The Treasury Department publishes a risk assessment on NFT vulnerabilities

The U.S. Department of the Treasury has published a risk assessment that examines vulnerabilities related to non-fungible tokens (NFTs) and NFT platforms.

Treasury’s 2024 Illicit Token (NFT) Risk Assessment examines how these vulnerabilities could be exploited by illicit actors for money laundering, terrorism financing, and proliferation financing.

The assessment shows that NFTs are highly susceptible to use in scams and scams and are susceptible to theft. The report indicates that illicit actors may use NFTs to launder proceeds from predicate crimes, often in combination with other methods intended to obfuscate the illicit source of criminal proceeds. There has also been little evidence of NFT misuse by terrorists or proliferators, as opposed to fraudsters, so far.

“This risk assessment demonstrates Treasury’s commitment to analyzing the risks associated with illicit financing of newer technologies and communicating them to industry and law enforcement,” said Treasury Under Secretary for Terrorism and Financial Intelligence Brian E. Nelson. “I encourage the private sector to use the findings from this assessment to develop their own risk mitigation strategies to prevent illicit actors from abusing NFTs and NFT platforms.”

The evaluation included several important conclusions. Among them, it said that insufficient cybersecurity protections, copyright and trademark protection challenges, and NFT-related hype and price fluctuations could enable criminals to commit fraud and theft related to NFTs and NFT platforms.

Additionally, some NFT companies and platforms were found to lack adequate controls to mitigate risks and combat money laundering and terrorist financing. It further recognizes that mitigation measures such as industry tools, law enforcement, and analysis of public blockchain data can partially mitigate such risks.

To address the risk, the assessment recommended that the U.S. government take the following actions:

• Raising awareness within the industry of existing obligations;
• Continue to enforce existing laws and regulations related to NFTs and NFT platforms; AND
• Consider further application of regulations to NFTs and NFT platforms.

The NFT rating is based on the latest National Risk Assessments and the 2023 Illicit Finance Risk Assessment for Decentralized Finance, all published by the Department of Treasury.