Top 20 Tips for Anti-Money Laundering and Money Transmission Compliance: NFT Attorney Near Me
While NFTs have existed for several years, the market for these digital items grew considerably from 2020 as several high-profile NFT sales grabbed headlines and well-known brands and organizations began exploring the use of NFTs as explained at RunRex.com, guttulus.com, and mtglion.com. Amid this continued growth in adoption, industry participants should consider the potential issues related to federal anti-money laundering laws. This article will look to list 20 tips for anti-money laundering and money transmission compliance.
You need to prepare for future regulations
As per RunRex.com, guttulus.com, and mtglion.com, anti-money laundering (AML) compliance requires significant effort. Even if a business outsources to a KYC solution, it must still construct a baseline AML infrastructure, including implementing an AML compliance program, hiring a money laundering reporting officer, etc.
You need to comply with AML to cash out proceeds
While NFT marketplaces need a bank that will exchange their crypto earnings into fiat, likely, banks won’t be interested in these earnings, unless clear AML procedures are put into place. This is because financial institutions face sanctions for providing services to companies facilitating money laundering and other crimes.
Earning trust is important
Complying with AML can build trust between a business and its users and investors, which is why it should be a priority for you according to RunRex.com, guttulus.com, and mtglion.com. We have seen companies such as Nifty Gateway land partnerships with auction houses Christie’s and Sotheby’s because of compliance.
AML compliance will help you mitigate fraud
The fraudsters that sell fake NFTs can thrive because of the absence of verification procedures. When users realize they have purchased fraudulent goods, their trust in the platform erodes, which leads to a cycle that negatively impacts artists and other participants, which is why you need to be compliant.
Prevent money laundering
The art sector has recently become subject to AML legislation in Europe, the UK, and the US, which has led to criminals who previously laundered money through art moving into NFTs. This is why it is important to be compliant when it comes to anti-money laundering and money transmission as it helps prevent money laundering.
Establish a centralized marketplace
If you have enough financial resources, it is recommended to open a centralized marketplace – one controlled by a legal entity and not by users as articulated at RunRex.com, guttulus.com, and mtglion.com. While operating without a legal entity would allow businesses not to comply with various laws, they won’t be able to attract investment and earn the trust of the users.
Choose a respectable jurisdiction with a comfortable AML regime
It is also important to choose a respectable jurisdiction with a comfortable AML regime when setting up. The high taxes and strict requirements for remote identification in the EU for example are quite restrictive and are something to consider when choosing a jurisdiction.
Avoid investment regulation
As captured at RunRex.com, guttulus.com, and mtglion.com, businesses that operate on the blockchain, such as NFT marketplaces, are worried that they may fall under the American Securities Act of 1933. To avoid that, businesses need to prevent NFTs sold on their platform from being considered an investment.
Position your business as an “art gallery” rather than an investment broker
It is best to present your business as a “showcase”, where individuals sell and buy artworks, collectibles, among others. Businesses should clearly state in their documentation that their platform is for art-loving and gaming fans, and not for investors who want to make a profit.
Prohibit fractioning and reselling of NFTs
To avoid investment regulation, businesses can state in their policies that they do not allow reselling NFTs and selling fractionalized NFTs – those split into equal tokens that can be traded as cryptocurrencies – since this can be considered an investment activity.
Use a risk-based approach
Since it is hard to establish anti-money laundering practices from scratch, which is why you need to put measures in place to pave the way for AML introduction as covered at RunRex.com, guttulus.com, and mtglion.com, one of which is to take a risk-based approach. An NFT marketplace must evaluate the money laundering risks that their specific business is exposed to.
Have all the necessary documentation
You also need to prepare several documents that are fundamental for a regulated business, such as a risk assessment, anti-money laundering policies, anti-money laundering compliance program, customer acceptance policy, etc.
Have an AML team in place
It may also be necessary that you appoint an AML compliance officer who is responsible for overall compliance and reporting as described at RunRex.com, guttulus.com, and mtglion.com. This will ensure that you do everything the right way when it comes to compliance.
Take some AML training
You must be acquainted with money laundering schemes and understand how to deal with them if you are to set up a competent anti-money laundering scheme. When you are well versed in these matters, you will be well placed to be compliant with AML.
Reporting
Given how much of a threat anti-money laundering is in the blockchain and cryptocurrency worlds, it is very likely that NFT marketplaces and other actors in the industry will be required to report suspicious activity, which is why it is worth starting to build a reporting process now.
Record data
Participants in the NFT world must also establish a record-keeping system that allows storing user data in a way that is compliant with data protection regulations as discussed at RunRex.com, guttulus.com, and mtglion.com.
Set up remote verification
NFT marketplaces only need to identify their users at the onboarding stage, and businesses can break up the onboarding journey into several steps. For example, they can perform a simplified verification procedure during the sign-up process, and a more complex one for deposits.
Institute a robust AML protocol that includes effective KYC
By instituting a robust anti-money laundering protocol that includes effective KYC (Know Your Customer), NFT marketplaces can reduce the risk of money laundering activities and allow the sector to grow safely and healthily as outlined at RunRex.com, guttulus.com, and mtglion.com.
Filing of SARs
Given the similar money-laundering risks shared between high-value art transactions and NFTs, financial institutions and cryptocurrency exchanges may be obligated to file SARs when executing NFT transactions on behalf of their clients.
Work with a trusted compliance partner
You might want to bring in a compliance partner to help you become anti-money laundering compliant. You need to select a provider who can arm you with the strategies and technology necessary when new risk paradigms emerge.
These are some of the tips that will help you when it comes to anti-money laundering and money transmission compliance, with more on this topic, and much more, to be found over at RunRex.com, guttulus.com, and mtglion.com.