Anti-money laundering firm, SmartSearch, has issued a warning around the dangers of non-fungible tokens (NFTs) being used to get around sanctions.
UK money laundering regulations do not include NFTs, and SmartSearch has raised concerns that they could be exploited as another way to launder money anonymously and untraceably.
The firm suggested these fears were underlined by the recent seizure by HMRC of three NFTs as part of a probe into a suspected a VAT fraud involving 250 alleged fake companies.
NFTs are unique digital tokens that represent ownership of items ranging from art to property. The NFT market generated $1.5bn in trading in the first three months of 2021 and grew 2,627% over the previous quarter, according to a February study by the US Treasury Department.
If a business provides the services of exchange or custody of crypto, it will be subject to the Money Laundering Regulations (MLRs). These businesses must be registered with the FCA, perform Know Your Customer (KYC) checks on customers and monitor their transactions, along with other AML requirements.
“When new technology is launched, fraudsters and money launderers are never far behind,” said SmartSearch managing director, Martin Cheek. “Those looking to avoid sanctions may look to purchase NFTs to hide their money in unregulated assets.
“Therefore it is crucial that everyone involved in the process of purchasing NFTs is vigilant to the dangers they pose. Finding the source of funds will be critical and enhanced due diligence undertaken whenever a client is looking to buy an NFT.
“Shell corporations may be used to disguise who is actually attempting to launder money so identifying the ultimate beneficial owner is crucial.”
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