InfoBytes Blog
Treasury releases study on illicit finance in the high-value art market
On February 4, the U.S. Treasury Department published a study examining the high-value art market’s money laundering and terrorist financing risks to the U.S. financial system. The study also identified efforts U.S. government agencies, regulators, and other market participants should explore to mitigate the laundering of illicit proceeds through this industry. Treasury’s Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art found that while there is some evidence of money laundering risk in the high-value art market, there was limited evidence of a nexus between terrorist financing risk and high-value art (which the study theorizes is in part due “to a disconnect between the high-value art market and the physical geographies where terrorist groups are most active”). Participants most vulnerable to money laundering in the art market, the study noted, are financial services companies that offer art-collateralized loans but that are not subject to comprehensive anti-money laundering/countering the financing of terrorism (AML/CFT) requirements. Banks that facilitate payments between customers and art market institutions also present unique money laundering risks, the study found, while asset-based lending can disguise the original source of funds and provide liquidity to criminals. The study further cautioned that entities with large annual sales turnover present higher money laundering risks, and stressed that the emerging digital art market (including non-fungible tokens or NFTs) “may present new risks, depending on the structure and market incentives of certain activity in this sector of the market.”
To address the identified risks, the study recommended the following: (i) supporting “private sector information-sharing programs to encourage transparency among art market participants”; (ii) “updating guidance and training for law enforcement, customs enforcement, and asset recovery agencies”; (iii) using recordkeeping and reporting authorities to support information collection and money laundering activity analyses; and (iv) “applying comprehensive AML/CFT requirements to certain art market participants.” Treasury noted that it will consider “how these measures could mitigate identified money laundering risk, the potential burden on smaller art market participants, privacy considerations, as well as progress on addressing systemic AML/CFT issues, such as the abuse of shell companies.”