Partly in reaction to these revelations, governments in the U.S. and the European Union have been reporting on, consulting about, and legislating new anti–money laundering legislation (AML) to reflect the complexity of a modern, globalized financial system that is increasingly intertwined with technology. On January 1, 2021, the U.S. House and Senate voted through a bill to extend the rules of the 1970 Bank Secrecy Act to cover the art market, specifically antiques and art dealers. The bill aims to improve anti–money laundering efforts by making it harder for purchasers to obscure their identity through offshore entities and shell companies by requiring collectors to identify an “ultimate beneficial owner.”
The U.S. government’s bill comes hot on the heels of a large slate of EU legislation drafted in 2018 and implemented across 2020. European AML efforts go back before the creation of the union under the Maastricht Treaty (1992) to 1991, when AMLD1 (Anti-Money Laundering Directive 1) introduced preventive actions like customer due diligence, user identification, and transaction reporting. The latest EU directives, which affect collectors residing in or buying from EU and U.K. jurisdictions, are AMLD5 and AMLD6, published in May and October 2018, respectively. These two documents are being implemented across the EU, but national governments will set the timeline for when the laws come into effect. “The EU directive is generic enough to leave room for local interpretation and the provision of more concrete guidance by national regulators,” said Astrid Brandy and Maxime Heckel from Deloitte Luxembourg.
Despite nations’ ability to interpret the law, both AMLD5 and AMLD6 will set out clear areas of new regulation. For instance, AMLD5 addresses virtual currencies, high-risk third-party countries, identification of beneficial ownership, and the harmonization of national ownership registers across borders.
AMLD6 adds to the work of AMLD5 by widening the scope of criminal intentionality, potentially making art buyers liable for money laundering charges. The directive states that “the acquisition, possession, or use of property, knowing at the time of receipt, that such property was derived from criminal activity” will be punishable as a criminal offense.There is now a larger expectation that collectors will make sure they are legally and ethically acquiring art. Most collectors are either individual customers or qualify as “art market participants” (AMPs), legally defined as a dealer who is buying on behalf of their business or a client, and has handled one or multiple linked transactions worth upwards of €10,000 (about $11,900). Consequently, if a collector intends to sell artwork from their collection at a value of €10,000 or more, they will come under substantial new regulations. Those who stay on the buyer side of art market transactions will still need to take extra steps, but will not legally need to undertake due diligence. There have also been reports of loopholes available to dealers who don’t want to comply with AML, but using them comes with significant risks.
“While it is good practice for buyers to conduct due diligence on the artwork and its seller before buying, in their capacity as customers, buyers are not required to carry out anti–money laundering checks on their sellers,” Jasani said. “Where an AMP buyer buys to resell, the buyer must conduct anti–money laundering checks on the end buyer.” So if a Paris-based dealer is buying a €50,000 painting at auction on behalf of an Italian collector, she will need to do an AML due diligence check on the collector before finalizing the sale.
The extra steps required of the non-AMP collector include providing personal identification documents and proof of address, and identifying beneficial owners of companies, trusts, special purpose vehicles, and organizations to the AMP if they are buying through such a structure. While complying, collectors should as ever be mindful of not transferring such information electronically without encryption—compliance needn’t become an exposure to fraud or identity theft. Additionally, the EU’s 2018 General Data Protection Regulation (GDPR) ensures a minimum level of privacy protection for AMPs involved in Europe and the U.K.
Alongside this, the AMP is required to do a minimum level of due diligence research on collectors buying from them to make sure they do not generate any red flags. Consequently, collectors should expect to be asked more questions by their dealers, advisors, and auction house contacts.
According to Tamara Bell, a specialist in art law and luxury assets at Charles Russell Speechlys, red flags include: “hot jurisdictions being involved in the transaction (e.g., funds coming from Syria or Zimbabwe); the buyer being a ‘politically exposed person’ (e.g., a politician or board member on a state-owned oil company), and therefore more likely to be involved in corruption; or the buyer (or seller) having previously been involved in AML investigations.” Susan J Mumford, the founder of ArtAML, an art market compliance platform, said collectors should embrace the new legal regime and its benefits. “The reality is that the AML regime is not going to go away, and from what I hear, the U.K. is likely to stay in harmony with the EU as the scope changes in time,” she said. “My recommendation to individuals and institutions is to take a leaf out of my book: Accept that AML is increasingly a reality of participating in the modern art market.” She added: “This mindset will position you ahead of the game.”