On September 24, 2020, the Task Force convened by the think tank of the Antiquities Coalition published its first joint report, Reframing U.S. Policy on the Art Market: Recommendations for Combating Financial Crimes. The report proposes 44 recommendations related to money laundering, sanctions violations, tax evasion, and terrorist financing. The recommendations also address other financial crimes specific to the art market such as forgery and fraud.
The $28.3 billion U.S. art market is not only the largest unregulated legal market in the U.S. but the largest unregulated legal market in the entire world. The Bank Secrecy Act (BSA), which establishes certain AML and anti-terrorism financing controls for U.S. entities, does not apply to the art industry, though the Treasury Department of Foreign Asset Control (OFAC) forbids U.S. people and entities from transacting with sanctioned persons. Therefore, the art industry is extremely vulnerable to the financial crimes described in the Task Force’s recent report.
The U.S. art market could become a hotspot for money laundering and other financial crimes, in part because similar markets across the globe have already shored up their vulnerabilities. The UK, Switzerland, and the European Union have already heightened AML protections using measures similar to those that the U.S. is currently considering.
Congress has also highlighted these vulnerabilities in a recent report on the Rotenbergs, a family of Russian oligarchs that has laundered money through the U.S. art market. The bipartisan report proposed a number of changes compatible with the following recommendations of the task force.
The report made tailored recommendations to Congress, the White House, the Department of the Treasury, the Department of Justice (DOJ), federal law enforcement, and the Department of State, among others.
Perhaps the most important recommendation among the 44 total was the recommendation that Congress extend the Bank Secrecy Act to the U.S. Art Market. The bipartisan congressional report released earlier on the Rotenbergs made the same recommendation. On October 22, 2019, the House voted in favor of a bill modifying the Bank Secrecy Act. A provision in the bill, HR 2514, Section 213, would extend the Act to apply to “persons trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities.” The bill is now awaiting approval in Senate.
The report also recommended that Congress define cultural property crime as a predicate offense to money laundering, similarly to counterfeit, embezzling, forgery, and theft.
The report also recommended that the White House assign the appropriate Senior Director to manage U.S. policy regarding transnational crimes via cultural property.
The report’s recommendations to the Department of the Treasury focused on outreach and education. However, it also stated, “The Internal Revenue Service (IRS) should require proof of legal title and known ownership history in support of tax deductions for high value charitable donations or purchases of art or antiquities museum, other tax-exempt organization, business, or private collector.” This measure would likely serve to prevent tax fraud.
The report recommended to the DOJ that the Deputy Attorney General include cultural property crimes within the purview of the Task Force on Market Integrity and Consumer Fraud. It also recommended that the DOJ establish several types of infrastructure that do not currently exist. It proposed creating an office of cultural heritage crimes prosecutors, new training for U.S. Attorneys’ Offices and the Federal judiciary on cultural property crimes, a new toolkit for investigators and prosecutors pursuing cultural heritage crimes, and a methodology for the DOJ to track its own effectiveness in pursuing these crimes.
The report also recommended that the Federal Bureau of Investigation and Homeland Security Investigations “increase the focus on financial crimes in their existing law enforcement training on art theft and antiquities trafficking.” While this recommendation calls upon the FBI’s existing infrastructure, it could profoundly change the FBI’s approach to monitoring the U.S. art market.
The report also recommended art market associations form a collaborative consortium, which will share data and technology relevant to AML enforcement. This same collaborative consortium should consider adopting blockchain technologies, managed by a third party, to track ownership information on artwork. The third party could provide to an association data upon request.
Online art markets should protect their platforms from criminal transactions by building algorithms to detect misuse. They should require proof of identity from all sellers and buyers, particularly for high value transactions. This recommendation is similar to the Responsible Art Maret initiative implemented recently by Switzerland, which provides guidelines to associations and art sellers on how to collect information on customers and provenance. The Fifth Anti-Money Laundering Directive passed by the EU also pushes for art associations and markets take responsibility for their own sales by collecting information on customers before conducting high-value transactions.
While the report focused on actions inside the U.S., it also recommended that Interpol create a new purple notice for alerts and information sharing specific to cultural property crimes. It also recommended that red notices be assigned for fugitives wanted for these crimes.
The report recommended executive branch law enforcement actions, which is significant because these can be implemented without the need for new legislation. Meanwhile, some of the other recommendations have a likely chance of success in Congress, where the U.S. art market’s vulnerabilities are a bipartisan concern. Their implementation would be a major success for the U.S. in combatting financial crimes. However, the consequences would be global, preventing sanctioned persons responsible for crimes and wrongdoing around the world from hiding their money in the U.S.