Anti-Money Laundering Law Goes After Antiquities Trade

“Criminals seeking to launder ill-gotten funds could hardly pick a worse commodity than antiquities.” Randall Hixenbaugh, President of the American Council for the Preservation of Cultural Property, January 1, 2021

On January 1, 2021, the Senate voted to override President Trump’s veto of the massive, $741 billion US National Defense Authorization Act (S.4049 /H.R. 6395) and pass it into law.[1] Among many non-defense related additions to the bill are anti-money laundering provisions that are specifically directed at the antiquities trade.[2] These amendments to the 1970 Bank Secrecy Act[3] (BSA) will make “antiquities dealers” subject to similar record-keeping and recording requirements as banks, financial institutions, gold and silver bullion and fine jewelry sellers. The legislation reiterates the canard of terrorists funding activities through sale of art and antiquities.

Peter K. Tompa of Global Heritage Alliance, says of the bill:

“…this law represents a triumph of fear-mongering over fact, and intensive lobbying, chiefly by archaeological advocacy groups with an axe to grind against private collecting and the trade, along with AML compliance contractors looking for new business.  This effort was led by the Antiquities Coalition, a well-funded and politically connected archaeological advocacy organization, and AML Right Source, an AML compliance contractor.”[4]

The day of the bill’s final passage, a New York Times article repeated the Antiquities Coalition’s allegations[5], its author apparently unaware that a recent RAND Corporation analysis had debunked the Antiquities Coalition and others’ claims regarding terrorist marketing of antiquities[6] as well as claims by related organization ATHAR regarding illicit sales of antiquities on online sales platforms and social networks.[7]

The Times article did, however, include one accurate statement about the art trade, made by New York antiquities dealer Randall Hixenbaugh, president of the American Council for the Preservation of Cultural Property. Hixenbaugh pointed out:

 “Virtually all transactions of high-dollar amounts in the ancient art business are handled through financial institutions and instruments already covered by the Bank Secrecy Act…Criminals seeking to launder ill-gotten funds could hardly pick a worse commodity than antiquities.”

The implications of these changes to the Bank Secrecy Act are far-reaching for the art trade. The class of businesses to be regulated could be very broad. The new law defines an “antiquities dealer” 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.”

Based upon anti-money laundering regulations currently applied to bullion and diamond dealers, regulations may require intrusive and burdensome reporting for anyone classed as an “antiquities dealer” under these terms. These could include antiques, ethnographic art and coin businesses with sales of as little as $50,000 per year, despite the fact that in almost all cases, this would duplicate reporting done by banks on the same transactions. When Tess Davis, executive director of the Antiquities Coalition was asked at a public forum whether only cash transactions should be reported to deter money laundering, she twice failed to answer the question, instead repeating that the Antiquities Coalition felt the bill should apply to dealers in all cultural property, and that the details would have to be worked out in the regulatory process.[8]

According to the IRS, the Bank Secrecy Act:

“[R]equires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters.” BSA records are “heavily used by law enforcement agencies, both domestic and international to identify, detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.”

Despite the lack of evidence that antiquities are easily sold, that the market is large or its turnover fast enough to be of interest to criminals, the Antiquities Coalition and its allies continue to portray it as rife with unlawful activity.

WHO IS AN “ANTIQUITIES DEALER”? FINCEN WILL DECIDE WITHIN A YEAR

The new law does not define what an “antiquity” is, or define the functions of an advisor, consultant or person who solicits the sale of antiquities.[9] All these individuals would also be subject to the reporting requirements.

The details of the regulations to which “antiquities dealers” would be subject under the law will be determined later this year by FINCEN (the Financial Crimes Enforcement Network), a Treasury Department entity. Currently regulated industries include banks, casinos, money services, credit card systems, mutual funds, and dealers in precious metals or jewels. Anti-money laundering restrictions apply differently to all of them.[10]

Congress has given the Treasury Department guidelines for what the regulations will define and what the thresholds and limitations will be for antiquities dealers. This period for writing regulations is the best opportunity for U.S. businesses to provide input to the Treasury. Here’s what FINCEN is supposed to consider:

• Having the regulations vary by the size of the business, the size of the transaction being conducted, and whether the transaction takes place in the United States or elsewhere;
• whether the regulations should focus on the high-value trade in antiquities in a different way than lower-value objects;
• whether the antiquities dealer must identify the actual purchaser of an antiquity when the seller or buyer is working through an agent or intermediary;
• the need, if any, to identify trade seller or buyers, such as other dealers, advisors, consultants, or other persons trading in antiquities as a business;
• whether volume or financial thresholds should apply in determining whether an antiquities dealer or a specific transaction should be regulated; and,
• whether certain transactions should be exempted from the regulations.

