The Office of Foreign Assets Control has issued an Advisory calling for due diligence on the part of dealers, museums, and other high-end market participants to comply with U.S. sanctions regulations on blocked persons.<\/span><\/span><\/h2>\n<\/span><\/div>\n
<\/p>\n![\"OFAC](\"https:\/\/culturalheritagelawyer.com\/wp-content\/uploads\/2023\/04\/OFAC.jpg\")
<\/a><\/div>\nWhen the Office of Foreign Assets Control (OFAC) publishes an Advisory that warns a particular business sector to maintain compliance, that typically means the U.S. Treasury Department\u2019s enforcement agency is serious about targeting an identified national security risk. On Friday, OFAC broadcast an alert to \u201cart galleries, museums, private art collectors, auction companies, agents, brokers, and other participants in the art market\u201d when it issued its <\/p>\n
<\/span>Advisory and Guidance on Potential Sanctions Risks Arising from Dealings in High-Value Artwork<\/a>.<\/span><\/div>\nThe October 30 Advisory, while not legally binding, strongly indicates OFAC\u2019s enforcement posture and its likely response if an art market participant were to commit a sanctions violation. The issuance of the advisory suggests that the agency will take four factors into account when probing an offense, having given notice that<\/p>\n
\n\n- there are \u201csanctions risks arising from dealings in high-value artwork associated with [blocked] persons \u2026 including persons on OFAC\u2019s List of Specially Designated Nationals and Blocked Persons (SDN List)<\/a>,\n<\/li>\n
- \u201c[h]igh-value artwork transactions may play a role in blocked persons accessing the U.S. market and financial system in violation of OFAC regulations,\u201d\n<\/li>\n
- \u201cmaintaining a risk-based compliance program to mitigate such risks\u201d that applies \u201crisk-based due diligence\u201d is vital, and\n<\/li>\n
- \u201cthe \u201cBerman Amendment\u201d to the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) does not categorically exempt all dealings in artwork from OFAC regulation and enforcement. \u201d In other words, just because the IEEPA safeguards Americans\u2019 rights to exchange \u201cinformation or informational materials,\u201d including \u201cartworks\u201d under 50 U.S.C. \u00a7 1702(b)(3)<\/a>, does not mean that the transfer of art is excluded from sanctions enforcement. \u201c[T]o the extent the artwork functions primarily as an investment asset or medium of exchange,\u201d OFAC will enforce the sanctions law, according to the advisory.<\/li>\n<\/ol>\n<\/div>\n\n
In sum, OFAC\u2019s Advisory recommends that a \u201cU.S. person considering a transaction with a blocked person involving high-value artwork [$100,000+] should seek guidance or a license from OFAC.\u201d<\/p>\n
The federal government has become sensitive to the art market\u2019s lack of transparency. That opacity\u00a0<\/span>gave rise to the Antiquities Coalition Financial Crimes Task Force\u2019s September 2020 release of\u00a0specific recommendations<\/a>\u00a0to stem illicit financial flows connected with the art and antiquities markets.\u00a0It also prompted this CHL blog, several years ago,\u00a0to call for new record keeping laws and reforms to anti-money laundering (AML) statues<\/a>. OFAC\u2019s Advisory now clearly expresses the agency\u2019s view that the art market is characterized by a\u00a0<\/span>\u201clack of transparency and a high degree of anonymity and confidentiality, especially with respect to the sale and purchase of high-value artworks.\u201d<\/div>\n\nOFAC\u2019s Advisory opinion expressly warns that<\/p>\n\n[s]hell companies and intermediaries are also frequently used to purchase, hold, or sell such artworks, as well as to remit and receive payments. 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.\u00a0<\/p>\n<\/blockquote>\n<\/div>\n
