Today we are very pleased to welcome guest blogger Tess Davis, who is the Executive Director of the Antiquities Coalition. Tess, a lawyer and archaeologist by training, oversees the organization's work to fight cultural racketeering worldwide, as well as its award-winning think tank in Washington. She has been a legal consultant for the U.S. and foreign governments and works with both the art world and law enforcement to keep looted antiquities off the market. She writes and speaks widely on these issues - having been published in the New York Times, the Wall Street Journal, CNN, Foreign Policy, and top scholarly journals - and featured in documentaries in America and Europe. She teaches cultural heritage law at Johns Hopkins University, and is a Term Member of the Council on Foreign Relations. In 2015, the Royal Government of Cambodia knighted Tess for her work to recover the country's plundered treasures, awarding her the rank of Commander in the Royal Order of the Sahametrei.
We reached out to Tess because Congress passed the Anti-Money Laundering Act of 2020 ("AMLA") on January 1, 2021. This sprawling legislation in part applies the Bank Secrecy Act ("BSA") to antiquities dealers by defining them as "financial institutions" - and suggests that the BSA later may apply to the art trade as well by requiring a study on money laundering and the art trade. We have blogged repeatedly on the fascinating intersection between the art and antiquities industry and BSA/AML compliance and money laundering concerns. This also is a topic that has garnered significant media interest, including in a recent article in the New York Times. For ease of reference, the AMLA's requirements for factors to be considered for forthcoming regulations on the antiquities trade, and for the factors relevant to the study on the art trade, are described here.
The Antiquities Coalition convened the Financial Crimes Task Force; their materials, including a detailed joint report, Reframing U.S. Policy on the Art Market: Recommendations for Combating Financial Crimes, are available here. Antiquities, art and money laundering also was the subject of a panel at PLI's May 2021 Anti-Money Laundering Conference, at which Tess was a panelist.
This blog post again takes the form of a Q&A session, in which Tess responds to questions posed by Money Laundering Watch about potential AML regulations regarding the antiquities and art markets. We hope you enjoy this discussion on this important topic. - Peter Hardy and Alex Levy
Why did Congress define dealers in antiquities to be "financial institutions" in AMLA? Does this focus by Congress on the trade of antiquities make sense from an anti-money laundering ("AML") perspective - and why didn't Congress also include the art industry in the AMLA?
The art market-including antiquities dealers-has long received an exemption from what are now standard laws and regulations to combat money laundering and other financial crimes in the United States. I say "exemption" because these protections now cover arguably every industry of comparable risk and scale in the country. For example, in addition to expected businesses like banks, the BSA already applied to sellers of precious metals, stones, and jewels, as well as casinos, some real estate professionals, and pawn shops. Yet despite having a very similar business to pawn shops, billion-dollar companies like the major auction houses were excluded.
The AMLA has begun to change that. It closes a major loophole by applying the BSA to "a person engaged in the trade of antiquities." In addition, it requires that the U.S. Department of Treasury and its law enforcement partners conduct a study on the risks posed by the facilitation of money laundering through the art market.
This is an important first step-but it is just a first step. Antiquities dealers are just part of a much larger art market. Indeed it's a $64.1 billion global market, of which 44% is in the United States. It is critical that Congress apply the BSA to all dealers in cultural property, as, again, it has already done for all similar sectors.
It is also important to highlight that art market leaders themselves have called for, and many have already implemented, measures similar to those likely to come out of the AMLA or future legislation. That is strengthened customer due diligence, record keeping, and basically other good business practices for the 21st century. These industry-wide efforts recognize-as governments and law enforcement increasingly have done-that the art market is particularly vulnerable to financial crimes. There is a need to protect the sector, as well as the broader economy, from abuse by bad actors.
The AMLA refers to "advisors" and "consultants" when describing those in the antiquities trade who might be "financial institutions" subject to the BSA. Who should be captured in that definition through the forthcoming regulations? Is this language broad enough to encompass attorneys, and should it?
To our knowledge, this is the first time the BSA has applied to "advisors," and so it will be hugely important to craft a workable definition. There will be an extensive "notice and comment" period for all stakeholders to ensure that any forthcoming regulations are clear, effective, and appropriate in scope and we expect this to be a main topic of discussion then. This is a key example of why it is critical that the U.S. government work with the art market tailor any rules, including who will count as an advisor. Looking to how other jurisdictions-such as the EU and UK-are tackling this same challenge may prove helpful, and moreover, ensure that antiquities dealers (including advisors and consultants) face similar standards across the world's major markets.
