“Secretive”, “opaque”, “unscrupulous”, “shady” and “tailor-made for money laundering” are just some of the ways in which the art market is described in the press. These unfortunate labels stem, in part, from the fact that until recently, art market professionals concluded high value transactions without any meaningful scrutiny or reporting requirements. With the introduction of anti-money laundering legislation targeting the art market on both sides of the Atlantic and more regulations to come, the tide is slowly turning. The art market is coming to terms with these regulations, but the implications of non-compliance, while clearly laid out in the regulations, remain abstract in practice. The Covid-19 pandemic has not helped matters, single-handedly forcing an entire trade built upon personal relationships and old-school ways of conducting business to move to a digital environment within a course of a few weeks. It is safe to say that the art market is still adjusting to these changes.
Thanks to the Me-Too, Time’s Up and Black Lives Matter movements, many industries have experienced their moment of reckoning. The art trade is not immune. One only needs to look on social media where art businesses and dealers are being named, shamed, and “cancelled” for their alleged discriminatory, exploitative, and abusive practices. This is just the tip of the iceberg. As new and tougher legislation is introduced, it will become increasingly difficult for the art trade to thrive while maintaining its culture of secrecy. Art businesses must make genuine efforts to reform, if not for the sake of their reputation and the morale of their employees, then for the sake of avoiding criminal liability and keeping their business from going bust. Ticking compliance boxes and commissioning artfully written policies and procedures is hardly a strategy for long-term success and sustainability unless there is a change in culture and the change comes from the top.
Anti-Money Laundering Regulations
Over the last year, anti-money laundering laws targeting the art market have been introduced on both sides of the Atlantic.
In the United Kingdom, the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (“Regulations 2019”) came into force on 10 January 2020. Regulations 2019 extend the application of anti-money laundering regulations in the UK to “art market participants” (“AMPs”) defined as a company or sole practitioner trading in or acting as an intermediary in the sale or purchase of works of art where the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more. The Regulations require AMPs to (i) register for supervision with HMRC, (ii) carry out a written risk assessment of their business and clients, including identifying low-risk and high-risk clients and transactions; (iii) develop and maintain written anti-money laundering policies and procedures; (iv) conduct customer and transaction due diligence prior to concluding a transaction; (v) train staff on anti-money laundering regulations and the internal policies and procedures; (vii) appoint a nominated officer who, among other things, will be in-charge of reporting suspicious activity to the National Crime Agency (NCA); and (viii) maintain records. For additional information on Regulation 2019, please read our related blog here.
In the United States, the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) was enacted into law on 1 January 2021. The NDAA covers a wide range of issues, including the passing of the Anti-Money Laundering Act 2020 (“AMLA”). The AMLA expands, among other things, the definition of “financial institutions” in the Bank Secrecy Act to include “dealers in antiquities”, described as “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”. Pursuant to the AMLA, dealers who trade antiquities will be required to carry out anti-money laundering checks and report suspicious activity. The precise rules and reach of the AMLA will be determined after the Financial Crimes Enforcement Network (“FiCEN”) issues a proposal of the specific rules, having consulted the public, the private sector and law enforcement. More specifically, the Act calls for FinCEN to determine (i) the appropriate scope of the rulemaking, including determining which persons should be subject to the rulemaking, by size, type of business, domestic or international, geographical locations, or otherwise, (ii) the degree to which the regulations should focus on high-value trade in antiquities, (iii) the need to identify actual purchasers of such antiquities, in addition to the agents or intermediaries acting for or on behalf of such purchasers, (iv) the need, if any, to identify persons who are dealers, advisors, consultants, or any other persons who engaged as a business in the trade of antiquities, (v) whether thresholds should apply in determining which persons to regulate, and (vi) any exemptions that should apply to the regulations. A breach of the AMLA can result in civil and criminal liability.
The AMLA also contains provisions requiring limited liability companies registered to conduct business in the United States to report personal identifying information of their individual beneficial owners to FinCEN. The purpose of this amendment is to improve the US government’s access to information regarding beneficial owners and to discourage creation of shell companies. There is little doubt that the US government has its eyes firmly set on regulating the art trade. In fact, last year a US Senate investigation revealed that Russian citizens on the US sanctions list were able to skirt the financial restrictions against them and purchase millions of dollars’ worth of art in the United States. While it is true that the organisations that sold art to these individuals complied with appropriate checks, it did highlight the need for stricter regulations. In response, a report by the Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations recommended measures to increase transparency and tighten oversight of the art market, including amending the Bank Secrecy Act to apply to businesses handling high-value art and providing official guidance for auction houses and art dealers.
