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Abstract: 

In this article, the authors analyze the regulatory risks to companies dealing with non-fungible tokens (“NFTs”). They begin by providing a background on NFTs in the marketplace and review the relevant regulatory frameworks that may be applicable to NFTs. They then turn to how companies that deal with NFTs — including creating, buying, selling, exchanging, and storing NFTs — may be exposed to potential civil and criminal liability. Key issues include: (1) how NFTs are classified under the law; (2) compliance issues for fraud, anti-money laundering, and economic sanctions risks; and (3) consumer protection issues. The authors then provide some key takeaways for companies dealing with NFTs on how to manage those risks.

Keywords: Framework for “Investment Contract” Analysis of Digital Assets; “Howey Test”; CFTC and FinCEN Regulation; Bank Secrecy Act; Anti-Money Laundering Controls

Affiliations:  1: Paul Hastings LLP; 2: Paul Hastings.