Skyrocketing NFT Sales Raise Concerns for Tax, Law Enforcement
Last month, the sales for a digital art piece was surprisingly high and raised many questions for the technology that is considered a great opportunity in the finance industry. Christie’s (an auction house) auctioned a piece of art for 69 million USD and the transaction was recorded on a public blockchain as an NFT or non-fungible token.
Mike Winkelmann, also known as Beeple, created a digital collage that contained 5000 digital images. These prices clarify the frenzy involving NFTs that depend upon the same technology that empowers cryptocurrencies, Bitcoin and Ether included.
NFTs are not completely interchangeable like other currencies and the Know Your Customer and Anti-Money Laundering regulations are not the same as in the finance sector. So, they become a viable outlet for criminals to achieve their illegal goals.
The combined trading volume of the marketplaces where the non-fungible tokens are created, bought and sold was $342 million in February. It was only $12 million in December 2020. The NFTs frenzy has seen CEO of Twitter, Jack Dorsey, selling his first tweet for 2.9 million USD. On the other hand, football player Rob Gronkowski sold more than 300 collectible cards for approximately $1.6 million.
Such flurry activities and skyrocketing NFT prices are raising concerns for federal officials whether these assets are susceptible to money laundering/tax evasion or not.
“The scope of money laundering in the art industry is enormous,” according to Tim Carpenter who is incharge of the art crime department of the FBI. He further said, “Criminal enterprises have long looked at the art market as a useful place to hide their illicit proceeds. It stems largely from the fact that the art market is almost completely unregulated.”
According to Josh White, an assistant professor of finance at Vanderbilt University,
“Blockchain is by nature both visible and anonymous. If I were moving money from the drug trades or any kind of illegal activity, the cryptocurrency space. The NFT space by relation is definitely a way that you can move assets in a large way, in an anonymous way, to try to circumvent some of the banking rules that we’ve put in place to identify this type of stuff.”
Identifying money laundering in NFTs is a complex task due to their anonymous nature. However, experts are suggesting that KYC and AML regulations similar to those of the finance sector can help control FinCrime.