We have come to the final post regarding NFTs, the Non-Fungible Tokens. Continuing from previous posts regarding the definition, types, and the industry in which NFTs are showing their value, let us now talk about the NFTs and the possibility of money laundering, and therefore the necessity of the KYC(Know Your Customer) process.
NFTs are great to art lovers, art piece collectors, and content creators as NFT itself hold the proof of ownership, a built-in authentication. Art piece information that is held on the blockchain makes clear who owns the art piece. However, this also makes the space vulnerable to money laundering.
Are NFTs same as Virtual Assets?
According to FATF(Financial Action Task Force), an intergovernmental organization founded to combat money laundering, NFTs are generally not considered virtual assets. However, it is important to consider the nature of the NFT and its function in practice. Some NFTs do not appear to constitute virtual assets but may fall under the virtual assets definition if they are to be used for payment or investment purposes.
Do all NFTs hold the possibility of Money Laundering? Why?
When buying and selling virtual assets through verified virtual asset service providers (VASPs), users do need to go through the KYC process. Know Your Customer(KYC) process is required before the beginning of the transactions to identify the user.
NFTs are currently not categorized as virtual assets, but online identity verification experts such as Argos KYC view NFTs to be treated similarly to virtual assets as they share similar traits. Here are some details.
1. NFT holds value
As we saw in various news, NFTs are valued a lot.
NFTs are convertible to cash just as virtual assets such as Bitcoin can be converted into cash.
2. P2P Transactions
NFTs are most often purchased with cryptocurrencies on online marketplaces, so P2P transactions are possible. And just as various cryptocurrencies are transacted in the decentralized environment with blockchain technology, NFTs also fall in the same category.
3. Money Laundering Purpose with NFTs
Holding values and being able to transact in P2P format with cryptocurrencies, a relative anonymity environment, NFTs provide room for money laundering.
Someone with the purpose to hide the dirty money and want to launder it may do so by generating anonymous NFT. He/She can then purchase the NFT in an anonymous status, making the transaction look legal and therefore pretending the funds are legitimate from the artwork transaction.
The necessity to implement KYC and AML checks in NFT transactions
There are no clear regulations at the moment. However, it seems that regulations need to be implemented to prevent the risk of money laundering in the near future.
Current lack of KYC(Know Your Customer) and AML(Anti-Money Laundering) checks in the NFT sector may make money laundering look simple and easy just like buying and selling NFTs with cryptocurrencies. Also, NFT is traded globally, and this means anyone in the world can be a potential customer who loves art. And some may approach NFT with the potential risk of money laundering.
About Argos KYC
Argos KYC provides an online identity verification solution for businesses that may need to identify their users before onboarding.
We provide a simple and seamless onboarding experience for identity verification using AI technologies. Build your identity management system around your business and offer your users a smooth and hassle-free KYC experience.
Identify anyone at any time anywhere.
online KYC, AML screening, AML risk analysis, KYB corporate applicant check