Islamic State: Non-fungible Tokens

Treasury written question – answered on 25 July 2023.

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Photo of Lord Carlile of Berriew Lord Carlile of Berriew Crossbench

To ask His Majesty's Government what steps they are taking to ensure that ISIS loses any capability to raise funds in the UK through the use of (1) non-fungible tokens (NFTs), and (2) other ways to exploit NFT technology.

Photo of Baroness Penn Baroness Penn The Parliamentary Secretary, HM Treasury

The government has implemented various measures to combat terrorist financing, disrupt funding of terrorist groups, and address the illicit crypto use and emerging fintech.

This includes extending the UK’s Money Laundering Regulations (MLRs) to the cryptoasset sector in January 2020. The UK assesses cryptoasset Money Laundering and Terrorist Finance (ML/TF) risks case-by-case, allowing the FCA (Financial Conduct Authority) to regulate the rapidly evolving industry. Firms involved in activities that are described as involving Non-Fungible Tokens (NFTs) will be supervised and subject to enforcement, if they deal with cryptoassets as defined in the regulations.

Separately, the traditional art market is regulated for AML purposes so businesses dealing with NFTs which could reasonably be classified as “works of art” and meet the wider relevant criteria for supervision by HMRC, are required to comply with AML regulations to combat terrorist financing.

To prevent terrorist organisations such as ISIS exploiting blockchain technology, the UK is implementing the Financial Action Task Force’s (FATF's) 'Travel Rule') which enhances information sharing and retention for cryptoasset transfers to detect terrorist financing.

We are also updating UK CT legislation with the Economic Crime and Corporate Transparency (ECCT) Bill to prevent terrorist groups from exploiting NFT technology. This empowers law enforcement to seize, detain, freeze, and forfeit terrorist cryptoassets, with the revised definition of cryptoassets encompassing various technologies that utilize cryptography and distributed ledger technology, including NFTs.

The UK continues to engage internationally to mitigate illicit finance risks associated with cryptoassets including NFTs, and constantly reviews legislative tools to ensure we can keep pace with evolving terrorist financing threats.

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