Grossman LLP | <strong >Recently Adopted Anti-Money Laundering Directive Will Significantly Affect European Art Market</strong >
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  • Recently Adopted Anti-Money Laundering Directive Will Significantly Affect European Art Market
    05/02/2018
    On April 19, the European Parliament—the legislative body of the European Union—adopted the 5th Anti-Money Laundering Directive.  Members of Parliament overwhelmingly voted to adopt the Directive.  The new legislation will significantly affect Europe’s art market, and prominent members of the art world have already expressed their concerns about the practical consequences of the Directive. 
     
    Under the new rules, “persons trading or acting as intermediaries in the trade of works of art, including when this is carried out by art galleries and auction houses,” must verify the identities of their customers before entering into a transaction worth €10,000 or more.  This rule also applies to any “series of linked transactions” with an aggregate value of €10,000 or more.  And customer verification is now required for all such transactions regardless of payment method (under the current rules, only cash transactions that met the €10,000 threshold required customer verification).
     
    As the European Commission’s press release explains, the Directive was originally proposed in 2016 in response to both a series of terrorist attacks and the disclosures of the Panama Papers.  Accordingly, the Directive was designed to further the twin goals of “counter[ing] the financing of terrorism” and “ensur[ing] increased transparency of financial transactions.”  For its part, the European Commission is optimistic that the law “will bring more transparency to improve the fight against money laundering and terrorist financing across the European Union.”
     
    In contrast to the Commission’s enthusiasm, the Directive has been met with fierce backlash from within the art world.  For example, the International Confederation of Art and Antique Dealer Associations (Cinoa) argued in an April 3, 2018, Position Paper that “[t]he proposed amendments are built on the false assumption that the European Union is subject to a high level of trafficking in cultural property that is funding illegitimate interests.”  Cinoa argued that the proposed €10,000 threshold should be raised to €50,000 for non-cash transactions:  “[m]ore than a quarter of all paintings and sculptures sold by dealers are priced at $50,000 or more,” Cinoa explained, “and a fifth of such works sold in European auctions are priced at $10,000 or more.”  And Anthony Browne, the chairman of the British Art Market Federation (BAMF), noted that the expansion from cash to all payment methods “will bring almost all BAMF member businesses into the regulated sector.”  As a consequence, Brown said, BAMF will endeavor to “work with the government to minimise the administrative effect on small businesses.”
     
    According to reports, the United States may soon be implementing similar measures.  The House Financial Services Committee is rumored to be planning to introduce legislation later this month that would add “dealers of art and antiquities” to the list of regulated financial institutions under the Bank Secrecy Act.  It remains to be seen whether this will actually happen.  The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) told artnet News that it has not proposed any such rules:  “While there has been plenty of discussions about the potential benefits that could result [from] subjecting a number of different industries to BSA regulation,” FinCEN wrote to artnet, “upon searching our website, you will find that there is little, if any mention of that industry in particular in any FinCEN publication.”
     
    In any event, the EU Directive officially takes effect in 2019, and Member States have 18 months to incorporate its rules into their national legislation.  And even though the United Kingdom is slated to leave the EU in March 2019, the Directive could still take effect there in the interim.  We will follow this trend as it continues to develop, including whether the United States chooses to adopt similar legislation.