The U.S. Treasury Department on Friday issued a set of recommendations to combat illicit finance in the high-value art market and warned that the emerging digital art market, such as non-fungible tokens (NFTs), may present new risks.
In a study published on Friday, the Treasury found that there is some evidence of money laundering risk in the high-value art market, but limited evidence of terrorist financing risk, the Treasury said in a statement.
It said that those most vulnerable in the market are businesses offering financial services that are not subject to anti-money laundering or countering terrorism financing obligations, warning that asset-based lending “can be used to disguise the original source of funds and provide liquidity to criminals.”
A senior Treasury official told reporters next steps include engaging stakeholders such as those in Congress or in the industry to get their feedback, adding that the Treasury hopes the study will encourage industries to take additional steps to make it harder to launder illicit proceeds through the art market. The Treasury will give further thought as to whether additional regulatory steps are needed in this market, the official said.
The study also said that depending on the structure and market incentives, the digital art market, such as NFTs, may present new risks, as the characteristics of digital art make it vulnerable to money laundering.
NFTs are a form of crypto asset which exploded in popularity last year. All kinds of digital objects – from art to videos and even tweets – can be bought and sold as NFTs, which use unique digital signatures to ensure they are one-of-a-kind.
Prada is releasing its first NFT in partnership with Adidas: a crowd-sourced digital artwork in a Beeple-style collage, in luxury’s newest iteration in the metaverse.
From 24 January, anyone can register to submit a photograph using a specially-designed filter, that will be manipulated, scrambled up, and 40 per cent of the image removed, so as to be anonymised. Three thousand of the individual photographs will be selected by raffle, and minted by Adidas as unique NFTs for free. The individual who submitted the artwork will remain the owner, able to sell their NFT on the secondary market. The selected images will then be combined as tiles into one mass patchwork NFT, designed by digital artist and creative coder Zach Lieberman. That one-of-one NFT will be auctioned online on digital art marketplace SuperRare, and displayed as a large-scale installation in Prada and Adidas flagship stores. The patchwork style is similar to Beeple’s $69 million “Everydays: The First 5000 Days,” which set a record for a digital artwork at Christie’s auction.