Addressing concerns that the art market has become a ripe backdrop for illicit financial transactions, the Treasury Department released a study on Friday, although it has identified some loopholes, but the Treasury Department did not recommend immediate government intervention to install more regulations.
Research has cited some evidence on money laundering Using high-end artwork, for example, a financier is alleged by prosecutors to have purchased artwork with money siphoned off from the Malaysian government. And it suggested a number of potential measures that could be taken in the future, but it concluded that such stringent measures were not a priority for now.
“We have found that while certain aspects of the high-value art market are susceptible to money laundering, there are often larger underlying problems at play, like the abuse of public companies. company cover or the involvement of complicit experts, so we Scott Rembrandt, a senior Treasury Department official overseeing the study, said in a statement.
The report will likely be welcomed by auction houses and art dealers, major players who have spent nearly $1 million over the past two years lobbying federal officials in Washington on the issue and other regulatory matters, according to federal disclosure forms.
Some experts been worried for a long time that the opacity of the art transaction, where the buyer and the seller are not always identified, even among the parties to the transaction, has made illegal money transfers a breeze. Recent Laws adopted in Europe Amid concerns that artwork is being used for illegal activities that require agents and auction houses to identify customers and check the provenance of their assets.
The 40-page Treasury study identified aspects of the current art market that it says make it vulnerable to money laundering. It cites the high price and ease of shipping the art, as well as a culture of secrecy, the use of anonymous companies to keep the works, and the use of free ports and archives. There are tax incentives and where, some people worry, Millions of dollars worth of artwork could be bought or sold without the authorities knowing.
But the study concludes that the industry has little risk of sponsoring terrorism or being used to sell artwork looted from countries like Syria to support terrorist activities. It says expensive artworks are rarely paid for in cash, potentially making them an unattractive means of laundering illicit money. In addition, the authors found that, as part of their efforts to protect their reputations and businesses, major auction houses and galleries performed due diligence on customers, providing measures voluntary protection against abuse.
Small galleries will not be a target for money launderers, the report found, because the works they sell are not valued at high valuations to be an effective mechanism to move wealth stealthily. .
“It is important to note,” the report said, “that organizations such as galleries and auction houses have market incentives to gather information about the final seller or buyer of works of art. regardless of the technique identifies the potential source of illicit financing associated with a transaction, and best practices adopted by most companies in the industry is to collect information on all buyers and sellers. “
However, research suggests that the government could urge art market participants to create an information-sharing system to help identify problem customers. Essentially, the study says regulators may also want to consider imposing anti-money laundering programs on “certain art market participants,” by asking them to identify who they are. are buying and selling artwork and making suspicious activity reports. it did not detail the conditions that led to such an attempt.
“While these abuses may not add to serious national security level of danger or vulnerability, there is evidence that criminal actors sometimes buy high-value art work equal to the amount of illegal profit generated from a defining crime and then keeping that work as a way to launder such proceeds,” it said.
Treasury officials are required to compile reports on money laundering and terrorist financing in the art market under legislation passed by Congress in late 2020.
Similar laws close monitoring of the antiquities market, expanding a law to strengthen federal oversight of financial transactions to include the sale of antiquities.
That law, Bank Secrecy Act, requiring banks to report cash transactions of more than $10,000; highlight suspicious activity; and understand the identity of the client and the source of their wealth. Exactly how the new rules will work in practice for antiquities is currently being determined by the Financial Crimes Enforcement Network, an office within the Treasury Department.
Some questioned whether auction houses and galleries might be the police themselves urging regulators to extend the banking law to the broader art market.
Treasury officials say greater evidence of a link between terrorist financing and artifacts looted from cultural heritage in countries such as Syria and Iraq explains the greater urgency to antiquities management.
Among those who offered cautionary advice about the additional regulations was the Art Dealers Association of America, whose then-chairman, Andrew Schoelkopf, expressed concern about the possible impact of the regulations. Potential new measures at an industry dashboard last year.
“There’s going to be a lot of paperwork and a lot of compliance and I don’t think we’re going to solve a lot of problems,” he said.
The association, a trade group representing nearly 190 galleries, paid the Washington lobbyist $190,000 last year, up from $140,000 the year before and cited the potential expansion of Dao. Bank Secrecy on the art market is problematic in its lobbying forms. But an association spokesman said the spending covers a range of issues.
One area of concern, the study says, is the growing market for financial services use works of art as collateral. It said the fact that such transactions are not currently subject to the same anti-money laundering rules that govern banks could allow criminals to bypass scrutiny and take liquidity from works of art. high value without disclosing their original source of illicit funds, and the study highlights this as “a potentially major money-laundering vulnerability”.
It cites some specific examples of abuse, such as that of financier Jho Low, who prosecutors say helped siphon billions of dollars from a Malaysian government fund using a network of bank accounts and shell companies, and laundered money through heavy spending on things like art. (Low has denied any wrongdoing and remains the same.)
It also cites the case of two Russian oligarchs, Arkady and Boris Rotenberg, who, Senate investigators saidused art to circumvent US sanctions.
Officials stressed that the study is just the beginning of a process that will involve reporting that will be turned over to House and Senate committees for further work. However, it has been suggested that while high-value artworks pose a potential risk of fraud, problems in larger sectors such as real estate are more pressing.
“Once we’ve addressed more systemic issues, such as creating a beneficial ownership registry to crack down on shell companies, we’ll look at what else might be needed. needed to address money laundering risks specific to other industries, including the arts industry,” Rembrandt, the Treasury official, said in his statement.
https://www.nytimes.com/2022/02/04/arts/design/art-market-regulation.html US study finds additional art market regulations unnecessary right now