This Week in AML

Illegal Uses of the Art and Antiquities Markets

UBS and Art Basel recently issued their report, The Art Market 2023. The report includes a discussion of the concerns about the compliance burdens of market participants. John and Elliot examine those concerns and why those markets must align with others to stem money laundering and illicit finance. They also discuss the new stolen art app from the FBI.


Illegal Uses of the Art and Antiquities Markets - TRANSCRIPT

Elliot Berman: Hi John. How are you today?

John Byrne: Hi, Elliot. Doing well. I think we'd be remiss if we didn't mention unfortunately the 145th mass shooting this year at a bank in Louisville. I know obviously the media's been covering it extensively and it's just beyond sad. Obviously we had Nashville a bit ago, but these were members of the banking community, and I know there'll be more about the great lives they led, but I just thought we should at least mention that. We obviously are not only well aware, but how sad it is that this continues in this country.

Elliot Berman: Yes. It's more than a podcast worth of concern, but absolutely worth starting there.

John Byrne: Yeah. What we thought we'd talk about today, and we've covered this in webinars, we've covered this in blogs and obviously other podcasts. And that is the extension of money laundering related and financial crime related issues in the art and antiquities world. And as everybody knows that's in our audience there are going to be eventually antiquities dealers and sellers and advisor regulation. We know that Treasury did a study to look at the art world but something came across our proverbial desks recently that I thought was worth mentioning. This is what is called the Art Basel and UBS Art Market Report. This is the report for 2023.

And a lot of it is obviously very specific and comprehensive about that industry. But the couple of things that jumped out at me relate to what we just mentioned, and that is how does that industry, that community, think about the potential requirements of some sort under either the Bank Secrecy Act in our country or certainly relevant regimes in others.

And so there was a couple things in there I just wanted to highlight. And they have a section in there where they talk about what the priorities are for that community, but also what the outlook is going forward. And quoting here it says increasing regulations and other barriers to the cross-border trade in art and antiquities.

And they say includes mounting administrative costs and burdens were seen as relevant to most dealers, 95% of them, and the majority of those were moderately or extremely concerned. And then they go into about half of the sample were also worried about what they call the growing burdens of due diligence and identification requirements and including what they're calling the know your customer and AML regulations, as well as the protection, confidential information online and cyber security.

What I found interesting about those concerns is obviously they are well aware that there's been active debate in the US and elsewhere. And FATF, has talked about this of course, as well. But the notion that somehow this shouldn't be attached to their community is something that even our industry did decades ago.

But I'll end with this thought and I want to get your comments. They said some dealers discussed the complexity of the regulations such as import and export licenses from Europe. Hey, you need export import licensing. Gimme a break here. While many felt the key issue was the burden of red tape associated with regulations that small businesses were being increasingly forced to deal with.

So they definitely want to focus on that, which is something that the art study looked at. They looked at you have to be careful about how you craft something and there's no indication the regulations for antiquities dealers or in the art market, if that eventually happens is gonna be the same regardless.

And they have a quote here from one of the respondents, which I wanted to highlight. They said that our businesses will not be sustainable, in the future, if staff is required to do what they're calling the administrative burden of AML or privacy laws with a government that's passing on its own administrative responsibilities to the art market. I take major umbridge with that statement because obviously the art market is close to sellers and buyers than the government. So I find that interesting that they're saying it's not our responsibility.

Elliot Berman: Although John, it does echo comments that we heard in our own industry many years ago about the idea that why are you trying to deputize the banks.

John Byrne: That's right. Yep. You're right.

Elliot Berman: Now we as an industry, we've definitely grown past that. But you and I were at many meetings back in the eighties and even into the early nineties where the opening comments were by bank folks was often a short complaining session about being deputized. And then we'd get down to business and figure out how we were gonna do what we had to do.

I think that the other piece that seems to continue to be a background theme in the art market is the idea that the many in the art market feel that confidentiality, who they represent in terms of buyers or sellers and what pieces are moving, and even to some extent, what prices are being paid is something that they view the confidentiality of all of that is part of their business. And while on the one hand, it's nice to be able to have a private transaction if you're a buyer or seller, provenance and where the money comes from and who you're dealing with, those are still things that in this day and age, seem to be good business.

There was no quote from anybody in this long study and in particular in this outlook section that talked about how they felt about being a potential tool for money launderers or other bad actors. That's the other side of the conversation and we hear the burden conversation regularly. We don't hear the other side where if you don't know who you're dealing with, is it okay if you're dealing with a drug Lord or a terrorist or other bad actors.

