If we reflect upon the last decade in the art market, we can clearly see the “professionalization” of the business of selling art, whether it be more sophisticated contracts and deal structures, increased government regulation, the development of art as a financial asset, or increased attention to the unique features of art as an asset class, including provenience, provenance, authenticity, attribution, and regulatory compliance.

We continue to be involved in sophisticated, often international, transactions and disputes across the art market spectrum. Recent matters include an eight-figure insurance casualty dispute, forming a New York branch and US subsidiaries for a prominent German gallery, disputed art seizures in Lebanon, Belgium and Switzerland, authenticity disputes involving high-end artworks, and organizing an art fund under the new US Opportunity Zone rules.

The following updates address new regulatory issues that art market participants will deal with in the 2020’s.

Anti-Money Laundering: UK Guidance for January 10th Enforcement

In late December, the UK government issued Regulations to update the UK’s existing anti-money laundering legislation (“UK AML Laws”) to implement changes in the EU’s anti-money laundering framework.

Art market participants, such as art galleries, auction houses, and freeports (“Art Businesses”), are now directly regulated for transactions exceeding €10,000. Regardless of their size, Art Businesses must apply updated Customer Due Diligence (“CDD”) requirement when carrying out transactions equivalent to €10,000 or more in relation to the sale of a work of art. The updated CDD measures require art market participants to:

  • identify and verify the client’s identity.
  • assess, and where appropriate obtain information on, the purpose and intended nature of the business relationship or occasional transaction.
  • identify any agent acting on behalf of a client and verify the agent’s identity.
  • conduct ongoing monitoring of the business relationship with the client, including:
    • review transactions (including, where necessary, the source of funds) to ensure that the transactions are consistent with the client’s business and risk profile
    • undertaking reviews of existing records and keeping the documents or information obtained for the purpose of applying customer due diligence measures up to date.

In addition, the UK AML Laws require regulated parties to verify source of funds, establish written policies and procedures, establish risk profiles, keep and protect source documents, and report suspicious transactions to authorities. Please contact us with any questions about complying with UK AML Laws.

US Anti-Money Laundering Legislation

In fall 2019, the House of Representative passed HR 2514, a law which requires, among other things, “a person trading or acting as an intermediary in the trade of antiquities” to establish a mandatory anti-money laundering program. The legislation does not define “antiquities,” but other US laws define the term as objects over two hundred and fifty years old and normally discovered as a result of excavation. The new legislation also applies the mandatory anti-money laundering program requirement to “advisor[s], consultant[s] or any other person who engages as a business in the solicitation of the sale of antiquities.”

Currently, the legislation was sent to the Senate and was referred to the Committee on Banking, Housing, and Urban Affairs.

P&M has been tracking this legislation and we believe the Banking Committee will not include this AML provision in any Senate legislation during the current term. However, this issue is likely to return during the next legislative session.

P&M has extensive experience in art market money laundering matters. Michael McCullough was one of the first attorneys to build a comprehensive anti-money laundering program in the art market. He was responsible for implementing Sotheby’s program in the 2000’s and has built several other programs since then. P&M works closely on these matters with Duncan Levin, of-counsel to the firm. Mr. Levin is a former Assistant United States Attorney at the Eastern District of New York, where he handled money laundering, asset forfeiture, and BSA cases. Mr. Levin was also formerly on the senior staff of the Manhattan District Attorney’s Office, where he was Chief of the Asset Forfeiture Division.

Please contact us with any questions about the new legislation or the application of existing money laundering rules to the art businesses.

EU Customs Regulation on Import of Cultural Goods

In April 2019, P&M reported on the EU’s adoption of new a Regulation on the importation of cultural goods. The Regulation affects imports into the EU of non-EU art and collectibles predating 1819 and worth €18,000, as well as antiquities of nonEU origin, such as materials from Asia, Africa, Near East, Russia, North America and South America.

The art market will have an opportunity to address the import reporting/licensing requirements in the Regulation during the talks that are set to start between Britain and the EU in February, now that Brexit has taken place. There will be an 11-month transition period during which all existing EU customs and trade rules remain in place, until the end of December 2020. The UK and EU will negotiate a deal during the transition period that will determine if the UK will comply with any existing EU trade rules going forward. Though the transition period can be extended by up to two years, UK Prime Minister Johnson says he will not do so and, if necessary, will legislate to prevent himself from doing so.

If no deal is concluded by December 2020, then the UK will default to existing treaty obligations under the WTO; tariffs and quotas for trade with the EU will be put in place by default and the UK art market will be spared from the import reporting/licensing requirements in the Regulation.

P&M has already identified several dangers to art market players in the Regulation:

  • the burden of proving “legal export” is not just matter of “due diligence” but will require determining an object’s country origin or discovery and a detailed analysis of the laws of the applicable country of export.
  • certifying whether an object has been legally exported from a non-EU country (such as China, India, Egypt, etc.) is difficult, and importers should not assume the existing art market practice of privative analysis, such as “getting comfortable with provenance” or “the absence of red flags,” will be sufficient. On the contrary, we believe enforcement authorities will require positive proof of legal export, a trend that we see in the US.

We urge collectors and dealers in the US and EU to use the transition period in the UK to engage in dialogue with HM Revenue and Customs to remove the import regulation from future trade relations between the UK and EU. This will avoid the chaos and heavy-handed enforcement of the Regulation that is likely to happen on the continent.

Our Commitment to Public Dialogue

Our firm has a strong tradition of public dialogue on the issues affecting the art trade. Here are some of our recent discussions:

Congratulations to our clients, Paul and Kathy Yih

In 1968, the Yih family was gifted a brilliant painting by Chang Dai-chien (1899–1983), a close family friend. The work, Splash Waterfall (1968) is now being exhibited publicly for the first time at the Asian Art Museum in San Francisco in Chang Dai-chien: Painting From Heart to Hand. Chang Dai-chien is one of the most acclaimed artists of the twentieth century and Splash Waterfall is a brilliant example of his renowned splashed-ink (pomo) and splashed-color (pocai) technique. The picture comes close to total abstraction and bridges Eastern and Western aesthetics. A timeless work, it is contemporary, fresh and relevant half a century later.