By David Jolly
Attorney General Merrick Garland wants to expand the Bank Secrecy Act to non-fungible tokens to deter money laundering.
In a report to President Joe Biden earlier this month, the US Justice Department warned that NFT players could be using the digital assets for illicit financing, by “self-laundering, a sequence in which criminals purchase an NFT with illicit funds and then resell to a purchaser who pays for it with clean funds unconnected to a prior crime.”
Application of the act “often turns on whether the transacted item qualifies as ‘value that substitutes for currency,’” the report notes, while “NFT platforms may take the view that this definition does not apply to their activities—and that they are thus not subject to” the act’s anti-money laundering and combating the financing of terrorism requirements. Further, many platforms fail to appropriately implement know-your-customer systems in a market where assets can change hands very quickly, it noted.
Sales of non-fungible tokens, unique digital art and collectibles recorded on blockchains, took off during last year’s crypto boom. They have cooled sharply this year as Crypto Winter set in. NFT prices sometimes have sometimes seemed divorced from reality, with crude cartoons selling for tens or hundreds of thousands of dollars. That creates conditions under which bad actors like drug traffickers can launder money, an IRS criminal investigation division official said in January.
The Justice Department said it supports amending the act to make clear that key obligations—including know your customer and suspicious transaction reporting—apply to platforms dealing in NFTs, including online auction houses and art galleries.
To contact the reporter on this story: David Jolly in Washington D.C. at djolly@bloombergindustry.com
To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Kathy Larsen at klarsen@bloombergtax.com
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