Russian money laundering can be done through NFTs

SmartSearch, the UK’s leading anti-money laundering solution, is warning of the dangers of Non-Fungible Tokens (NFTs) being used to get around sanctions.

“When new technology is launched, fraudsters and money launderers are never far behind.,” cautioned Martin Cheek, managing director at SmartSearch.

“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. When a client wants to buy NFTs, it is crucial that they find the source of funds.

“Shell corporations may be used to disguise who is actually attempting to launder money so identifying the ultimate beneficial owner is crucial.”

NFTs are digital tokens that can be used to represent ownership of items, from property and art. According to a February study, the US Treasury Department found that the NFT market grew by 2,627% in the last quarter of 2021. It generated $1.5bn worth of trading in the first 3 months of 2021.

NFTs are not included in UK money laundering regulations. This has raised concerns that they could be used to hide money and make it difficult to trace. HMRC recently seized three NFTs in a probe into suspected VAT fraud that involved 250 alleged fake businesses.

As a relatively new phenomenon, regulations are still catching up with NFTs. In general, 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 register with the Financial Conduct Authority, perform Know Your Customer checks on customers, and monitor transactions.

“That’s why it is important businesses are conducting the required due diligence,” Martin Cheek.

“Whether it’s running a quick automated background check on a new client or investing in a monitoring service, it’s imperative that businesses take an active approach to anti-money laundering and sanctions.”

He also added that trade-based money laundering, which is defined by the Financial Action Task Force as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to [legitimize] their illicit origins”, is already a problem in the art world, and that NFTs could also be ripe for exploitation.

For more information about anti-money laundering solutions in the UK, please visit www.smartsearch.com

 

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