Money Laundering: Higher Risk in NFTs than in Art Trade

The Causa prima is a constant worry of the international art market, both on the open stage and behind the scenes. Apart from the continuously extended sanctions imposed by the USA, the UK, and the EU against Russia and Putin’s cronies, more and more international companies from the West are also reacting to the escalating situation. 

They are withdrawing their operations from the Russian market or drastically restricting transactions with Russian clients.

The first auction houses stopped doing business with Russian clients at all. These include, according to a report by The Art Newspaper, even Sotheby’s.

Reliable sources close to the company had confirmed that transactions from buyers from Russia or from Russian citizens whose main income is located in their home country are no longer accepted. Whether and how quickly other relevant players follow this example remains to be seen.

Here’s how the Coinbase crypto bot community that invests in NFTs is at higher risk of being associated with money laundering than the rest of the art trading scene.

Fear of Seizures

According to the Guardian, some Russian oligarchs have already tried to “sell off” parts of their art collections in the European art trade for fear of impending confiscations. These include works by Jeff Koons and Damien Hirst, as well as Picasso, Kandinsky, and Modigliani.

So far, however, galleries have exercised restraint. After all, the name of someone willing to sell could end up on a new sanctions list. 

Obviously, one wants to avoid the associated trouble as much as possible. This is probably also in view of the money laundering guidelines that have already been adopted or are yet to be tightened. 

For some time now, the financial authorities have had the art trade on their radar. The suspicion of potential terrorist financing is at stake, and the danger of subsidizing the Russian war machine could now be seamlessly linked to this.

New Money Laundering Report

Cinoa, the international association of art and antique dealers, has been trying to defend itself against such sweeping allegations for some time. No fewer than eight reports and studies, some of them financed by governments, have dealt with this complex of issues in recent years without providing any valid evidence for the assumption.

The report on money laundering and terrorist financing recently published by the U.S. Treasury Department, which classifies the majority of the art market as low-risk, also takes this line. 

This was prompted by guidelines adopted in the U.S. at the beginning of last year that also affected the art and antique trade.

The Financial Crimes Enforcement Network, a federal agency within the U.S. Treasury Department responsible for combating the illegal use of the financial system, was therefore commissioned to conduct a study on money laundering and terrorist financing in the art trade.

High Risk in NFTs

The conclusion of this authority: Theoretically, there would be a risk of money laundering, but practically there is hardly any evidence of financing of terrorist organizations. 

In addition, small and medium-sized galleries or companies would not be an effective vehicle for money laundering and stronger regulation would therefore not be necessary.

Unfortunately, it is impossible to prevent the regulator from not identifying the real problem by being in the NFTs. You have to look at it from the perspective of these criminals, who would buy an NFT, then pass it on to themselves with various digital accounts.

This would create a record of sales on the blockchain before an unsuspecting buyer arrives – thus coming out unscathed on the other side.

In addition, due to the nature of the NFTs themselves, there would be regulatory difficulties in catching these criminals. This is due to the structure of NFTs, where there are simply too many transactions, ownership models, standards, and due diligence protocols.

The Fast-Growing NFT Market

The biggest vulnerability that can be pinned down is basically the speed of these transactions. Actually, the incentive to complete a transaction can be higher than identifying who the buyer is. 

Many of these criminals are well aware that because of these speeds, it is virtually impossible to catch who is behind it.

Instead of regulating the general art market, U.S. authorities may soon target those NFT rackets in which the identities of buyers and sellers remain in the dark.

The extent to which this market segment is growing is also shown by the Art Basel/UBS report on the global art market published this week, in which NFTs were included for the first time. 

According to the report, sales of NFT art and collectibles on popular blockchains like Ethereum totaled $4.6 million in 2019. 

By the end of 2021, that number was already a staggering $11.1 billion. The share of art-related NFT sales had increased more than a hundredfold to $2.6 billion during this period.

“Wash Trading”

Incidentally, this extraordinary growth was driven by short-term trading: in 2020, primary sales still accounted for 75 percent of the art-related NFT market, but in 2021, resales accounted for 73 percent of the value of that market. 

According to author and art market economist Clare McAndrew, it’s worth noting that NFTs are held for just over a month on average before being resold.

The report also does not fail to mention some legal problems: In addition to money laundering and intellectual property theft, for example, so-called “wash trading,” artificially increasing the value of an object by being on both sides of the transaction.


Some acts of human nature are simply impossible to stop. In this case, the victim is the new virtual art scene – which in itself is already suffering a lot of criticism.

It just goes to show what a tough start the current NFT market is having. And without strong regulations insight, this situation is likely to drag on for a long time yet.