New money laundering regulations are being considered for art and antiquities dealers

The House Financial Services Committee is drafting legislation that would add “dealers of art and antiquities” to the list of regulated financial institutions under the Bank Secrecy Act (BSA). The committee will likely introduce the legislation during the week of May 14th.

Once the legislation is passed, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) will draft regulations to detail how dealers in art and antiquities are to establish anti-money laundering program.

At a minimum, the anti-money laundering laws will require dealers to:

  • Establish effective BSA compliance programs
  • Establish effective customer due diligence and monitoring programs
  • Screen against OFAC and other government lists
  • Establish an effective suspicious activity monitoring and reporting process
  • Develop risk-based anti-money laundering programs

This latest push to regulate the art market comes after testimony three weeks ago at a closed-door session of the House Financial Services Committee in which prosecutors from the Department of Justice and NY District Attorney’s Office gave testimony about recent cases, such as the recent indictment in the Eastern District of New York of six individuals and four corporations in a $50 million money laundering scheme in which an undercover agent purchase a Pablo Picasso painting to launder fraudulent profits from a stock manipulation scheme.

In 2005, FinCEN announced regulations for dealers in precious metals, stones, or jewels that required jewelry dealers to establish anti-money laundering programs. While those regulations excluded auctioneers, this time around FinCEN may decide to include auctioneers because of their important role in the fine art market, as well as the fact that many auctioneers gain a significant portion of their revenue from private sales.

Our firm has decades of experience in dealing with anti-money laundering issues in the art market. Michael McCullough was Sotheby’s Compliance Counsel from 19982008 and worked with FinCEN on its 2005 regulation that excluded auctioneers from the regulation of jewelry dealers. Duncan Levin, of counsel to the firm, was an Assistant United States Attorney at the United States Attorney’s Office for the Eastern District of New York where he handled money laundering, asset forfeiture, and BSA cases.

Please contact us with any questions about the proposed legislation.