Crypto users warned about money laundering schemes through NFTs | Top Stories

Although the boom in the purchase of non-fungible tokens (NFT) has diminished, the use of these assets continues as a decentralized means for money laundering, of which fans of the world of cryptocurrencies (digital currencies) could be victims.

NFTs are a type of digital certificates of authenticity linked to both digital assets and physical assets, which can range from art to real estate, and which can be bought and resold. As with valuable art and other assets with changing and subjective values, NFTs can potentially be used for money laundering activities.

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This is what financier Jorge Andújar, co-founder of Bartizan Security and founder of Sentinel Education, told The News Journal.

“Whenever there are new technologies, they usually lack regulation. Regulation usually comes after the technology or innovation is exploited by criminals. So in this case that was what we can say happened in 2020. We had people locked up because of the pandemic, and we had a sector called to everything that has to do with cryptocurrencies, NFT, all of that lacking regulation,” he said. Andújar, making references to the lack of regulation such as the existing Know Your Customer policies and those of Bank Secrecy, by which traditional banking is governed.

He reported that a common NFT money laundering technique is a form of fictitious operation, in which a person buys back a digital asset, which they own, using different private keys. The criminal acquires an NFT at a low price using a set of cryptographic keys and then buys it back himself or a trusted third party using criminal funds. In this way they create a sales record. They then sell it to an honest buyer, thus getting a legitimate source for their money.

According to Andújar, if the criminal is cautious, connecting the various keys with the same person is practically impossible. This is because the transaction materializes in the Blockchain, a decentralized database that allows the transfer of a value or asset from one place to another without the intervention of third parties.

“There are different financial crimes, which when push comes to shove are nothing different from what happened with the stock market many years ago, nor is it anything different from what happens with physical works of art. The only difference is the format. Now, because it is digital, it is easier to do it,” he highlighted.

He also explained that one of the things that raises suspicion in this type of schemes are the prices.

“When you see an NFT from someone who is not an artist, who is not recognized, who is selling it for millions of dollars and which does not even entitle them to any added value, it is generally used as a shelter to evade taxes and to launder the money. In the traditional cryptocurrency Blockchain, the community is very attentive, however, tracing the NFTs is a little more difficult,” Andújar added.

He also mentioned that local artists such as tattoo artist Juan Salgado, who has his own collection of NFTs, already have standardized prices.

In the case of the music sector, for example, he reported that there are artists who, by purchasing the NFT, provide other benefits to the buyer, such as discounts on merchandise, prior access to their products or concerts, among others.

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Although NFTs are not subject to regulation, as it is a decentralized system, in 2022, the federal Treasury Department warned about the risk of money laundering in the art sector, mainly.

“The ability to transfer some NFTs over the internet without worrying about geographic distance and across borders almost instantly makes digital art susceptible to exploitation by those seeking to launder the illicit proceeds of crime, because the value movement can be achieved without incurring potential financial, regulatory, or research costs,” the report reads.

“I believe that the best thing a person could do is investigate and look for the address of those virtual assets and do due diligence on the origin and the different people they passed through, because in the long run that is the only thing they will have. at least defense,” Andújar recommended.

Abysmal fall

Andújar highlighted that most of these items sold in NFTs, for which millions of dollars were paid in 2020 and 2021, today are not worth even 80% of what they paid, because they were used as a mechanism to transfer money for many illegal things.

The most recent report from the dappGambl platform, which reviewed data from two of the main data infrastructures in the digital world, NFT Scan and CoinMarketCap, reflected that 69,795 of 73,257 NFT collections have a market capitalization of 0 Ether (a type of cryptocurrency), leaving 95% of those who own NFT collections – around 23 million people – with worthless investments.