John Byrne: Yeah. And it also, and you're right about the banks, obviously, we were well aware of that and that was something that, it was a position that we lost pretty early on. And obviously after decades, I'm not saying we have embraced it, but certainly compliance professionals know what their roles are. A couple things in the study that also jumped out at me is they referenced the art study by the Treasury, but I don't think they were accurate in their description.

They say that in January, 2022, the Treasury considered to what extent further rules might be required. That's true. They said it found little evidence of money laundering or other related activities in the art market, just suggesting that some are more vulnerable than others. That's actually not true.

They found evidence of it and examples of it, but they said it was not going to be a priority. So that is a little bit of a misstatement and then goes on to say, the author says , the authority flagged in particular online marketplaces, social media platforms, and encrypted messaging services that sell art as well as the digital art market.

So that's obviously true, and then I'll just end on this. They make the statement that because the Senate in the consideration of the the NDA A last year did not include the Enablers Act last year that meant that according to the author here, the Senate added further to America's reputation for light touch regulation, or at least lighter than in Europe.

And they rejected the enablers bill because it would've extended these laws and regulations to dealers, galleries, advisors, auction houses and museums. Yeah, that's not exactly what they did. They didn't include it I think a

lot of that was because of the inclusion of the legal profession and investment advisors.

But the bottom line is it does show that community is concerned about regulation. I think they need more information, that they have the ability to publicly comment on whatever regulations get included and that it would not be the same as certainly financial institutions and others. But in addition to all of that, I know you flagged the FBI has long been involved in detecting, investigating, and prosecuting art counterfeiting and those sorts of things, but they came out with a new tool recently.

Elliot Berman: Yes. For many years, the FBI has maintained its National stolen art file, sometimes the acronym you'll see is NSAF. And law enforcement agencies in the US and globally contribute information about stolen art, pieces of all kind to that database.

The FBI has launched an updated stolen art app for people's mobile phones that if they're buying art or I suppose if you're a gallery owner and you're being asked to broker a transaction, you can actually search the database using an image of the piece taken with the camera on your phone.

And it'll search the database to see whether the item has been reported stolen. So coming back to the conversation we had a moment ago, in some ways it's deputization. But, more importantly, I think it is giving people a functional opportunity and process to really understand if they're dealing in stolen goods.

As I think about small art galleries, if someone came in with a piece and said if you're buying art, I have this piece I'm looking to sell. Being able to research the provenance of all pieces of art is not simple. And so to have this ability to at least check whether it's been recognized as stolen, seems to me to be a big step forward if people will adopt it and use it.

John Byrne: And just going back, like you said to what we've been talking about, the Antiquities Coalition has done a ton of work in this space and they explain in great detail why it's important for sellers and buyers and advisors to know the source of whatever it is they're purchasing or selling.

Don't leave it to us. We're certainly not experts in this space, but they are, and I think it's well worth your time. I would say take a look at this report. Like I say, it's very specific to that industry as you would expect, but there are some interesting examples in there of the survey respondents concerns and priorities going forward.

We the AML community will eventually have to get up to speed on these issues if we're not already. And so looking at source material like this, I think is valuable.

Elliot Berman: Yes. So a couple other quick things, John. I'll let you do the plug for AMLPF.

John Byrne: So the AML Partnership Form is April 26th to the 28th, we have dynamite content on everything from crypto issues, from law enforcement perspective to financial technology firms and how they interact.

But also we will have regulators talking very specifically about their role in making sure that information gets to law enforcement and how they oversee that. We have keynote from Catherine Chen, the president and CEO of Polaris. My good friend Tom Vartanian, prolific author and banking law expert, is going to be talking about a number of topics and we are gonna be giving out awards, private and public sector awards.

It's not too late to sign up. It's DC if you're local. If you're not there's still obviously seats available. So go to our website and take a look at amlpf.com and the agenda is there with all the great content.

Elliot Berman: And the next AML RightSource webinar is Thursday, April 20th, and it's about tech enabled managed services. A number of our in-house experts are gonna talk about what are managed services, how do they fit into your financial crime compliance program. And also how blending technology with outside services can make things more efficient and more effective for you.

So you can sign up for that on the amlrightsource.com website.

John Byrne: And just as we are recording this, a recent interview I did with Ryan Wallerstein who publishes something called The Illicit Edge, which is a free publication with excellent information on money laundering, financial crime, sanctions, all sorts of issues.

Sat down and chatted about that and his career to becoming publisher. He time at the Treasury Department. He talks a bit about that. So that's also available on our website, and you'll see it on LinkedIn as well.

Elliot Berman: All right, John. Have a good week.