A bipartisan coalition of U.S. senators introduced the Art Market Integrity Act, seeking to extend anti-money-laundering, or AML, and counter-terrorism financing regulations under the Bank Secrecy Act, or BSA, to U.S. art dealers and auction houses.
The art market’s predilection for anonymity enables illicit actors to hide the ultimate beneficial owners using the same tactics that collectors use to obfuscate their purchase and ownership of art.
Art collectors seek anonymity for many of the same reasons people hide their wealth — to prevent theft, targeted crimes, unwanted solicitations and avoid unwanted scrutiny from tax authorities.
While art pieces serve as status symbols, anonymity and mystery can also imbue power, and bad actors often exploit this power.
Current loopholes and vulnerabilities
The U.S. art market, valued at $28.3 billion
The BSA, enacted in 1970, requires financial institutions to assist the government in detecting and preventing financial crimes by filing reports for transactions over $10,000 and reporting suspicious activity.
Artworks can sell for millions of dollars. The
This fosters a culture of secrecy and anonymity, creating an ideal environment for money laundering, sanctions evasion, terrorist financing, tax evasion, fraud and asset concealment.
Reports on the U.S. art market have frequently noted the difficulty in tracing ownership of anonymous shell companies and the lax money-laundering safeguards in the industry.
Notably,
Notorious cases highlight the problem
Several high-profile cases underscore the popularity of art transactions among money launderers.
The report found the brothers continued to participate in the U.S. art market, purchasing over $18 million in art in the months following sanctions imposed on them in March 2014.
Shell companies linked to the Rotenbergs also transferred over $120 million to Russia in a four-day window after President Obama’s executive order authorizing sanctions but before they were specifically named.
Rotenberg-linked companies also moved at least $91 million through the U.S. financial system after sanctions took effect. Auction houses often treated an art agent or dealer as the principal purchaser, even with reason to believe an undisclosed client was involved, creating a significant AML vulnerability.
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What a new law would mean for financial institutions
The proposed act broadens the definition of “financial institution” under the BSA to include persons engaged in the trade of works of art, encompassing dealers, advisors, consultants, custodians, galleries, auction houses, museums and collectors acting as intermediaries.
It includes exemptions for artists selling their own work and businesses with under $50,000 in annual art transactions.
The change would mean less anonymity in art auctions.
For U.S. banks and credit unions, this legislation carries significant implications:
- Increased transparency: The Act aims to mandate customer due diligence and beneficial ownership requirements for art market participants. This would provide banks with more comprehensive and verified information about the ultimate parties involved in art transactions, enhancing their ability to detect suspicious activity.
- Improved SAR filings: Currently, filing Suspicious Activity Reports, or SARs, for art-related issues can be difficult as there is no specific checkbox on the form. By subjecting art market participants to BSA requirements, the act would likely lead to an increase in SARs and provide law enforcement with crucial leads for investigations, which they often lack today.
- Addressing shell companies: Law enforcement consistently faces challenges with opaque legal entity ownership structures. The Art Market Integrity Act, by requiring beneficial ownership information, directly tackles a significant vulnerability money launderers often exploit in the art market.
- Enhanced due diligence: While many large auction houses currently maintain voluntary due diligence programs, these are not legally mandated and can be suspended at the institution’s discretion. The act would impose statutory requirements, creating a more consistent and enforceable standard for information collection across the market.
- International alignment: The U.S. is currently “the last major art market without basic safeguards” against financial crimes, according to Deborah Lehr, chairman and founder of the Antiquities Coalition, a nonprofit focused on stopping looting and trafficking of antiquities. The European Union, United Kingdom and Switzerland have already implemented AML regulations for art transactions, often with thresholds around €10,000. This legislation would bring the U.S. in line with these international standards, preventing the U.S. market from becoming a safe haven for illicit activities.
Industry and government support
Fetterman and the other bill sponsors have won support from various organizations, including the Antiquities Coalition, Transparency International U.S. (an anti-corruption group), the FACT Coalition (promoting corporate transparency), FDD Action (a conservative think tank) and the Federal Law Enforcement Officers Association (FLEOA, representing federal law enforcement).
“The Art Market Integrity Act is a smart, pragmatic, and long-overdue step to protect a multi-billion-dollar industry from criminal abuse,” Lehr said in a press release about the act. “Aligning with these global standards should not be burdensome — many U.S. dealers already comply with them abroad — but it will help preserve the integrity of the market here at home and keep the U.S. a competitive and trusted leader in the global art and antiquities trade.”
Mathew Silverman, national president of FLEOA, said the legislation “will help the United States go after Russian oligarchs using art to launder money and aid Russia’s invasion of Ukraine.”