At Large  January 6, 2021  Chandra Noyes

New Defense Bill Seeks to Stop Art World Money Laundering

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U.S. Treasury Building, Washington, D.C.

The recently and somewhat controversially passed National Defense Authorization Act gives the U.S. Department of Treasury one year to create rules to hamper money laundering and the financing of terror organizations through the antiquities and arts trade. The Anti-Money Laundering Act (AML) seeks to improve communication between law enforcement agencies and financial institutions, including an update to the crucial Bank Secrecy Act.

In November of last year, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued an advisory and guidance report threatening to issue sanctions to parties who deal in art with banned persons. According to the OFAC, the art market has provided fertile ground for money laundering, often giving people on their Specially Designated Nationals and Blocked Persons List (SDN List) illegal access to the U.S. market and financial system.

The SDN List includes state-designated terrorists, a range of crime organizations, including drugs and arms dealers, those who benefit from authoritarian regimes, like oligarchs, and other international criminals. Americans are banned from having financial transactions with these parties and face sanctions if they violate the law. Tens of thousands of people and organizations are on this list because they have been deemed to pose a threat to U.S. national security and foreign and economic policy.

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The Geneva Freeport, a site where valuable artworks can be housed abroad in order to avoid import taxes

The AML takes the first steps in following through with the OFAC's recommendations and includes provisions requiring art galleries, museums, private art collectors, auction companies, agents, brokers, and other participants in the art market to keep a comprehensive list of those they deal with in order to prove they’re not allowing illegitimate parties access to the U.S. financial system. Their report lays out how the anonymity of the art market paired with the potentially very high price tags of some works provides an ideal opportunity for those on the SDN List to sneak their way into the market. According to their report, “These avenues for maintaining anonymity allow blocked persons and other illicit actors to obscure their true identities from other market participants, and help to hide prohibited conduct from law enforcement and regulators. The mobility, concealability, and subjective value of artwork further exacerbate its vulnerability to sanctions evasion.”

This new legislation is the first step in closing major financial loopholes. The OFAC's report cited several key examples of how parties use the art market to move money and avoid sanctions. Nazem Said Ahmed, a prominent Lebanon-based diamond dealer and art collector who is a major supporter of Hezbollah, used his art collection worth tens of millions of dollars and including Picassos and Warhols, to launder money for the terrorist organization through his Beirut gallery. The AML seeks to close these routes of money laundering.

Previously, the art world has had little oversight, and critics have long called for greater regulation. The OFAC report also suggested that those dealing in international art sales who may be vulnerable to unintentionally violating their regulations “assess the risks they may face and consider implementing measures reasonably designed to reduce such risks, including by conducting risk-based due diligence, as appropriate.”

courtesy Museum of the Bible

Museum of the Bible, Washington, D.C.

In recent years, a few major scandals have brought this issue to light. The Hobby Lobby-funded Museum of the Bible made headlines when they had return ancient artifacts that were illegally looted and imported into the U.S., and whose sale may have provided funding to ISIS. 

Learn more in our guide to How Money Laundering Works In The Art World.

About the Author

Chandra Noyes

Chandra Noyes is the former Managing Editor for Art & Object.

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