These questions were largely raised during the legislative process by Global Heritage Alliance, CINOA,[11] and other groups advocating for collectors and the businesses of the antiquities and art trade.

The new law directs FINCEN to consult with the FBI, the US Attorney General, and Homeland Security about these decisions. Given the influence already exerted by AML service providers and well-connected advocates of unnecessary regulation of antiquities, there are concerns that a study of the art market done exclusively by law enforcement with concurrent implementation of a law affecting the antiquities trade will simply justify imposing regulation rather than actually determining if it is needed. The art trade must be as active as possible in bringing accurate, unbiased information on the above issues to the regulatory process in order to counter the false claims of anti-trade activists.

WHAT IS AN ANTIQUITY?

The word “antiquity” is not defined in the legislation. Among the possible definitions available under current U.S. law, the term “antique” is already utilized by U.S. Customs meaning over 100 year of age, and the 1983 Cultural Property Implementation Act, which deals with the importation of ancient art into the U.S., covers “objects of archaeological interest” over two hundred and fifty years old that are normally discovered as a result of excavation, and “objects of ethnological interest,” which are the products of a tribal or nonindustrial society.  There is a real possibility that FINCEN will define the term broadly to impact U.S. small businesses including ethnographic art dealers, Native American art dealers, and the coin trade. An “antique” under the law could currently date to 1921, next year to 1922.

WHAT WILL THE LAW REQUIRE BUSINESSES TO DO?

Antiquities businesses subject to FINCEN anti-money laundering requirements would have to:

• Establish an anti-money laundering program to:
  • File IRS/FINCEN Form 8300, file FINCEN Form TD F 90-22.13, file FINCEN Form 105 to establish an AML program;
  • Appoint a Compliance Officer responsible for meeting FINCEN AML regulations and rules;
  • Provide ongoing AML training for employees;
  • Do independent testing to monitor AML program and compliance;
  • File suspicious activity reports (SARS)

PAST FINCEN GUIDANCE INDICATES EVEN VERY SMALL BUSINESSES COULD BE AFFECTED

• FINCEN has the authority to change thresholds at any time
• FINCEN filings could be required even if antiquities sales were a minor part of the business.
• The low-dollar compliance thresholds for currently regulated businesses indicate most antiquities dealers would be required to maintain AML programs and report activity and transactions
  • For example, the threshold on jewelers is only $50,000 in annual purchases/sales of jewels and precious metals.
  • Thresholds in other regulated industries are a low as $2,000 for filing Suspicious Activity Reports (SARs) and $1,000 for currency transactions.
  • At these levels, the regulations would cover virtually every business in the coin industry, requiring days to complete and thousands of dollars for compliance services.
• Minor, technical errors can result in banks shutting down accounts and punishments based on technical errors rather than actual illegal or deceptive sales.

WHO WILL SEE FINCEN DATA?

• FINCEN shares information on businesses with:
  • Law enforcement in the U.S. and 90 other nations;
  • IRS and tax authorities in 70 other nations.
    • Information will go to foreign governments with cultural patrimony laws potentially fueling a dramatic increase in repatriation claims (especially in the Middle East) for art and artifacts traded in good faith for decades in the US and Europe.
    • AML program would end valued client confidentiality for antiques and antiquities dealers.

