Have NFTs caught the world off guard?

02/03/2022

It’s well documented in the media and pop culture that fine art has always provided an avenue for money laundering. So, it comes as no surprise that, since their inception, digital assets such as cryptocurrencies and now non-fungible tokens (NFTs) have provided new opportunities for money laundering. TruNarrative’s Business Development Director Marc Temple writes.

What are NFTs and why are they here?

As cryptocurrency becomes more and more established, people are becoming willing to accept them, and be seen as a viable asset as payment for goods and services.

Non-fungible tokens are unique digital assets which are created using technologies like blockchain. They are bought and sold online, mostly with cryptocurrency, with the chosen blockchain keeping a record of these transactions. Whilst anyone can view NFTs, the buyer has the status of being its owner. With that, they can also programme royalties from each sale for themselves into the metadata before selling on to receive a percentage of future sales.

Despite a slump in the crypto market at the start of 2022, NFTs had a massive spike in awareness and record sales. It’s no wonder this new market has attracted so many people, including big brands such as Nike and Burger King.

With cryptocurrency and NFTs becoming easier and easier to access, buy and sell, we are seeing an increase in both P2P transactions by both genuine customers and criminals.

Whilst there are now regulated or partially regulated exchanges for cryptocurrencies, a lot of NFT marketplaces are not – meaning users are still able move funds anonymously with transactions that are very difficult for authorities to trace. Blockchain technology may be transparent, but the users do not have to be.


Why is this a problem?

With every country, there are different regulations when it comes to the trading of digital assets. With varying degrees of KYC requirements in place, it falls on the jurisdiction in which the exchange is regulated. With regulation often lagging behind the fast-moving world of digital assets trading.

There are currently numerous NFT trading exchanges that are largely devoid of KYC requirements, making it possible for users to transfer currency and assets between NFT and crypto blockchains without adequately verifying their identity.

Without robust processes in place to confirm identity, purpose or intended nature of the business relationship, or the origin of assets, criminals will be able to exploit this market for money laundering, human trafficking, drugs, and tax avoidance – to name a few.


Has the sudden rise in NFTs caught the world off guard?

Every country is taking a very different stance on how they plan to work with the rise of digital assets.

Most governments around the world are taking mass adoption of cryptocurrency seriously and are looking at ways to regulate these new decentralised assets. We have already seen the likes of Binance, Coinbase, and Crypto.com be approached by the authorities to make sure they are performing the required checks on their customers to comply with KYC and AML. But with more than 500 exchanges worldwide, plus more and more being created, there is a lot further to go.


How TruNarrative can help

TruNarrative enables businesses to safely onboard customers, prevent financial crime and identify risk via a single API. Their technology is trusted to deliver fraud detection and compliance strategies across the globe in a range of industries including banking, lending, online gambling, ecommerce and payment services.

The platform delivers the ability to automate the customer journey and perform anti-money laundering, behaviour and transaction monitoring, risk rating, document verification, and payment screening. Making sure all users have a safe experience when using this new technology.

If you’d like to talk to me about any of these issues, share your thoughts, or how the TruNarrative Platform can help, please fill out the form below.

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