US Regulation Rewards Whistleblowers for Exposing Money Laundering
The AMLA contains a provision entitled “updating whistleblower incentives and protection”, which updated a whistleblower program already in place to encourage reporting of violations of anti-money laundering regulations to the US Government. Pursuant to the AMLA, any individual who provides new information relating to a violation of anti-money laundering laws to an employer, or the US Treasury or the US Attorney General, that leads to a successful enforcement action resulting in sanctions of over US$1 million, may be eligible for an award of up to 30 percent of the monetary sanction being imposed. A whistleblower under the AMLA includes any individual who reports violations, including those violations “as part of the job duties” of the individual. In other words, employees can report anti-money laundering violations committed by their employers that they discover during the course of their employment duties. The AMLA does not exclude compliance officers, auditors and lawyers, who often learn of violations while on the job, from benefiting from these whistleblower provisions.
The AMLA prohibits employers from retaliating or discriminating against whistleblowers. Retaliation includes dismissing, demoting, suspending, threatening, blacklisting and/or harassing an employee. These anti-retaliation protections extend to a whistleblower who reports internally to his or her employer or to the US government. Under the AMLA, a whistleblower who has been retaliated against can file a complaint with the US Secretary of Labor, and if the Secretary of Labor does not issue a decision within 180 days, then the whistleblower can file a complaint against the employer in a US federal court.
Why Should the Art Market Pay Attention?
It is no coincidence that a formidable whistleblower incentive program was introduced in the same legislation that extends money laundering obligations to antiquities dealers and, depending on the FinCEN report, potentially to the art trade as a whole. The art market is particularly vulnerable because it has its fair share of disgruntled employees. If employees within the art sector feel comfortable blowing the whistle over discriminatory and abusive practices that affect them personally, they will feel fairly comfortable reporting violation of anti-money laundering laws to the US Government that may result in a monetary reward for them personally.
If the art trade wants to get ahead of these risks, it should take reform seriously. In addition to anti-money laundering policies and procedures, art businesses should prepare and implement whistleblower policies and procedures. They should then train their staff pursuant to those policies and procedures and bring them up to speed on the rules and processes. By encouraging employees to report violations internally and ensuring a meaningful response to any concerns raised, including, where appropriate, taking disciplinary action against wrongdoers, art businesses will likely stave off reputational and financial damage and protect against criminal sanctions.
Early intervention, fair and thorough processes and a culture of transparency will go a long way towards protecting the art trade. While some small to mid-size art businesses might be tempted to dismiss these recommendations on the basis that they are onerous and/or expensive to implement, the cost of ignoring them could be far greater in the long run. Regulatory changes are on the horizon, irrespective of whether the art trade is ready to accept them.
 Jan Dalley, Can the Art World Clean up Its Act?, The Financial Times, February 1, 2020, available at https://www.ft.com/content/a5beb8e2-5334-11ea-90ad-25e377c0ee1f.
 Margaret Carrigan, Cancel Art Galleries? Staff take grievances against employers to Instagram, The Art Newspaper, 15 September 2020, https://www.theartnewspaper.com/news/gallery-staff-call-out-bad-behaviour.
 See, the National Defense Authorization Act for Fiscal Year 2021 (NDAA) which contains the Anti-Money Laundering Act of 2020, available at: https://www.congress.gov/bill/116th-congress/house-bill/6395/text.
 Regulations 2019 transposed the EU’s Fifth Anti-Money Laundering Directive (5AMLD) into national law and brought art market participants (AMP(s)), including but not limited to qualifying dealers, auction houses, intermediaries and freeports, within the regulated sector for anti-money laundering purposes. In other words, the Regulations are active and apply to dealers throughout the EU.
 Graham Bowley, Senate Report: Opaque Art Market Helped Oligarchs Evade Sanctions, New York Times, 29 July 2020, available at, https://www.nytimes.com/2020/07/29/arts/design/senate-report-art-market-russia-oligarchs-sanctions.html
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