If you’ve skimmed the pages of the Wall Street Journal or Bloomberg Businessweek or even scrolled through Instagram recently, you’ve likely come across a ubiquitous new term: NFT. A NFT, or non-fungible token, is the new kid on the blockchain block.
According to JD Supra NFTs “are digital assets encoded on a blockchain that represent ownership of a unique asset or set of rights”. Essentially, what sets NFTs apart from other blockchain tokens is their distinctive “one and only” aspect, while other blockchains like crypto currencies can be traded for identical assets. For example, one bitcoin when traded for another bitcoin will have the same value and be made up of the same digital code.
This unique qualifier has made NFTs especially popular in the world of digital art and virtual reality. A few recent NFT sales making headlines include a LeBron James newsreel clip for $99,999 and a digital piece by artist Beeple that sold for an eye-popping $6 million according to The Verge. Thanks to smart contracts and provable ownership, those purchasing NFTs can be sure the item is theirs and theirs only.
One concern with the rise in NFTs however, is whether they are subject to the same regulations under the Banking Secrecy Act (BSA) and Anti-Money Laundering Act (AMLA). At the moment the AMLA does not explicitly mention NFTs, though JD Supra recommends that “several provisions ought to be considered by individuals and financial institutions contemplating NFT transactions”.
Because the U.S. anti-money laundering laws have broadened recently to cover art and antiquities, buyers of NFTs would be wise to consult with their accounting and legal teams to ensure their purchases are properly reported. Though NFTs are not automatically considered within the AMLA, given the fact that so many transactions are for digital content often labeled as “art”, they could very well fall into the category and be subject to the same regulatory oversight.
Because of the break-neck pace of this new blockchain technology and the high price tags associated with these NFTs, the legal repercussions of failing to comply with BSA guidelines or submitting Suspicious Activity Reports remains nebulous and high-risk. According to Forekast News “it is likely that federal regulations due to be published by Jan. 1, 2022 will shed additional light on these questions, but for now, the art industry remains in a state of uncertainty.” The team at Padula Law will continue to monitor any new regulations surrounding NFTs.