The Advisory references the July 2020\u00a0Senate Committee on Homeland Security and Government Affairs report on art\u2019s relationship to money laundering and terrorist financing. That Senate report, titled\u00a0\u201cThe Art Industry and U.S. Policies that Undermine Sanctions,\u201d<\/a>\u00a0urged lawmakers to add the high-end art market to the list of business sectors that must comply with the powerful AML law, the Bank Secrecy Act, calling the marketplace \u201cthe largest legal, unregulated market in the United States.\u201d Legal reforms are needed, according to the report, because the combination of \u201c[s]ecrecy, anonymity, and a lack of regulation create an environment ripe for laundering money and evading sanctions.\u201d<\/span><\/div>\n<\/div>\nIt is likely that federal officials also are keenly aware of both the widely publicized Panama Papers\u2019<\/a> sweeping revelation of shady shell corporations and the Financial Action Task Force\u2019s continuing comments<\/a>\u00a0regarding the paucity of information surrounding beneficial owners of anonymous shell companies. Senate Judiciary Committee Chairman Lindsey Graham\u00a0 [R-SC] certainly is sensitive to the high ranking of the U.S.<\/a>\u00a0(see minutes ~30:00 \u2013 33:00) on the Financial Secrecy Index<\/a> because of the lack of disclosure of these beneficial owners under U.S. law (although this author questions the FSI\u2019s methodology used to rank nations).<\/div>\n
Before OFAC issued its advisory this week, both the FBI\u2019s Art Crime Team (ACT) and the Treasury Department already began focusing their sights on AML, sanctions, and the art market. \u201cToday, we\u2019re more concerned about money laundering in the art market,\u201d\u00a0<\/span>ACT team manager Tim Carpenter plainly\u00a0explained<\/a>\u00a0to the security organization, ASIS, in May.\u00a0Treasury Deputy Secretary Justin Muzinich in December 2019, meanwhile,\u00a0<\/span>cautioned<\/a>\u00a0that \u201c[a]rt and luxury goods\u202fdealers should be on alert to the schemes of money launderers who\u202fhide personal funds in high-value assets\u202fin an attempt to mitigate the effects of U.S. sanctions.\u201d<\/span><\/div>\n
![\"OFAC](\"https:\/\/1.bp.blogspot.com\/-sXCa3XfWsbE\/X53mkMMGgtI\/AAAAAAAACzk\/Nh2IAeBUSdQZj-5wWqAA_cuvtKk9k-6CQCNcBGAsYHQ\/s1360\/OFAC.JPG\")
<\/a><\/div>\nWhen the Office of Foreign Assets Control (OFAC) publishes an Advisory that warns a particular business sector to maintain compliance, that typically means the U.S. Treasury Department\u2019s enforcement agency is serious about targeting an identified national security risk. On Friday, OFAC broadcast an alert to \u201cart galleries, museums, private art collectors, auction companies, agents, brokers, and other participants in the art market\u201d when it issued its <\/p>\n
<\/span>Advisory and Guidance on Potential Sanctions Risks Arising from Dealings in High-Value Artwork<\/a>.<\/span><\/div>\n The October 30 Advisory, while not legally binding, strongly indicates OFAC\u2019s enforcement posture and its likely response if an art market participant were to commit a sanctions violation. The issuance of the advisory suggests that the agency will take four factors into account when probing an offense, having given notice that<\/p>\n In sum, OFAC\u2019s Advisory recommends that a \u201cU.S. person considering a transaction with a blocked person involving high-value artwork [$100,000+] should seek guidance or a license from OFAC.\u201d<\/p>\n [s]hell companies and intermediaries are also frequently used to purchase, hold, or sell such artworks, as well as to remit and receive payments. 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.\u00a0<\/p>\n<\/blockquote>\n<\/div>\n\n
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Before OFAC issued its advisory this week, both the FBI\u2019s Art Crime Team (ACT) and the Treasury Department already began focusing their sights on AML, sanctions, and the art market. \u201cToday, we\u2019re more concerned about money laundering in the art market,\u201d\u00a0<\/span>ACT team manager Tim Carpenter plainly\u00a0explained<\/a>\u00a0to the security organization, ASIS, in May.\u00a0Treasury Deputy Secretary Justin Muzinich in December 2019, meanwhile,\u00a0<\/span>cautioned<\/a>\u00a0that \u201c[a]rt and luxury goods\u202fdealers should be on alert to the schemes of money launderers who\u202fhide personal funds in high-value assets\u202fin an attempt to mitigate the effects of U.S. sanctions.\u201d<\/span><\/div>\n