In the previous article, Sister Sa’s legal team introduced to everyone that the use of virtual currency to launder money is to take advantage of its anonymous transaction (key), peer-to-peer transmission, cross-border circulation, and irreversibility, which greatly increases anti-money laundering management. Difficulty in tracing and tracing the source of institutions and anti-money laundering obligations. So, does NFT, which share the underlying technology with virtual currency , risk being used for money laundering ? I believe that those who follow the currency circle and NFT dynamics have this question.
In fact, in the current public information channels around the world, there is no case of NFT being used for money laundering. Even FATF, the world’s most authoritative international anti-money laundering organization, has said that it will let the bullet fly for a while. But partners can’t put down their vigilance because of this. This does not mean that the money laundering risk of NFT is less than that of virtual currency. On the contrary, it may be higher! Today, Sister Sa’s legal team is here to talk to you about the potential money laundering risks of NFT.
NFT Vs. Virtual Currency
If you want to understand how virtual currencies, NFTs, and other virtual assets are used for money laundering, the most intuitive, effective, and easy-to-understand way is to observe what kind of role they play in each link of money laundering. In the final analysis, the purpose of money laundering is to convert illegal gains, criminal proceeds, or all other “black money” obtained through illegal means into “white money” recognized and protected by law. Therefore, money laundering is essentially to help black money holders get black money. The origin of the activity is explained clearly .
Why can virtual currency be used for money laundering?
As mentioned above, the reason why virtual currency can become a convenient and easy-to-use money laundering tool is that it takes advantage of its anonymous transactions, peer-to-peer transmission, cross-border circulation, irreversible, relatively objective market value, etc., among which anonymity and cross-border circulation Convenience is its core.
Regarding anonymity, having a completely anonymous identity in a completely open network means that the identity in the network is completely disconnected from the identity in the real world, and any behavior on the network cannot be traced back to reality. Regarding the convenience of cross-border circulation, according to Article 2 of the “Detailed Rules for the Implementation of the Measures for the Administration of Individual Foreign Exchange,” the annual total amount management is implemented for individual foreign exchange settlement and domestic individual foreign exchange purchases. The annual totals are equivalent to US$50,000 per person per year. The virtual currency is not subject to this restriction. As long as the legal currency can be successfully converted into virtual currency, it can easily break through the state’s control of foreign exchange limits and realize the cross-border flow of huge amounts of property.
Therefore, as long as a person with money laundering needs finds a way to exchange black money into some kind of virtual currency with good circulation, he can easily make the stolen money go overseas without knowing it. Subsequently, money launderers can use the services provided by many overseas virtual asset service providers to carry out money laundering activities. They can even use the “stirring” tool provided by professional money laundering organizations by paying to quickly launder unclear money and exchange it for money laundering. Fiat currency. At the moment when the market value of virtual currency is rising, many people can achieve their specific goals without re-exchanging virtual currency into legal currency.
Why can’t NFT be used for money laundering?
As a newly born thing, NFT is significantly different from virtual currency. Uniqueness, indivisibility and scarcity are not only its most fascinating attributes and labels, but also its most essential characteristics that distinguish it from virtual currencies. At present, it is generally believed that there are two main reasons for the low risk of NFT money laundering: (1) pseudo-anonymity; (2) the market value is difficult to determine . From casting to circulation, the traceable characteristics of each link and the attributes of NFT as a specific object make it difficult to hide the identity of the holder behind it, and it is impossible to assume the task of value exchange for circulation as a general equivalent.
In terms of pseudo-anonymity, although NFT uses the same underlying technology as virtual currency, the anonymity really cannot be compared with virtual currency. The reason is that most of the current NFT transactions rely on the Ethereum platform, but the Ethereum platform only provides pseudo-anonymity, not strict anonymity or privacy. The user can only partially hide his identity, but if the public knows the connection between his real identity and the corresponding address, he can directly observe all the activities of the user under the address. Existing homomorphic encryption, zero-knowledge proofs, ring signatures, and multi-party calculations have not been successfully applied to NFTs on a large scale due to complex encryption principles and security assumptions.
The market value of NFT is difficult to determine. Compared with virtual currency, NFT is a unique virtual world specific object, and it often appears in the form of digital artwork. Therefore, it is basically impossible to price NFT uniformly (this will make it lose its uniqueness and scarcity, and change from a specific thing to a kind of thing).
However, we believe that these two characteristics do not prevent it from becoming a money laundering weapon, and even the advantage of NFT in money laundering.
How will NFT be used for money laundering in practice
If we can easily conclude that NFTs are difficult to be used for money laundering based on the pseudo-anonymity of NFTs and the difficulty in determining market value, we fall into the “attention trap”. In other words, the common underlying technology of virtual currency and NFT deceives our eyes. We have been looking at NFT from the perspective of preventing virtual currency money laundering.
If we treat NFT purely as a work of art, our thinking will be clearer.
This has to talk about a niche game that takes the high-end route in traditional money laundering methods-the use of art to launder money .
Money laundering and bribery case of the Qiuting Consortium
In the 1990s, Japan had a well-known consortium called the Qiu Ting Consortium, which wanted to pay bribes to Japanese politicians in order to seek many improper benefits. In those days, it was relatively simple to pay bribes to lower-ranking civil servants. One dared to give and the other dared to collect, and it was all done by finding a secret place to pay. But if you want to bribe the dignitaries who hold the power of the country, then you have a lot of knowledge. If it is not for the unbreakable relationship of trust, common interests and year-round cooperation between the two parties, or you have to come up with a foolproof, everyone Unable to discover the way.
The Qiu Ting Consortium chose the latter. The perfect crime in the 1990s was carried out like this: First, the Qiu Ting Consortium arranged for Japanese parliamentarians or senior government officials to go to certain European museums and art collectors to “buy” a piece of value for about US$1 million. Highly famous paintings or works of art.
