Anti-money laundering and the art and antiquities market - a US and UK perspective

Following the Pandora Papers investigation into offshore finance, a bipartisan group of US lawmakers introduced a bill titled the "Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act" (ENABLERS Act), available here.

The purpose of the ENABLERS Act is "to expand the scope and authorities of anti-money laundering safeguards" under the BSA. The anti-money laundering rules under the BSA apply to "financial institutions", which the ENABLERS Act would expand to include a broad swathe of professional intermediaries deemed "gatekeeper professions", ranging from attorneys to accountants. Significantly, it also proposes the inclusion of art related businesses in the definition of "financial institution".

The ENABLERS Act's exact wording for the art market entities proposed to be covered by the BSA is as follows:

"a person engaged in the trade in works of art, antiques, or collectibles, including a dealer, advisor, consultant, custodian, gallery, auction house, museum, or any other person who engages as a business in the solicitation or the sale of works of art, antiques, or collectibles"

This definition is very broad, covering not just commercial dealers but also custodians and museums. As drafted, the ENABLERS Act specifically prevents exemptions, but it remains to be seen whether a different approach will be taken.

The Biden administration have signalled their support of the ENABLERS Act. In December 2021, the administration published its “United States Strategy on Countering Corruption”, available here, which provides insight into the administration's aims to address anti-corruption. Pillar II of the strategy document, titled "Curbing Illicit Finance", commits to "address deficiencies in the U.S. anti-money laundering regime". It also refers expressly to the art and antiquities markets, noting that "the markets for art and antiquities—and the market participants who facilitate transactions—are especially vulnerable to a range of financial crimes". It also refers to ongoing changes to the BSA in respect of the antiquities market (see further below).

The amendment proposed by the ENABLERS Act would in turn require art market businesses to comply with the BSA's anti-money laundering obligations, as currently imposed on "financial institutions".

In summary, those obligations include requirements for "financial institutions" to:

• Report suspicious transactions relevant to a possible violation of law or regulation;
• Establish anti-money laundering programmes, which includes at minimum:
  • The development of internal policies, procedures and controls;
  • The designation of a compliance officer;
  • An ongoing employee training programme; and
  • An independent audit function to test programmes.
• Establish due diligence policies, procedures, and controls designed to detect and report instances of money laundering in their accounts; and
• Identify and verify their account holders, including verification of their identity, maintaining identity records and consulting lists of known or suspected terrorists and terrorist organisations before opening a new account.

Clearly, these changes could subject art market businesses to substantial AML related obligations. This would of course expedite the art market's subjection to AML regulation in the USA and further expand the definition of "financial institution" under the BSA to be more in line with the UK and EU position (see below).

Penalties for failure to comply with the BSA vary, but include forfeiture, monetary fines and imprisonment.

In 2020, the BSA was amended by Section 6110 of the AML Act to expand the definition of "financial institution" to include:

"a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities, subject to regulations prescribed by the Secretary [of the Treasury] . . ."

FinCEN was required to conduct a study of the facilitation of money laundering, terrorism finance, and other illicit financial dealings through the trade in works of art, which were due to be sent to the Congress by the end of 2021. This follows its publication of an advance notice of proposed rulemaking on 24 September 2021 seeking responses to sixteen questions aimed at helping draft the rules, including:

• How are transactions related to the trade in antiquities typically financed and facilitated?
• How do foreign-based participants in the antiquities market operate in the United States?
• When advisors, consultants, dealers, agents, intermediaries, or others receive payment from overseas accounts, what steps do they take, if any to determine whether the payment comes from a legitimate source?

Public responses to these questions were due by 25 October 2021. FinCEN has subsequently published some of those received (37 in total), which can be found here. Views were given by various stakeholders in the antiquities market, from small dealerships to large international auction houses (such as Bonhams), to trade associations and non-governmental bodies, such as The Antiquities Coalition, the American Council for the Preservation of Cultural Property and the Global Heritage Alliance.

An AMP is defined as a firm or sole practitioner who either:

• by way of business trades in, or acts as an intermediary in, the sale or purchase of works of art, and the value of the transaction, or a series of linked transactions, amounts to €10,000 or more; or
• is the operator of a freeport and stores works of art in that freeport where the value for a person (or a series of linked persons) is €10,000 or more.

It was initially unclear whether artists who sell their own works are caught within the above definition. As a precaution, many artists registered with HMRC ahead of the deadline (paying a £300 registration fee) and invested in compliance arrangements in order to meet their obligations under MLR19. However, HMRC subsequently confirmed (in May 2021) that "artists – persons who create original art - do not fall under the scope of the Anti-Money Laundering Regulations", while artists who sell other artists' work do remain in scope.

Since the 5AMLD was implemented, AMPs have been required to comply with new due diligence and record-keeping requirements, irrespective of their registered or unregistered status. Non-compliance with the MLR19 may result in conviction, financial penalties, a custodial sentence and potential reputational damage.

The registration requirement had an initial deadline of 10 January 2021 and this was subsequently extended to 10 June 2021. If AMPs failed to register with HMRC, they may potentially be prohibited from carrying on the defined activities within the scope of the MLR19.

To assist AMPs navigate these obligations, guidelines were published by the British Art Market Federation (BAMF) and approved by HM Treasury on 24 January 2020, which can be accessed here. The Responsible Art Market Initiative (RAM) have also published guidelines target at the art market on combatting money laundering and terrorist financing, available here.