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Space transition and the vulnerabilities of the NFT market to financial crime

Mohammed Al Shamsi (Department of Finance, American University of Sharjah, Sharjah, United Arab Emirates)
Deborah Smith (Department of Accounting, Cleveland State University, Cleveland, Ohio, USA)
Kimberly Gleason (Department of Finance, American University of Sharjah, Sharjah, United Arab Emirates)

Journal of Financial Crime

ISSN: 1359-0790

Article publication date: 9 January 2023

39

Abstract

Purpose

The purpose of this paper is to describe how non-fungible tokens (NFTs) can be used in the commission of financial crime, including money laundering and crypto-fraud schemes, using the framework of the Space Transition Theory.

Design/methodology/approach

A literature review relating the Space Transition Theory to crime vulnerabilities related to NFTs is conducted and practical examples illustrating NFT schemes are provided.

Findings

The authors find that the Space Transition Theory explains the evolution of financial crimes into the NFT space. The transformation of the art industry from the physical to the virtual space through NFTs underlies the criminal activity surrounding them. NFTs enable crime because of the flexibility, dissociative anonymity, lack of deterrence and anonymity.

Research limitations/implications

Criminals can easily take advantage of the users’ limited knowledge of blockchain to defraud them of their money or tokens. These risks accentuate the need to adopt appropriate measures to augment the accountability of NFT transactions. Until such interventions are implemented, the NFT market remains a highly viable space for the perpetration of financial crimes.

Practical implications

The dynamic nature of the cyberspace and fast-past underlying technology provide a greater chance to escape than crimes committed in the physical space. The state of security on NFT platforms has elicited concerns from diverse quotas. NFTs pose significant money laundering risks because of the lack of appropriate regulatory mechanisms, generating a need for enhanced oversight and enforcement of sectors of the economy in physical space vulnerable to abuse in the NFT space, including entities such as art galleries, museums, sports teams and luxury brands.

Social implications

The Space Transition Theory is also supported in that norms and values regarding ethics and criminal actions in the physical space do not transfer to cyber space.

Originality/value

The novelty aspect of this research is in applying the Space Transition Theory to financial crime schemes based on NFTs.

Keywords

Citation

Al Shamsi, M., Smith, D. and Gleason, K. (2023), "Space transition and the vulnerabilities of the NFT market to financial crime", Journal of Financial Crime, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFC-09-2022-0218

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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