Articles U.S. Senate Subcommittee Seeks to Extend Bank Secrecy Act AML to the Art Market July 31, 2020 On July 29, 2020, the U.S. Senate Permanent Subcommittee on Investigations released a Staff Report,The Art Industry and U.S. Policies that Undermine Sanctions [1]. The Report highlights how sanctioned persons evade U.S. sanctions and access the U.S. financial system by engaging in high-value art transactions. The Subcommittee initiated its investigation after reviewing suspicious transactions that appeared to involve art purchased through auction houses and private dealers. The Report focused on a case study documenting how certain Russian oligarchs may have used purchases of high-value art to evade sanctions imposed on them by the United States in response to Russia’s invasion of Ukraine and annexation of Crimea. Based on its review of more than one million pages of documents from the four major auction houses, a private art dealer, a public art gallery and seven major financial institutions, the Subcommittee summarizes factors inherent in high value art transactions that facilitate laundering and sanctions evasion. These include: Purchasers use shell companies to mask their true identify; Purchases are made through layered transactions using intermediaries concealing purchasers and sellers; Secrecy is pervasive in the art industry; There is no regulatory oversight of the U.S. art market; and Tracing ownership of anonymous shell companies, including those involved in high-value art transactions, is difficult. The Report details how the European Union adopted a directive, effective in January 2020, compelling art businesses to verify the identification of customers completing art transactions exceeding 10,000 Euros. However, in contrast, the U.S. does little to regulate the art market, leaving it subject to financial crime abuse. The art industry is not subject to the Bank Secrecy Act (BSA), which requires detailed procedures to prevent money laundering, and it remains the largest unregulated industry in the U.S. The Report also highlights that the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) prohibits U.S. persons from transacting with sanctioned individuals or entities. However, aside from those prohibitions, U.S. law does not require private art dealers and auction houses to maintain an anti-money laundering (AML) program or counter terrorist financing controls, although it is reported that some auction houses do so voluntarily. The Report concludes that “the intrinsic secrecy of the art industry” requires Congress to enact regulatory reforms. The Subcommittee recommended that: Congress amend the BSA to include businesses handling high value art transactions; Congress require that the Treasury Department collect ultimate beneficial ownership information for companies formed or registered to do business in the U.S.; When imposing sanctions on an individual, the Treasury Department should consider routinely imposing sanctions on the individual’s immediate family members; The Treasury Department should implement and announce sanctions concurrently; OFAC should lower or remove the ownership threshold rule, which blocks a company only if it is majority owned by a sanctioned individual; The Treasury Department should more effectively mine SARs for information related to Specially Designated Nationals; OFAC should issue comprehensive guidance on the steps auction houses and art dealers should take to ensure they are not doing business with sanctioned individuals or entities; and OFAC should issue guidance extending the International Emergency Economic Powers Act to include artwork. Zeichner Ellman & Krause LLP has a long history of advising sophisticated clients concerning Anti-Money Laundering compliance, Sanctions and Anti-Bribery and Corruption matters. We also regularly counsel clients on the design, implementation, and adequacy of risk-based compliance programs, assist in identifying gaps and mitigating risk, and advise on the effectiveness of internal policies. [1]http://www.hsgac.senate.gov/download/majority-and-minority-staff-report_-the-art-industry-and-us-policies-that-undermine-sanctions
U.S. Senate Subcommittee Seeks to Extend Bank Secrecy Act AML to the Art Market July 31, 2020 On July 29, 2020, the U.S. Senate Permanent Subcommittee on Investigations released a Staff Report,The Art Industry and U.S. Policies that Undermine Sanctions [1]. The Report highlights how sanctioned persons evade U.S. sanctions and access the U.S. financial system by engaging in high-value art transactions. The Subcommittee initiated its investigation after reviewing suspicious transactions that appeared to involve art purchased through auction houses and private dealers. The Report focused on a case study documenting how certain Russian oligarchs may have used purchases of high-value art to evade sanctions imposed on them by the United States in response to Russia’s invasion of Ukraine and annexation of Crimea. Based on its review of more than one million pages of documents from the four major auction houses, a private art dealer, a public art gallery and seven major financial institutions, the Subcommittee summarizes factors inherent in high value art transactions that facilitate laundering and sanctions evasion. These include: Purchasers use shell companies to mask their true identify; Purchases are made through layered transactions using intermediaries concealing purchasers and sellers; Secrecy is pervasive in the art industry; There is no regulatory oversight of the U.S. art market; and Tracing ownership of anonymous shell companies, including those involved in high-value art transactions, is difficult. The Report details how the European Union adopted a directive, effective in January 2020, compelling art businesses to verify the identification of customers completing art transactions exceeding 10,000 Euros. However, in contrast, the U.S. does little to regulate the art market, leaving it subject to financial crime abuse. The art industry is not subject to the Bank Secrecy Act (BSA), which requires detailed procedures to prevent money laundering, and it remains the largest unregulated industry in the U.S. The Report also highlights that the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) prohibits U.S. persons from transacting with sanctioned individuals or entities. However, aside from those prohibitions, U.S. law does not require private art dealers and auction houses to maintain an anti-money laundering (AML) program or counter terrorist financing controls, although it is reported that some auction houses do so voluntarily. The Report concludes that “the intrinsic secrecy of the art industry” requires Congress to enact regulatory reforms. The Subcommittee recommended that: Congress amend the BSA to include businesses handling high value art transactions; Congress require that the Treasury Department collect ultimate beneficial ownership information for companies formed or registered to do business in the U.S.; When imposing sanctions on an individual, the Treasury Department should consider routinely imposing sanctions on the individual’s immediate family members; The Treasury Department should implement and announce sanctions concurrently; OFAC should lower or remove the ownership threshold rule, which blocks a company only if it is majority owned by a sanctioned individual; The Treasury Department should more effectively mine SARs for information related to Specially Designated Nationals; OFAC should issue comprehensive guidance on the steps auction houses and art dealers should take to ensure they are not doing business with sanctioned individuals or entities; and OFAC should issue guidance extending the International Emergency Economic Powers Act to include artwork. Zeichner Ellman & Krause LLP has a long history of advising sophisticated clients concerning Anti-Money Laundering compliance, Sanctions and Anti-Bribery and Corruption matters. We also regularly counsel clients on the design, implementation, and adequacy of risk-based compliance programs, assist in identifying gaps and mitigating risk, and advise on the effectiveness of internal policies. [1]http://www.hsgac.senate.gov/download/majority-and-minority-staff-report_-the-art-industry-and-us-policies-that-undermine-sanctions