As NFTs Bloom, US Treasury Sounds Alarm on Art Money Laundering

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A visitor takes a photo in front of a ‘Glows in the Night’ video installation by contemporary Chinese artist Yang Yongliang, which will be converted to NFT and auctioned online at Sotheby’s, during the Digital Art Fair, Hong Kong, in China, September 30. 2021. REUTERS/Tyrone Siu

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WASHINGTON, Feb 4 (Reuters) – The U.S. Treasury Department on Friday issued a series of recommendations to tackle illicit financing in the high-value art market and warned that the emerging market for digital art, like non-fungible tokens (NFTs), could present new risks.

In a study released on Friday, the Treasury found that there is evidence of a money laundering risk in the high-value art market, but limited evidence of a terrorist financing risk, a the Treasury said in a statement.

He said the most vulnerable in the market are companies offering financial services that are not subject to anti-money laundering or anti-terrorist financing obligations, warning that asset-based lending “can be used to disguise the original source of funds and provide cash to criminals.”

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A senior Treasury official told reporters that the next steps are to engage stakeholders such as those in Congress or industry for input, adding that the Treasury hopes the study will encourage industries to take action. additional measures to make the laundering of illicit proceeds more difficult through art. Marlet. The Treasury will give further thought to whether additional regulatory action is needed in this market, the official said.

The study also indicates that depending on market structure and incentives, the market for digital art, such as NFTs, may present new risks, as the characteristics of digital art make it vulnerable to laundering. silver.

NFTs are a form of crypto asset that has exploded in popularity over the past year. All kinds of digital objects – from art to videos and even tweets – can be bought and sold as NFTs, which use unique digital signatures to ensure they are unique.

The study recommended consideration of several options to address the risks, including updating law enforcement and customs training, improving information sharing with the private sector, and application of anti-money laundering and anti-terrorist financing requirements to certain art market players.

But he said the multi-billion dollar industry, compared to other sectors that pose a risk of terrorist financing and money laundering, should not be an immediate priority for imposing requirements. to combat illicit financing.

Most art market players are not currently subject to anti-money laundering or anti-terrorist financing requirements, although the study indicates that several qualities inherent in art and the large market value make it attractive for money laundering.

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Reporting by Daphne Psaledakis; Editing by Mary Milliken and Diane Craft

Our standards: The Thomson Reuters Trust Principles.

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