Saturday, January 25, 2014

Money Laundering and the Trade in Cultural Property: Taking a Fresh Look at Federal AML/CTFs

Mark Vlasic, former head of the Stolen Asset Recovery Initiative, noted in Thursday's Huffington Post blog post titled "An Allied Effort to Save History" that
after the post-9/11 crackdowns on terrorist financing, law enforcement has reported a marked increase in antiquities and other artworks being used to launder money (in fact, one agent told us that money laundering cases make up the bulk of their art investigations, not repatriations).
But anti-money laundering as well as counter-terrorism financing laws (AML/CTF) are often limited when it comes to the trade in cultural property. That is because the cultural property markets in art, antiquities, fossils, etc. are not explicitly covered by AML/CTFs.

Money Laundering and the Trade in Cultural Property: Taking a Fresh Look at Federal AML/CTFs
The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) describes money laundering this way:
Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean."
With respect to the art market, a 2012 Basel Institute on Governance report titled Basel Art Trade Guidelines, observes:
In comparison with other trade sectors, the art market faces a higher risk of exposure to dubious trade practices. This is due to the volume of illegal or legally questionable transactions, which is noticeably higher in this sector than in other globally active markets. Far more serious than shady dealings in a legal grey area, the sector’s shadow economy encompasses issues ranging from looted art, professional counterfeiting and fake certificates to the use of art sales for the purpose of money laundering.
There are several federal AML/CTF laws and regulations, the main ones being the Bank Secrecy Act (BSA) and the USA PATRIOT Act. They are tailored to detect international money laundering and terrorist financing in the banking, financial, and investment sectors by establishing compliance programs designed to report suspicious activities, verify customer identities (so-called Know Your Customer programs), disclose high value transactions, and more. Banks, casinos, and securities brokers are among the industries covered by the BSA. The USA PATRIOT Act, meanwhile, covers a wide swath of fields beyond banking, financial services, and investment institutions. They include travel agencies; pawnbrokers; dealers in precious metals, stones or jewels; and more. Explicitly absent from the list are dealers in art, antiquities, and other cultural materials.

Some countries' AML/CTF laws cover art, antiquities, and/or antiques dealers directly. Argentina, Brazil, Japan, and Lithuania are a few. (A thumbnail sketch of AML/CTF laws can be found here and here.) While Internal Revenue Code 6050I and 31 USC § 5331 direct business operators in the U.S.--including sellers of cultural objects--to document cash sales transactions over $10,000 on IRS Form 8300, the major AML/CTF laws, once again, do not explicitly mention dealers in art, antiquities, and other cultural materials.

Yet the U.S. Department of State's INL Office of Anti-Crime Programs specifically cites "art dealers" when referencing AML/CTF goals. By way of background, the U.S. is a member of the Financial Action Task Force (FATF), an inter-governmental body that "set[s] standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system." FATF identifies illicit trafficking of cultural goods, counterfeiting of antiquities, and the illegal trade of antiquities as facilitators of money laundering and terrorist financing in a 2013 report. With regard to FATF, the State Department declares on its web site that one of its objective is to help countries
implement the Financial Action Task Force (FATF) standards, which mainly address: (a) the types of AML/CTF laws and regulations a country should have; (b) the agencies a country should establish (financial intelligence units (IUs), regulatory agencies, specialized law enforcement and prosecutorial authorities); (c) the reporting regime and the entities within and outside of the financial sector that should be obliged to file reports (e.g., banks, money remitters, exchange houses, securities brokers, mutual funds, insurance companies, casinos, lawyers, accountants, realtors, art dealers, etc); and (d) the sharing of non-evidentiary information via the FIU and evidentiary information via MLATs and MLAAs to generate cooperation with other countries to ensure conviction of launderers. (Emphasis added).
Spotlighting black market antiquities with record-keeping laws has already been proposed by CHL. But identifying and targeting both money laundering and terror financing that is entangled within the legitimate cultural property trade should also involve a fresh look at federal AML/CTFs, and maybe some changes.

Photo credit: Levy Choi/

This post is researched, written, and published on the blog Cultural Heritage Lawyer Rick St. Hilaire at Text copyrighted 2010-2014 by Ricardo A. St. Hilaire, Attorney & Counselor at Law, PLLC. Any unauthorized reproduction or retransmission of this post is prohibited.