4 ms·

I get the possible tax evasion schemes, but how would one launder money with NFTs?

tsujamin 5y ago
my understanding was that you'd buy an NFT at some inflated price using cryptocurrency to be laundered, and on-sell it (having affected its perceived value with the previous inflated sale) but I could be off. The other use I read about recently was using them as a proxy for buying some sort of illicit good or service, i.e "here's $600,000 for that wink NFT wink I wanted". Not my space though so might be off by a mile :')
- sabellito 5y ago
  In this case there would still be a very simple trail of the NFT purchase for the asking price.
  - aj3 5y ago
    So what? Say you have an account X which holds funds from criminal operations (e.g. ransomware payments). If you cash it out directly there's no doubt you're a criminal. But if you use that money to pay yourself for an NFT, now you can possibly deny that you have any knowledge about source of X income. Better yet send money from X through a bunch of privacy oriented tokens like monero, tumblers and mixing services, losing 20-50% in the process and consolidating the rest in account Y. Now you have plausibly clean money but you can't pay taxes yet as there's no paper trail for this income. Solution is easy, buy an NFT from yourself, declare it, pay taxes and buy a new yacht.
    - sabellito 5y ago
      If buying a virtual good from oneself at any arbitrary price was easy, money laundering would be solved problem for criminals, regardless of NFTs or not, wouldn't you agree?
      - aj3 5y ago
        That's exactly what's happening right now. But before NFTs the most plausible ways were either opening a business accepting crypto (not unlike meatspace money laundering involving cash-accepting businesses) or having lucky strikes on gambling platforms (where you can play against yourself). For a larger operation going business route is still preferable but on an individual level NFTs are much easier due to ridiculously high margins that have been normalized there.
        sabellito 5y ago
        How do you know this is exactly what's happening right now? Do you work in the sec space or with tax authorities? I'm genuinely asking, as I'm a layperson in regards to these subjects, and, in my ignorance, I don't see the difference between that and, say, Counter Strike skins selling for 15k USD. To my understanding, all these things leave simple 1-1 paper trails that can be followed later and lead to consequences, but I might certainly be wrong. I'm trying to separate people who simply don't like cryptocurrencies and NFTs (which might be your case, I don't know) from actually informed thoughts about what's happening.
boomlinde 5y ago
You need to pay me for some illicit activity. Instead of having you pay me directly, I produce a set of minimalist pieces of art and issue NFTs for them. You buy them or pay your associates to buy them. The transactions now appear as legitimate trade.
- capableweb 5y ago
  Since both parties have to (supposedly) declare their expenses/income (if the value is high) in their retrospective countries, this scheme is as failsafe as just sending the transaction directly between the two of them. In your example you have successfully transferred the funds between two parties, but you have not laundered anything here.
  - arlcode 5y ago
    I'm not sure I can follow. The "legit" transaction (NFT<->Money) would be declared and taxes would be paid on any gains. The "real" product would be delivered off chain and without anybody knowing. From an outsiders perspective it looks like a high value art purchase.
    - capableweb 5y ago
      The purchaser can just claim they spent X on art, sure, declare away. But how do you recover the funds again? You'll need to declare that you sold art for X, and tax it so you can actually use it. Again, nothing has been washed here, you've just made a normal transfer with zero benefit.
      - arlcode 5y ago
        Oh I see. I think there are several use cases people associate with NFT. One is money laundering and that is indeed hard as you mention. The other is payment for illegal services and goods. I can't wire you money for "one assassination" but I can wire you money for "art" because who knows how much it's really worth.
      - 5y ago
hanklazard 5y ago
Alice owes Bob 10 million dollars. Bob uses artbreeder.com to generate cool looking AI art piece. Bob lists it on OpenSea or similar site. Alice creates a few dummy wallet addresses and makes fake bids on the NFT, eventually winning with 10 million dollars worth of eth. Money laundered.
- capableweb 5y ago
  Your scheme suffers from the same problem as described in https://news.ycombinator.com/item?id=29160668 https://news.ycombinator.com/item?id=29160668
- barnabee 5y ago
  Not very well laundered... the transactions and flow of money are trivially traceable.
  - threeseed 5y ago
    So it's been trivial to find all of the missing money during the many recent crypto hacks ? Not so sure about that.
  - hanklazard 5y ago
    True, they’d probably be more sophisticated and use a zk privacy-type solution like https://zk.money/ https://zk.money/
  - notahacker 5y ago
    Sure, but half the point of laundering is plausible deniability. Bob now has an explanation for why he's received a lot of money in a short space of time from foreign accounts he claims to know nothing about.