A 2020 U.S. Senate Report described the art trade as an "ideal playing ground for money laundering," and criticized a perceived culture of "pervasive secrecy" in the art industry. Are these fair critiques?
This 147-page report-the result of two years' of work, dozens of interviews, and millions of documents analyzed-is worth reading in full. However, in summary, it illustrates how a pair of Russian tycoons, the Rotenberg brothers, allegedly laundered millions through the American art market in full evasion of U.S. sanctions imposed on Vladimir Putin and his inner circle after the 2014 invasion of Ukraine and annexation of Crimea. By July 2020, when the investigation was made public, these sanctions targeted over 700 Russian individuals and entities, including the Rotenbergs, yet there was a growing concern in Congress that they weren't working. That led Senators Rob Portman and Tom Carper, the Chair and Vice-Chair of the Permanent Subcommittee on Investigations, to suspect blacklisted individuals like the Rotenbergs were finding some other way to access the American economy. They launched an investigation to find out whether and how-and the answer was a resounding "yes" due to regulatory loopholes.
Some of these loopholes are beyond the scope of the art world-dealing with how the Treasury Department collects beneficial ownership information, how it implements and announces sanctions, and the threshold for blocking companies owned by sanctioned individuals-but the major takeaway from the report was that the art market's exemption from AML laws and regulations gave these billionaire brothers a backdoor into the world's largest economy.
Much has been made of the role of intermediaries, or "art advisors," in the art trade, and how they contribute to a potential lack of transparency regarding who is selling and buying what. What is your view, and how should any regulations under the BSA address the role of intermediaries?
This is very relevant to the Rotenberg case as well. So this scheme took full advantage of what some would call the art market's tradition of trust and what the Subcommittee calls its tradition of outright secrecy. And it hinged on the concept of beneficial ownership, both of corporations and of art. Who actually owns the company with which you're dealing? Who owns the art? The common practice of shell companies and art intermediaries make these questions difficult to answer.
According to the Senate report, the Rotenbergs used an art intermediary, basically a middleman, in this case an American expatriate. This common practice is not inherently illegal, but it is a role that can be abused for illegal acts. This intermediary or his art agency would bid on works for the Rotenbergs at auction or deal with private dealers for them. He then would purchase the pieces, using Rotenberg money disguised through shell companies. Finally, after the deal was done, he would transfer title to the Rotenbergs or one of their corporations. It was a pretty successful scheme. Following the imposition of sanctions, from May to November 2014 alone (really just a matter of months), these shell companies were used to purchase at least $18 million plus worth of art in the United States-potentially giving the Rotenbergs major financial assets in the country.
Here is an unfair question . . . how should FinCEN define "antiquities" or "art"? Is FinCEN - which is institutionally used to dealing with banks and other traditional financial institutions - even capable of setting forth coherent definitions of such elusive terms? How will that work?
In this regard FinCEN may have more success than many philosophers! And that's because while defining "art" or "antiquities" is admittedly a challenge for artists, scholars, and even the public, in this case we are dealing with these two terms not as parts of our shared cultural heritage, but as assets. The Internal Revenue Service has defined art relatively for the purposes of taxable gifts simply ("any archaeological, historic, or creative tangible personal property"). The "Notice and Comment" period will be an excellent opportunity for FinCEN to see what will be a workable definition for AML purposes.
The major art auction houses already pursue their own voluntary AML programs. Why isn't this enough?
The Rotenberg case is a clear example of why voluntary programs have their limits. Many of the institutions with whom their art intermediary worked actually such programs to screen for blacklisted individuals and money laundering. Yet, according to investigators, the employees who facilitated these sales never even asked for the real client's identity-"even when it was well-known that the ultimate owner was someone else." In fact, investigators report that at least one major auction house knew the adviser was representing the Rotenbergs, and yet continued to do business with him post-sanctions, in an art market version of "don't ask, don't tell."
What should be the role of other U.S. financial institutions already subject to the BSA, such as banks, in addressing these issues?
Art and antiquities crime brings to mind the parable of the blind men and the elephant. Relevant stakeholders-whether banks, insurance companies, conservators, appraisers, et cetera-are often highly specialized. Most will only glimpse a small fraction of the wider criminal scheme. What constitutes a red flag to one group may not to another, and moreover, it may take seeing the whole picture to know something is amiss. Cross-sector cooperation and dialogue are thus crucial. Any one group of players, including current U.S. financial institutions, are only as well protected as the weakest link in the chain of a transaction.
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