China Moves To Regulate NFTs As Use For Money Laundering Becomes Evident

Looks like NFTs are not just art for arts sake after all. As if. 

Given China's impact on the cryptocurrency market, NFTs may now face a similar readjustment. JL 

Coco Feng reports in the South China Morning Post:

Virtual assets “are decentralised, anonymous, without borders[and] have been widely used in blackmail, drug trafficking, gambling, money-laundering, financing for terrorism, tax evasion and cross-border transfer of funds. 50 jurisdictions across mainland China have moved to establish a regulatory framework for virtual assets, which includes setting up a licensing system that covers the owners and operators of these digital resources. While China has cracked down on the mining and trading of cryptocurrencies like bitcoin, NFTs and the metaverse have also now been targeted for regulation.

An official at China’s central bank cautions against the country’s rapidly growing interest in non-fungible tokens (NFTs) and metaverse-related activities, warning that these could “easily become money-laundering tools”.

Virtual assets “are decentralised, anonymous and without borders … [and] have been widely used in illegal transactions such as blackmail, drug trafficking, gambling, money-laundering, financing for terrorism, tax evasion and cross-border transfer of funds”, said Gou Wenjun, director of the Anti-Money Laundering Monitoring and Analysis Centre in the People’s Bank of China, at a financial forum held in Shanghai last week.

Gou’s speech, which was recently published by Caixin, The Paper and other Chinese media, predicted that obtaining digital assets like cryptocurrencies, NFTs and those found in the metaverse would evolve. “These are naturally isolated from the real world and have a certain degree of interoperability, making it extremely easy to become money-laundering tools for outlaws,” the official said.

More than 50 jurisdictions across mainland China, according to Gou, plan or have already moved to establish a regulatory framework for these virtual assets, which includes setting up a licensing system that covers the owners and operators of these digital resources. While China has cracked down on the domestic mining and trading of cryptocurrencies like bitcoin, NFTs and the metaverse have been operating in a grey area.

Gou’s warning marked the first time the metaverse – the concept of a shared virtual environment that users access via the internet – has been publicly targeted for regulation by a Chinese banking official.

It also ramped up scrutiny of NFTs, which generally refer to units of data stored on a blockchain that guarantees each digital asset is unique, immutable and secure. Because these are authenticated via a decentralised blockchain, NFTs can be owned much like physical items – a property which makes these digital items valuable for trading as collectibles or memorabilia. The Chinese central bank’s anti-money laundering unit will “strengthen information-sharing and cooperation” with law-enforcement agencies, while monitoring and preventing “illegal fundraising, fraud, money laundering and other criminal activities” under the guise of financial technology and innovation, according to Gou.

Despite state media’s earlier warning about NFTs and the hype surrounding the metaverse, the country’s Big Tech companies have firmly embraced these digital innovations.

Tencent Holdings rolled out its NFT trading platform Huanhe in August. Ant Group, the fintech affiliate of Alibaba Group Holding, initially launched NFT wallpaper for Alipay users’ payment code pages in June. It later introduced NFT artworks, including digital paintings and virtual versions of antiques. Alibaba owns the South China Morning Post.

Still, Tencent and Ant Group in October rebranded their NFT offerings as “digital collectibles”, reflecting their efforts to steer away from any potential conflict with Beijing.

Meanwhile, the likes of Tencent, Alibaba, Baidu and NetEase have all rushed to apply for trademarks related to the metaverse. Wiliam Ding Lei, founder and chief executive of video gaming giant NetEase, recently said his company is poised to become the fastest company to execute on metaverse-related activities in China.