After a period of time, the Qiuting Consortium arranged to send the famous paintings to top European auction houses for public auction by means of “anonymous consignment by unknown collectors”. Obtained legally. If no one bids or the bid is low, the Japanese Akiu Ting Foundation and the client will use a counterattack method to top up the artwork to a price of about 20 million U.S. dollars before finally taking the auction.
The Qiuting Consortium took advantage of regulatory loopholes and the difficulty in determining the market value of artworks to complete a seamless political bribery.
General procedures for money laundering using artworks
Compared with other money laundering methods, the amount of money laundering using artworks is huge, requiring many regulatory links and manipulating the art market, and the cycle is longer, which is not something ordinary people can do. Therefore, not many people use this method to launder money, and it is basically a niche, high-end money laundering method. In essence, it takes advantage of the fact that the market value of art is difficult to measure and there is a huge space for speculation.
The money laundering cycle of this method generally takes several years, and the longer the time, the stronger the concealment. In theory, as long as the layout is appropriate and the operation cycle is long enough, it will never be discovered. Generally speaking, the following steps are required:
(1) Find the right artwork. First of all, it is necessary to observe and screen the artworks that are circulating in the market. Generally, artworks of hundreds of thousands of priced are selected, and there are about hundreds of similar artworks in circulation on the market.
(2) Purchase well-searched artworks. At this time, it is necessary to buy a large amount of about dozens of artworks that have been identified in the market.
(3) Hype the artwork. At this time, the purchased works of the same type are placed on higher-level auction platforms in different countries and regions, and the value of such works of art is artificially increased through multiple agents in the way of matching transactions, or through high-price agreements, The fool’s trading method has made the whole type of artwork speculate at sky-high prices. It is more appropriate for the final market price to be fixed at about 100 times the original price.
(4) Start money laundering.
How to wash it? For example, suppose that A holds 1 billion stolen money at this time and needs to be laundered into legal income. So A can start collecting art from time to time, often attending art auctions and so on to buy ordinary art, and set up a family setting for collectors who start to love art. One day, A “accidentally” bought a few works by the famous artist X in the market. After a while, A sent the works to a public and legal international auction for auction. At this time, some mysterious people and mysterious organizations who didn’t know where they came from competed for bids at the auction. In the end, someone or an organization auctioned them away with a sky-high price of tens of millions.
A can then continue to send auctions, and different mysterious people or organizations will take away the auctioned artworks at slightly fluctuating prices, and the money used by these mysterious organizations for the auction is actually paid by A using the stolen money. In this way, A successfully washed out the 1 billion stolen money. Even the final hype of artwork premiums can offset the losses and costs of money laundering groups such as handling fees, commissions, and taxes, and the remaining artwork can create greater value.
This method is very concealed . Not only does all of A’s income have a legal source, but there is no social relationship between A and many mysterious people who have photographed works of art at a “reasonable market price”. You can pay taxes in accordance with the law and accept the supervision of various regulatory agencies. Anonymity is not important to A. The more difficult it is to determine the market value of an art, the more beneficial it is for A, as long as it can be speculated.
NFT highly adapts to this technique
For the same reason and the same technique, replacing traditional physical artworks with NFTs and using cryptocurrency for auctions will make the entire money laundering process more convenient and faster due to the disappearance of circulation links.
The same is holding 1 billion stolen money A. At this time, as long as he puts on himself an encrypted art collector’s personal setting, he can even become a well-known encrypted artist himself. The same method can be used to hype some specific NFTs of the same type and the same price, and ultimately achieve the purpose of money laundering.
Since most NFT projects have the “28th effect” (that is, only the head projects are hot, most of the other projects are flat) asset liquidity is poor, and once the market is cold, the NFT will lose all its value. Therefore, , Hype is the DNA integrated into the blood of NFT .
In fact, there are a large number of “pair trading” in the NFT trading market itself, and artists, casters, and NFT-related companies all hype up the price of NFT. Beeple’s $69 million NFT works have also been questioned as joint insider trading with certain stakeholders, but no one can come up with any real hammer. Artistic value itself is very subjective. One is willing to buy and the other is willing to sell. As long as the form of sale is legal, it is normal even if the auction price is sky-high. In such an environment, the use of NFT to carry out money laundering activities is basically impossible to be discovered as long as they are properly operated.
With the support of virtual currency, the lack of supervision and the prevalence of non-standard virtual asset auction platforms provide broad prospects and fertile soil for NFT money laundering. Sister Sa’s legal team has repeatedly found that overseas NFT trading platforms have not strictly fulfilled the KYC requirements . The KYC audits of many platforms are mere formalities , and they can even pass the audit using fabricated information. People have to be wary of the possible money laundering risks of NFT.
Write at the end
At present, it seems that the use of virtual currency for money laundering is more universally practical, and it is a more effective choice for some relatively small amounts of stolen money to use virtual currency for money laundering or to evade supervision. The use of NFT to launder money is much more difficult and complicated, but the stolen money behind it is also more concealed and the benefits involved are greater.
An unsuitable analogy: virtual currency money laundering is like a conspiracy, while NFT and art money laundering are more like a conspiracy . In the process of using artworks to launder money, the holders of the stolen money can participate in the whole process with their real identity. Anonymity seems to be dispensable to them, which echoes the characteristics of pseudo-anonymity of NFT nowadays. Of course, in the absence of real cases, all analyses are only hypotheses, and theories need to be verified by practice.
In summary, hype is the core of art money laundering, and in today’s NFT industry, the most indispensable is hype .
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/digital-artwork-on-the-cliff-of-nft-money-laundering-research/
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