The passage of the Anti-Money Laundering Act (AMLA) of 2020 demonstrated that the US government is looking at more effective ways to combat financial crime and money laundering (ML). As part of that law, Congress mandated that the Department of the Treasury undertake an investigation of the risks of ML and the potential for terrorist financing (TF) in the art world. In early February 2022, the Treasury published the aptly named, “Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art.” Overall, “the study found some evidence of ML risk in the institutional high value art market but found little evidence of terror financing risk.”
The report poses four recommendations to combat ML risks in the high value art market. These include:
The first recommendation suggests the creation of a customer due diligence database and codified data collection controls on art market participants. This type of tool has potential for use by financial institutions (to assess credit risk for lending), by law enforcement (to aid investigations), and by art market participants (to vet prospective buyers and sellers based on their market participation history).
The third and fourth recommendations are regulatory in nature and consequently face an uncertain chance of introduction or subsequent passage by the Legislative and Executive branches of the government. Should FinCEN enact reporting requirements targeted to high risk market types (e.g., NFT marketplaces) or geographic regions, art market participants would face new challenges in purchaser and intermediary identification. More specifically, these recommendations are targeted to art finance companies that offer collateral-based loans or facilitate lending through banks, without being subject to AML/CFT requirements themselves. Where banks and other FIs are obligated to use fraud controls and know-your-customer tactics for their dealings with these art financiers, the legislative products of these Treasury recommendations would now require the art finance companies themselves to design and implement their own AML programs.
Guidehouse is uniquely positioned to help both financial institutions and a variety of art market participants, including NFT platforms, to mitigate their financial crime risk now, and to comply with new AML requirements in the future.
The study noted that many interviewees highlighted there is no standard means of providing information on art transactions and the relevant parties to law enforcement. This is particularly perilous for players in the emerging world of decentralized finance, where the purchase of digital art and NFTs is rapidly gaining market share, compared to traditional art markets. Guidehouse offers market-tested expertise in the development of AML and anti-fraud compliance programs for clients ranging from retail and commercial banks to cryptocurrency exchanges.
Guidehouse also offers comprehensive and continuous compliance reviews to ensure clients are not only meeting Treasury and FinCEN guidelines, but proactively anticipating developments like those proposed in this latest Treasury study. This includes prioritizing controls to protect clients from dealing with sanctioned parties, ensuring end-to-end knowledge of market actor profiles and behaviors, and an industry-leading commitment to best practices.