Treasury Department: NFTs at high risk for fraud and scams | ABA Banking Journal (2024)

Non-fungible tokens are highly susceptible to use in fraud and scams, and the digital assets can be stolen from victims, the Treasury Department concluded in a new risk assessment on NFTs. The report noted there is no widely accepted definition of an NFT given the asset can take a wide variety of forms, but generally an NFT is a digital unit or token with a unique identifier on a blockchain. Although the report indicated there is currently little evidence that NFTs are widely used in money laundering or terrorist financing, the Treasury’s Office of Terrorism and Financial Intelligence encouraged the private sector to use the findings of the assessment to inform their risk mitigation strategies to prevent illicit actors from abusing NFTs and NFT platforms.

The Treasury Department concluded the NFT market “is particularly vulnerable to fraud and scams.” It cited a third-party report that found that $100 million worth of NFTs were stolen over a one-year period between 2021 and 2022, adding that the actual figure is likely much higher as most victims don’t publicly report their losses. “Additionally, criminals use NFTs to launder proceeds from predicate crimes often in combination with other techniques or transactions meant to obfuscate the illicit source of funds,” according to the report. “Criminals exploit vulnerabilities related to characteristics of NFTs, the assets or entitlements that they reference, and regulatory frameworks in the United States and abroad.”