RESPONSIBLE ART MARKET INITIATIVE NOT ENOUGH FOR ANTI-TRADE ADVOCATES

The report to Congress did not include information on the increasingly standard due diligence measures established under the Responsible Art Market Initiative, or RAM. In early 2017, the Swiss Art Law Foundation, together with contributors from auction houses, major art galleries, insurers, law enforcement, and University of Geneva academics launched RAM which set voluntary guidelines for business practices throughout the art industry. The RAM best practices, although geared to very large art businesses such as major auction houses, included a number of due diligence steps already recognized as a practical necessity in the antiquities market.[12]

Art businesses and sales are generally divided in market reports into general categories and while percentages move up and down in different years, they have overall remained consistent in the last decade: Post-War/Contemporary (ranging 45-50% by value), Modern (about 25-30%), Impressionist (10-12%), Old Masters (4-5%). The antiquities market is the most highly scrutinized category of artworks, although it is the smallest of the global art market categories, being less than 1% of the art market by value. In the antiquities category, well-provenanced art and artifacts are now much more highly valued than items with scanty ownership history, creating a two-tier market based upon provenance.[13]

Art industry experts have long been aware that fraud and misrepresentation are the most common crimes in the much higher value Modern and Contemporary art world, and that transparency regarding the identities of buyers and sellers is crucial to ending fraud in the trade. Many art market participants already follow key practices listed in the RAM guidelines, refraining from cash transactions, attempting to document prior ownership and requiring proof of identity of both sellers and buyers.

The RAM recommendations are based upon prior best practice standards for the art industry, notably the Basel Institute on Governance 2012 art trade guidelines. These industry standards were set forth by the Basel Institute on Governance’s Art Trade Initiative at a global conference on ‘Governance of Cultural Property: Preservation and Recovery’, which took place in September 2009.

CONGRESS MISLED?

Over the last several years, advocates for making antiquities dealers and all other art dealers subject to anti-money laundering regulation have made well-publicized but unsubstantiated claims about terrorist connections and the supposed enormous size of the antiquities market. The Antiquities Coalition, which the RAND Corporation identified as a source for exaggerated claims about illegal art markets,[14] has long alleged that terrorists receive significant funding from illegal antiquities sales amounting to billions of dollars. That argument has been disputed by reputable sources, but the Antiquities Coalition has continued to wrap it into claims about criminal money laundering – for which it has provided no evidence.

The Antiquities Coalition announced a Financial Crimes Task Force in April 2019. It formed a partnership with the Association of Certified Anti-Money Laundering Specialists (ACAMS), an organization that certifies and promotes anti-money laundering service providers. This partnership with anti-money laundering compliance businesses has further muddied the waters. What is presented as a dire need to halt criminal activity in the art trade is also a huge potential windfall for AML compliance contractors – an entire new industry in need of their services.

The Antiquities Coalition has continued to maintain (without citing a single instance of U.S. art trade involvement in terrorism) that its goals were to “protect the $26.6 billion U.S. art market from criminals and violent extremists” and “end impunity for the illicit trade in cultural patrimony and sever this key source of funding for violent extremist groups.”[15]

In fact, there has been no evidence of any increase in illegal trade from the Middle East in Europe, even though the region has been in chaos for a decade; and there has not been a single seizure of objects associated with ISIS or other terrorists in the U.S. (The similar lack of evidence for an illicit trade in Germany is the conclusion to be drawn from the multi-year ILLICID project there, despite its authors’ initial claims that they would find evidence of significant illicit dealings.)[16] The U.S and European art trade has not only refused to deal in looted materials from the Middle East but has assisted law enforcement to apprehend and seize stolen objects.

A RUSSIAN RED HERRING

In an American Bar Association presentation on the Senate Report, The Art Industry and U.S. Policies That Undermine Sanctions, and pending legislation subjecting antiquities dealers to AML, Tess Davis of the Antiquities Coalition gave only one example of a case in which the regulations could have prevented a criminal action. [17]   She cited repeatedly to the 150-page report from the Senate’s Permanent Subcommittee on Investigations (PSI), noting that it represented two years of work and involved dozens of interviews and review of over a million documents. 

The report, although well-researched in regard to evasion of sanctions, does not contain evidence of money laundering in the antiquities trade, the focus of the current legislation. Instead, the report deals primarily with the actions of two Russian billionaire brothers, Arkady and Boris Rotenberg, who despite being subject to U.S. government sanctions, were able to purchase modern art in the U.S. through a Russian intermediary. The report does not identify a single case of money laundering involving antiquities, although it speculates on the possibility and mentions several times that this was “a concern.” Nonetheless, Ms. Davis referred to the Rotenbergs as “the tip of the iceberg” of money laundering in the art world. As the only available example, the “iceberg” appears to have been all tip and no berg.

