Senate Report Scrutinizes Money-Laundering Issues In the Art Market, And May Signal Congressional Willingness To Increase Regulation of Art Deals
08/04/2020Last month, this blog wrote about several forfeiture complaints recently filed by the United States Department of Justice seeking to recover the illicit proceeds of the 1MDB scandal. The complaints sought, among other things, the recovery of several high value works of art that had allegedly been used to launder the misappropriated 1MDB funds. We noted that “[t]hese forfeiture complaints serve as a reminder that high-end art transactions are often viewed by white collar criminals as an effective method of money laundering.” And now, a recently-released Senate report shows that Congress is taking these concerns very seriously and may soon take up legislation cracking down on money laundering in the art world.
On July 29, 2020, the Senate Permanent Subcommittee on Investigations released a bipartisan report detailing how Russian oligarchs have used the secrecy and opacity of the art industry to evade U.S. sanctions. The product of a two-year investigation involving all of the major auction houses, private New York art dealers, and several financial institutions, the report details how Russian oligarchs are able to evade U.S. sanctions by purchasing high-value art in the United States through shell companies and other intermediaries. For example, the subcommittee found that Arkady and Boris Rotenberg—two Russian oligarchs closely tied to President Vladimir Putin—were able to purchase $18.4 million worth of art through New York auction houses and private dealers despite being subject to U.S. sanctions imposed in 2014 in response to Russia’s invasion of Ukraine and annexation of Crimea. The Rotenbergs used a Moscow-based art adviser named Gregory Baltser as an intermediary to purchase art—including works by Henry Moore, Marc Chagall and Georges Braque—on their behalf just months after sanctions were imposed.
The report criticizes the secrecy and anonymity of the U.S. art market—“the largest, legal unregulated industry in the United States”—and called for stronger rules requiring greater transparency. Of particular note, the Report recommends extending the provisions of the Bank Secrecy Act to the art industry. The Bank Secrecy Act is a federal law that established record-keeping and reporting requirements for most financial institutions. The law requires banks to establish effective customer due diligence systems and monitoring programs, develop risk-based anti-money laundering programs, and submit suspicious activity reports to the U.S. Treasury Department. The U.S. art market currently lacks these formal regulatory requirements. Instead, the industry relies on voluntary anti-money laundering and sanctions policies that can be circumvented by creative buyers.
Congress has previously considered applying the Bank Secrecy Act to the art market. For example, in May 2018 this blog wrote about a bill introduced by Indiana Congressman Luke Messer titled the “Illicit Art and Antiquities Trafficking Prevention Act,” that would extend the provisions of the Bank Secrecy Act to art and antiquities dealers. At the time, the Art Dealers Association of America released a statement criticizing the proposed legislation because it “could impose an unnecessary and onerous regulatory burden on galleries—small businesses all across the country that do not have the infrastructures or resources required to undertake the reporting and attendant filings for something that has not presented itself as a major problem.” While Congressman Messer’s bill never made it out of the House Financial Services Committee, this new Senate report could push Congress to finally act. Indeed, U.S. Senator Rob Portman’s press release announcing the report states that he “look[s] forward to working with Senator [Tom] Carper on legislation to ensure necessary reforms in the art industry.” We will continue to follow closely any further legislative developments in this space.CATEGORIES: Art Market, Money Laundering
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