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- The nonfungible token (NFT) space has been buzzing for the past month or two, but there may be more to it than meets the eye as worries about the sector’s role in money laundering and tax evasion surface
- He claims that because art is so subjective and in the eye of the beholder, politicians and regulators seldom scrutinize NFTs
- According to both regulators and tax authorities, the NFT scene is likely to attract their attention for these reasons
The nonfungible token (NFT) space has been buzzing for the past month or two, but there may be more to it than meets the eye as worries about the sector’s role in money laundering and tax evasion surface. Mr. Whale, a crypto investor, and uber-bearish crypto pundit has highlighted the evil side of the expanding NFT industry. The Bitcoin (BTC) early adopter ascribed the popularity and reputation of NFTs to their potential to assist money laundering and tax evasion for the rich in a blog post earlier this week.
He claimed that because art is so subjective and in the eye of the beholder, politicians and regulators seldom scrutinize NFTs. He went on to say that this element of art is the main reason why it has been utilized as a conduit for illicit cash transfers for millennia.
According to Mr. Whale, the real money laundering element is fairly straightforward. Using illegal funds to acquire an NFT from oneself is a simple technique to shift money while claiming the funds were used for a legitimate art purchase and avoiding taxes. Former USA Today writer Isaiah McCall provided an example on his blog earlier this year, explaining the process:
One would spend $1 million on their own NFT if one had $1 million in illicit money. They may accomplish this on their own or with the help of a reputable third-party account. Then they resell the trash for pennies on the dollar and profit. Mr. Whale was told by Catherine Graffam, an adjunct faculty member in Lasell University’s Art & Design department, that NFTs are already being used to launder money in the same manner that real art is. She went on to say that they had certain benefits, elaborating that because it is connected to a decentralized currency and there are no actual artworks to ship or store in off-shore tax haven warehouses, it may be even easier to transfer dirty cash around.
According to both regulators and tax authorities, the NFT scene is likely to attract their attention for these reasons. While there are a lot of NFT exchanges without KYC/AML laws, this will surely change in the future, Mr. Whale said, adding that he has little doubt that governments would crack down on this trend. Investors who utilize the proceeds from their crypto holdings to buy NFTs would almost certainly have to pay capital gains tax when filing their taxes in the United States.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