The Rotenbergs, who had amassed a fortune in non-art investments, were childhood friends and currently martial arts pals with Vladimir Putin. The Rotenbergs were sanctioned after the Russian invasion of Ukraine and Crimea in 2014. Despite being sanctioned, they were able to access the US economy by working through intermediaries. Ms. Davis referred to their “undermining” the U.S. economy though purchases of almost $20 million in modern art.

However, the Rotenbergs, whatever their crimes, did not buy antiquities. Using shell companies to disguise their identities, they bought, through Russian art adviser Gregory Baltser and the Baltzer Auction Club, works by Henry Moore, Marc Chagall and Georges Braque, and “Un port sous la lune,” by the artist Tamara De Lempicka.[18] Through another art dealer, they acquired René Magritte’s “La Poitrine.”

The PSI study asks why sanctions have not been more effective, and points out:

“If wealthy Russian oligarchs can purchase millions in art for personal investment or enjoyment while under sanction, it follows that their businesses or hidden resources could also continue accessing the U.S. financial system.”[19]

The PSI report concluded:

“The Subcommittee’s investigation also makes clear that the voluntary programs in place at auction houses are not enough. Further, there is a lack of transparency in private art sales. As such, Congress should add high-value art to the list of industries that must comply with BSA requirements. Given the intrinsic secrecy of the art industry, it is clear that change is needed in this multi-billion dollar industry.”[20]

None of this, of course, relates directly to the antiquities trade, which is the actual subject of the new provisions in the Bank Secrecy Act.

THE BANK SECRECY ACT MAY BE EXTENDED TO THE ENTIRE ART MARKET

Section 6110(c) of the Defense Authorization Act calls for the Federal Bureau of Investigation, the Attorney General, and Homeland Security Investigations to make a study of the entire art market within one year to identify its possible “facilitation of money laundering and the financing of terrorism through the trade in works of art, including an analysis of–

(1) the extent to which the facilitation of money laundering and terror finance through the trade in works of art may enter or affect the financial system of the United States, including any qualitative or quantitative data or statistics;

(2) an evaluation of which markets, by size, entity type, domestic or international geographical locations, or otherwise, should be subject to any regulations;

(3) the degree to which the regulations, if any, should focus on high-value trade in works of art, and on the need to identify the actual purchasers of such works, in addition to the agents or intermediaries acting for or on behalf of such purchasers;

(4) the need, if any, to identify persons who are dealers, advisors, consultants, or any other persons who engage as a business in the trade in works of art;

(5) whether thresholds and definitions should apply in determining which entities, if any, to regulate;

(6) an evaluation of whether certain exemptions should apply;

(7) whether information on certain transactions in the trade in works of art has a high degree of usefulness in criminal, tax, or regulatory matters.

Given the influence already exerted by AML service providers and well-connected advocates of unnecessary regulation of antiquities, there are concerns that a study of the art market done exclusively by law enforcement will be based on speculation, not facts, and will not include important information available only through the art trade itself.

WHAT CAN THE ANTIQUES AND ANTIQUITIES MARKET DO?

Since the bill is now passed, the chief opportunity left to the art trade is to ensure that regulations are limited to what is reasonable to halt any criminal activity but which will not hurt legitimate businesses.  By law, the rulemaking process is subject to “notice and comment.” FINCEN should respond to concerns raised in public comments before the regulations are finalized.  American businesses and auction houses, large and small, should ask FINCEN to define “antiquities” as narrowly as possible and to adopt high monetary thresholds before FINCEN reporting is required.

It will be very important for the art and antiquities trade to provide accurate information and verifiable data on the antiquities trade to FINCEN to counter the erroneous claims made by the Antiquities Coalition and others. The public comment period will be all the more important since false information has already permeated the news media and spread disinformation about the antiquities trade.

