US Senators propose anti-money-laundering legislation for the art market – The Art Newspaper

A bipartisan group of US Senators has introduced new legislation, dubbed the “Art Market Integrity Act”, which would require art market businesses operating in the US to comply with measures to prevent money laundering and the financing of terrorism. If adopted, the legislation would bring the US art market—the world’s largest, accounting for 43% of global art sales, or $24.8bn, according to the most recent edition of Art Basel and UBS’s Art Market Report—more closely in line with the UK and European Union, which have adopted stricter anti-money-laundering (AML) regulations in recent years.

In the bitterly divided US Congress, the proposed AML legislation is a rare instance of bipartisan collaboration. The act was introduced on Wednesday (23 July) by a group of six Senators including three Democrats (John Fetterman of Pennsylvania, Sheldon Whitehouse of Rhode Island and Andy Kim of New Jersey) and three Republicans (Chuck Grassley of Iowa, Bill Cassidy of Louisiana and David McCormick of Pennsylvania).

“There is bipartisan interest in shining light into the murky world of art dealing,” Senator Whitehouse said in a statement. “Kleptocrats, foreign adversaries and other bad actors abuse the opaque nature of the high-end art market to evade American sanctions and stow their loot behind the rule of law.”

Senator Grassley added: “For decades, criminal enterprises have used America’s multibillion-dollar art industry as a personal piggy bank for money laundering schemes, terrorist financing and other nefarious activities. By requiring our nation’s art market to comply with existing anti-money laundering and counter-terrorism financing laws, this bipartisan legislation would keep art, and millions of dollars, out of the wrong hands.”

A point of concern in the UK has been how such measures—which can require businesses to follow know your client (KYC) and customer due diligence (CDD) steps, and keep records of their AML programmes—have added to the administrative burden for smaller businesses since coming into effect in early 2020. How such regulations apply to art advisors, or overseas dealers travelling to the UK for art fairs, have been subjects of confusion in the trade.

“It is understandable for smaller art-related businesses to be uncertain and perhaps nervous about the additional cost and resources needed to implement AML programmes, and that concern in part may come from lack of experience with this type of control process in the art market,” says Jane Levine, a partner and co-founder at the New York-based firm The ArtRisk Group. “It is very important to remember that a sensible risk-based approach will identify the aspects of your business that could be vulnerable to bad actors, as well as those posing very little risk. That information helps craft an AML programme that is proportional, lean but effective and not overblown.”

The US Senators’ five-page act outlines requirements that would apply to dealers, collectors, galleries, auction houses, advisers and, oddly, museums. It would exempt artists who sell their own works, as well as businesses and individuals that have not made a single sale of more than $10,000 or transactions totalling over $50,000 in the previous year.

Levine adds: “It is also important to adopt a long-term approach and keep in mind that the small upfront investment in establishing basic AML practices—which could involve simple steps such as obtaining and recording identification of transacting parties and being attentive for suspicious conduct—is a lot less expensive than the cost of defending an AML investigation, possible penalties and fines, and reputational cost.”

The proposed legislation specifies that the new art market regulations would come under the Bank Secrecy Act, which empowers the Department of Treasury to regulate businesses and financial institutions. The Treasury, then, would be responsible for setting guidance on compliance and coordinating with relevant federal agencies. It would also, presumably, set the terms of any penalties or fines levied for non-compliance; in the UK, more than 30 businesses were fined over the course of a little more than two years for failing to register with an AML supervisory body or provide information by specified deadlines.

A study published by the US Treasury Department in 2022 “found some evidence of [money-laundering] risk in the institutional high-value art market but found little evidence of [terrorism funding] risk”. Its authors concluded that applying comprehensive AML and counter-terrorism financing (CTF) measures to “some art market participants” was one of several possible solutions, but added that “the art market should not be an immediate focus for the imposition of comprehensive AML/CTF requirement”.

The senators introduced their Art Market Integrity Act a little over a week before the US Congress goes on a month-long break, so it is unlikely to be taken up before September at the earliest.