, the market for NFTs generated a record $1.5 billion in trading and grew 2,627 percent over the previous quarter.” As a result, regulators are increasingly focused on preventing the illicit use of the technology. The Treasury study includes several considerations going forward for NFTs and other high-value art market participants:
Key Takeaways:
Regulation is lagging behind this revolutionary technology. This Treasury Department report is the latest in a series of studies and reports by federal regulatory agencies that aim to warn investors about the potential for abuse and provide a path for mainstream adoption. This is a quickly-evolving area and we will continue to update you on regulatory and compliance trends as they evolve.
See more »
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Sheppard Mullin Richter & Hampton LLP var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + ” “); | Attorney Advertising
Refine your interests »
This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.
Back to Top
Explore 2021 Readers’ Choice Awards
Copyright © var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + ” “); JD Supra, LLC

source

More from author

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Related posts

Latest posts

Crypto community slams ‘disastrous’ new amendment to Biden’s big infrastructure bill – TechCrunch

Biden’s major bipartisan infrastructure plan struck a rare chord of cooperation between Republicans and Democrats, but changes it proposes to cryptocurrency regulation are tripping...

Bitcoin (BTC) Price Analysis for June 20 – U.Today

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion...

Want to stay up to date with the latest news?

We would love to hear from you! Please fill in your details and we will stay in touch. It's that simple!