Unfortunately, the legislation poses the greatest threat to small businesses that serve ordinary American collectors. Large international auction houses can more easily set the rules for both consigners and consumers through contract than small businesses, and the scale of the business and high value of goods sold justifies maintaining staff solely to deal with compliance. While the major auction houses objected to passage of the amendments to the BSA as burdensome and unnecessary, they are likely to be less affected than small businesses, since they already have compliance departments in place to deal with newly enacted European regulations

As the Senate PSI report stated, “Despite not having a legal obligation to implement AML programs under the BSA, the Subcommittee found that the four biggest art auction houses described above all have voluntary AML programs in place. In addition, all four have sanctions compliance programs.”[21]

EU AND UK ANTI-MONEY LAUNDERING PROGRAMS FOR THE ART TRADE

The EU has already put in place anti-money laundering rules governing the art trade, and spot checks and enforcement have been seen in major art fairs as well as in permanent establishments. The rules primarily have to do with collecting, documenting, and reporting information about transactions and customers. Art dealers now have to perform due diligence for all transactions of €10,000 or more. Multiple purchases by the same buyer totaling €10,000 must be combined and treated as over the threshold.

The UK government also issued anti-money laundering legislation effective January 10, 2021, but granted a brief reprieve to the requirement that art market participants register with the tax authorities, extending that time frame to June 10, 2021. The reporting requirements in this instance apply to transactions of €10,000 or more. Art dealers, galleries, auction houses and free-ports must register with the government, establish due diligence measures and train staff, officially verify client identities, and review and report any suspicious transactions—or face penalties including fines, suspension of accounts, and incarceration.

In addition, although the UK has not chosen to adopt similar law, the EU has recently adopted new regulations on the introduction and import of cultural goods that are more than 250 years old and originate from non-EU countries. The legislative proposal was adopted by the European Commission in 2017, and its exact terms confirmed in December 2018. The regulation’s implementation will take several years more, as the Customs facilities for dealing with it must be digitized and harmonized among EU nations. Art market analysts have stated that the expected result will be to remove the EU as a major market for antiquities.[22]

CONCLUSION

Regardless of the inaccurate data on which the amendments to the Bank Secrecy Acts rest, the measure is signed into law and antiquities dealers, however they are defined, will have to adapt their business practices to meet its reporting requirements. The only benefit to such regulation – since if there is money laundering in the antiquities business, it is clearly minuscule – is that actual data on the antiquities business will go on record, and perhaps dispel the ridiculous assumptions about its size, scale, and value held by government, law enforcement, and especially by the media.

For now, antiquities dealers will need to be diligent in following new reporting requirements (as soon as these are final) regarding buyers and sales, as well as to continue to carefully scrutinize provenance and authenticity in order to avoid trading in illegally sourced objects. Hopefully, their diligence will result in providing law enforcement with better facts and dispelling false assessments that are, in the end, harmful not only to businesses and collectors but also to museums, which benefit greatly from private donations, and to the public weal.

 

[1] House and Senate versions of the bill passed in July 2020, a conference report was agreed on by House and Senate on December 8 and 11, 2020 respectively. The bill was vetoed by President Trump on December 23, and the veto was overturned on January 1, 2021 in Congress’ last act of the 2-year session.

[2] The amendments to the Bank Secrecy Act are in Section 6110 of the 1480 page bill. See https://www.congress.gov/bill/116th-congress/house-bill/6395/text (last accessed January 4, 2021)

[3] The Financial Crimes Enforcement Network website states: The Currency and Foreign Transactions Reporting Act of 1970 (which legislative framework is commonly referred to as the “Bank Secrecy Act” or “BSA”) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. It was passed by the Congress of the United States in 1970. The BSA is sometimes referred to as an “anti-money laundering” law (“AML”) or jointly as “BSA/AML.”  https://www.FINCEN.gov/index.php/resources/FINCENs-mandate-congress#:~:text=The%20Currency%20and%20Foreign%20Transactions,detect%20and%20prevent%20money%20laundering.&text=It%20was%20passed%20by%20the%20Congress%20of%20the%20United%20States%20in%201970.

[4] Peter K. Tompa, A Triumph of Fear Mongering Over Facts, Cultural Property Observer, January 3, 2021.

