The United States Department of Treasury released a report describing how the non-fungible tokens (NFT) art market fits into money laundering schemes.
The Treasury writes that while NFTs offer “new opportunities for exploration of creative media” and take up only $1.5 billion of the US’s $20 billion share in the total art market, criminals may use NFTs in financial crime by using funds from illegal activities to make seemingly legitimate digital art purchases.
“The ability to transfer some NFTs via the internet without concern for geographic distance and across borders nearly instantaneously makes digital art susceptible to exploitation by those seeking to launder illicit proceeds of crime, because the movement of value can be accomplished without incurring potential financial, regulatory, or investigative costs of physical shipment,” the Treasury wrote in a 35-page report published Friday.
While NFTs may be used in financial crimes, the blockchain analysis firm Chainalysis reports that the amount of illicit funds laundered through NFTs remains relatively small compared to total crypto-based financial crime. Illicit wallet addresses sent about $1.4 million to NFT marketplaces in the fourth quarter of 2021 (the largest amount of all quarters in 2021) whereas an estimated $8.6 billion of cryptocurrency was used to launder funds in all of 2021.
To be sure, money laundering remains a small part of total art sales. The United Nations Office on Drugs and Crime has estimated in 2018 that money laundering comprised some $3 billion of an estimated $6 billion in underground art activity.
Criminals are far more likely to experience more profitable wash trading — the act of individuals trading amongst themselves to artificially drive up price — through NFTs than money laundering, Chainalysis reports, as 110 wallet addresses profited by nearly $8.9 million through wash trading in 2021.