my understanding was that you'd buy an NFT at some inflated price using cryptocurrency to be laundered, and on-sell it (having affected its perceived value with the previous inflated sale) but I could be off. The other use I read about recently was using them as a proxy for buying some sort of illicit good or service, i.e "here's $600,000 for that wink NFT wink I wanted". Not my space though so might be off by a mile :')

sabellito 5y ago
In this case there would still be a very simple trail of the NFT purchase for the asking price.
- aj3 5y ago
  So what? Say you have an account X which holds funds from criminal operations (e.g. ransomware payments). If you cash it out directly there's no doubt you're a criminal. But if you use that money to pay yourself for an NFT, now you can possibly deny that you have any knowledge about source of X income. Better yet send money from X through a bunch of privacy oriented tokens like monero, tumblers and mixing services, losing 20-50% in the process and consolidating the rest in account Y. Now you have plausibly clean money but you can't pay taxes yet as there's no paper trail for this income. Solution is easy, buy an NFT from yourself, declare it, pay taxes and buy a new yacht.
  - sabellito 5y ago
    If buying a virtual good from oneself at any arbitrary price was easy, money laundering would be solved problem for criminals, regardless of NFTs or not, wouldn't you agree?
    - aj3 5y ago
      That's exactly what's happening right now. But before NFTs the most plausible ways were either opening a business accepting crypto (not unlike meatspace money laundering involving cash-accepting businesses) or having lucky strikes on gambling platforms (where you can play against yourself). For a larger operation going business route is still preferable but on an individual level NFTs are much easier due to ridiculously high margins that have been normalized there.
      - sabellito 5y ago
        How do you know this is exactly what's happening right now? Do you work in the sec space or with tax authorities? I'm genuinely asking, as I'm a layperson in regards to these subjects, and, in my ignorance, I don't see the difference between that and, say, Counter Strike skins selling for 15k USD. To my understanding, all these things leave simple 1-1 paper trails that can be followed later and lead to consequences, but I might certainly be wrong. I'm trying to separate people who simply don't like cryptocurrencies and NFTs (which might be your case, I don't know) from actually informed thoughts about what's happening.

boomlinde 5y ago

You need to pay me for some illicit activity. Instead of having you pay me directly, I produce a set of minimalist pieces of art and issue NFTs for them. You buy them or pay your associates to buy them. The transactions now appear as legitimate trade.

capableweb 5y ago
Since both parties have to (supposedly) declare their expenses/income (if the value is high) in their retrospective countries, this scheme is as failsafe as just sending the transaction directly between the two of them. In your example you have successfully transferred the funds between two parties, but you have not laundered anything here.
- arlcode 5y ago
  I'm not sure I can follow. The "legit" transaction (NFT<->Money) would be declared and taxes would be paid on any gains. The "real" product would be delivered off chain and without anybody knowing. From an outsiders perspective it looks like a high value art purchase.
  - capableweb 5y ago
    The purchaser can just claim they spent X on art, sure, declare away. But how do you recover the funds again? You'll need to declare that you sold art for X, and tax it so you can actually use it. Again, nothing has been washed here, you've just made a normal transfer with zero benefit.
    - arlcode 5y ago
      Oh I see. I think there are several use cases people associate with NFT. One is money laundering and that is indeed hard as you mention. The other is payment for illegal services and goods. I can't wire you money for "one assassination" but I can wire you money for "art" because who knows how much it's really worth.
    - 5y ago

hanklazard 5y ago

Alice owes Bob 10 million dollars. Bob uses artbreeder.com to generate cool looking AI art piece. Bob lists it on OpenSea or similar site. Alice creates a few dummy wallet addresses and makes fake bids on the NFT, eventually winning with 10 million dollars worth of eth. Money laundered.

capableweb 5y ago
Your scheme suffers from the same problem as described in https://news.ycombinator.com/item?id=29160668 https://news.ycombinator.com/item?id=29160668
barnabee 5y ago
Not very well laundered... the transactions and flow of money are trivially traceable.
- threeseed 5y ago
  So it's been trivial to find all of the missing money during the many recent crypto hacks ? Not so sure about that.
- hanklazard 5y ago
  True, they’d probably be more sophisticated and use a zk privacy-type solution like https://zk.money/ https://zk.money/
- notahacker 5y ago
  Sure, but half the point of laundering is plausible deniability. Bob now has an explanation for why he's received a lot of money in a short space of time from foreign accounts he claims to know nothing about.