[5] Zachary Small, Congress Poised to Apply Banking Regulations to Antiquities Market, New York Times, January 1, 2021, https://www.nytimes.com/2021/01/01/arts/design/antiquities-market-regulation.html

[6] Matthew Sargent, James V. Marrone, Alexandra T. Evans, Bilyana Lilly, Erik Nemeth, Stephen Dalzell, Tracking and Disrupting the Illicit Antiquities Trade with Open Source Data, (hereafter RAND), RAND Corporation, 2020, https://www.rand.org/pubs/research_reports/RR2706.html

[7] Id. at xii, 43. See also Kate Fitz Gibbon, RAND Corporation Debunks Facebook and Dark Web Ties to Illegal Antiquities, Cultural Property News, July 19, 2020, https://culturalpropertynews.org/rand-corporation-report-debunks-facebook-dark-web-ties-to-illegal-antiquities/

[8] Ms. Davis spoke at a presentation for the Art & Cultural Heritage Law Committee and of the Export Controls & Economic Sanctions Committee of the American Bar Association on October 22, 2020 on The Art Industry and U.S. Policies That Undermine Sanctions, issued by the Senate Permanent Subcommittee on Investigations (PSI).

[9] Amending Section 5312(a)(2) of title 31, United States Code.

[10] 31 C.F.R §§ 1010.100 et seq. The program for dealers in precious stones, for example, is found under 31 C.F.R. §1027.210.

[11] CINOA, 2020 Fact Sheet on Bogus Information on Illicit Art Trade to Justify New Regulations, https://files.constantcontact.com/e2d46e59601/6164eab1-754d-43b4-87db-f09877e1f3ea.pdf

[12] See Industry Behemoths Set Voluntary Rules for Art Businesses, Cultural Property News, February 7, 2017, https://culturalpropertynews.org/industry-behemoths-set-voluntary-rules-for-art-business/

[13] Channing May, Transnational Crime and the Developing World, Global Financial Integrity, March 2017, pp xi, 37. Even this report, which accepts at face value the exaggerated numbers for ISIL related looting, places trafficking in stolen cultural goods at the bottom of the value of illegal transactions, at .07%, equal to about 1.2 to 1.6 billion globally in a 1.56 trillion annual market. The report also notes that authenticity, provenance and legal title are key to art value: “Art theft is frequently a crime of opportunity, and it is smaller thefts, particularly those worth several thousand dollars or less and from private residences, which make up the majority of the goods in the illicit art market. These pieces attract less scrutiny and are thus easier to sell. In addition, because the pieces come with modest price tags, it is unlikely that provenance will be requested and/or verified.” p 37.

[14] See RAND at 9, 10.

[15] See Antiquities Coalition, “Combating Cultural Crimes: Where Are We Now?”, April 18, 2019, available at https://theantiquitiescoalition.org/combating-cultural-crimes-where-are-we-now/.

[16] See: Birthe Hemeier and Markus Hilgert, Transparency, Provenance and Consumer Protection – Facts and Policy Recommendations Concerning the Trade in Ancient Cultural Property in Germany, Findings of the Federal Ministry of Education and Research’s Collaborative Project »Analysing the Dark Figure as a Basis for Countering and Preventing Crime Using the Example of Ancient Cultural Property,  https://cultural-heritage-and-multilateralism2020.com/storage/documents/Illicid_report_english.pdf

[17] Supra, note 8. The report is The Art Industry and U.S. Policies That Undermine Sanctions, Staff Report, Permanent Subcommittee On Investigations United States Senate, https://www.hsgac.senate.gov/imo/media/doc/2020-07-29%20PSI%20Staff%20Report%20-%20The%20Art%20Industry%20and%20U.S.%20Policies%20that%20Undermine%20Sanctions.pdf

[18] Graham Bowley, Senate Report: Opaque Art Market Helped Oligarchs Evade Sanctions, NY Times, July 29, 2020, https://www.nytimes.com/2020/07/29/arts/design/senate-report-art-market-russia-oligarchs-sanctions.html

[19] The Art Industry and U.S. Policies That Undermine Sanctions, at 2.

[20] Id. at 147.

[21] Id. at 50.

[22] Clare McAndrew, The Art Market 2019, Art Basel/UBS, at 45.