Monday, November 8, 2021

Cultural Property Stakeholders Clash Over AML/CFT Regs for Antiquities Dealers

Money Laundering and Antiquities Dealers

Antiquities sellers soon will be covered by the Bank Secrecy Act.

FinCen recently completed an advance public comment period over anticipated enforcement rules, sparking debate among heritage advocates, cultural property groups, archaeologists, dealers, auction houses, and museum directors.


The Anti-Money Laundering Act of 2020 (AML Act) is a hot topic in the cultural property world as the US Treasury Department’s Financial Crimes Enforcement Network (FinCen) prepares rules to enforce the new statute.

Heritage groups, cultural property advocates, archaeologists, museums, antiquities dealers, and auction houses clashed on issues ranging from the nature of the antiquities trade, whether the trade actually is involved with money laundering and terrorist financing (ML/TF), the need for confidentiality, who or what should be subject to new reporting requirements, and much more as they submitted written public comments.

The AML Act took effect when
Section 6110 of the massive National Defense Authorization Act became law in January. This section requires Suspicious Activity Reports (SARs) from those “engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.”

“This action is an important step in strengthening U.S. national security by protecting the U.S. financial system from money launderers and terrorist financiers that seek to exploit the antiquities trade,” FinCen announced in a September 
news release.

The law brings antiquities dealers under the umbrella of the Bank Secrecy Act’s (BSA) anti-money laundering/countering financing of terrorism (AML/CFT) regime so that sellers of antiquities share the same legal duties already undertaken by jewelry and precious metals dealers. pawnbrokers, real estate closing professionals, casinos, vehicles salespersons, travel agents, and other high-value business participants. The BSA enlists these sectors and other financial institutions to root out marketplace abuse by 
undertaking customer due diligence and spotting questionable financial transactions. Suspicious reports are forwarded to law enforcement.

Because federal regulations must be adopted to implement the AML Act, FinCen issued an 
advance notice of proposed rulemaking in September and completed its public comment period on October 25, which garnered approximately three dozen thought-provoking submissions from opposing stakeholders.


Overview

One set of commenters identified ML/TF and illicit trade among the illegal activities that lurk beneath the antiquities market, which is why, they argued, the AML Act is needed. But several antiquities market participants claimed that ML/TF risks are non-existent, or at least not as bad as made out to be. They questioned the evidence that justified a burdensome new law, as they described it. Proponents of the AML Act further contended that secrecy—a staple of the antiquities market—inevitably attracts criminals, while antiquities sellers maintained that confidentiality constitutes an essential feature of the trade. Differences surfaced over additional cultural property questions, including:

  • Should FinCen’s regulations be broad or narrow?
  • Should the rules make a distinction about the kinds of objects that should be covered? Such as by age or by date? Or by dollar value of the transaction? Should ethnological objects be counted as antiquities? What about coins?
  • Should the rules apply to commercial transactions only, or should they embrace non-commercial transfers as well?
  • What about including museums and archaeologists in the BSA’s enforcement regime?
  • What about online sales platforms?


Risks in the Antiquities Trade

Cultural heritage protection advocates, archaeologists, and AML consultants generally described the antiquities trade as ripe ground for criminal infiltration. 
“Because of the lack of oversight, the antiquities sector provides a target rich environment for illicit actors,” wrote The Antiquities Coalition and its associated Financial Crimes Task Force (ACFCTF), emphasizing that the “risks of money laundering and terror finance, avoidance of sanctions, and other illicit financial crimes are very high with antiquities ….” The Antiquities Coalition also expressed concern over “built-in anonymity and masking of beneficial ownership, ineffective protection of artifacts at archeological sites in high-risk countries, counterfeits and forgeries, fraudulent provenance and use of social media in suspect transactions.” Global Financial Integrity estimated revenues from the cultural property market to be worth approximately $1.2 billion to $1.6 billion annually, the Antiquities Coalition reported, and “this market operates with a business model inherent with risk, including the ability to acquire and sell products with little to no proof of ownership, the use of anonymity in sales and auctions, and, of course, the ability to transact businesses in cash.”

The
U.S. Committee of the Blue Shield (USCBS)—joined by the Archaeological Institute of America, the American Anthropological Association, and the American Society of Overseas Research—raised the “question of possible financing of terrorism,” warning that “[f]reshly looted archaeological artifacts … are particularly suited as a means of transferring funds internationally.” The USCBS explained that “[a]ntiquities are easily moved through different jurisdictions or maintained in freeport zones and other locations that make it difficult to trace the origins of a particular object.” “This problem,” the group highlighted, “is further exacerbated by the proliferation … of false or forged provenance documentation.” The USCBS pressed that dealers and auction houses also “engage in a variety of ‘creative’ financing schemes,” which the group conceded “may not be illegal,” but which illustrated how “art merchants are increasingly acting more like financial institutions in lending money, securitizing loans, and monetizing works of art.” The USCBS, furthermore, brought attention to UN Security Council Resolution 2347 that “noted the connections between looting, theft, and smuggling of antiquities and other art works and the funding of terrorism.”

Two United Kingdom-based AML compliance firms warned about latent potential illegalities that are concealed within the antiquities market.
ArtAML advised that “there is a general lack of awareness of possible suspicious activity,” and that “with the exception of large auction houses that have voluntarily introduced compliance measures, the vast majority of industry players will not introduce such compliance measures until legally required to do so.” Corinth Consulting, moreover, named specific risks in the antiquities marketplace “such as theft, authenticity, provenance and illegal export from countries with national patrimony laws.” The firm assessed that the “illegal excavation and export risks seem more likely to occur in countries suffering from war, dictatorship or extreme poverty” and that “these factors may in turn increase the risk of terrorist financing.” For that reason, attention should be placed on the seller “and the need to ‘follow the object’” as opposed to “the typical ‘follow the money’ focus on buyers.”


Questioning Money Laundering and Terrorist Financing

Several advocacy and trade groups representing sellers and collectors predominantly rejected the risk-laden picture of the antiquities trade, and they criticized the AML Act and its forthcoming rules. The
Committee for Cultural Policy (CCP) called the regulations “inappropriate due to the lack of hard evidence for money-laundering activities by antiquities businesses in the United States.” The American Council for the Preservation of Cultural Property (ACPCP) objected that the AML Act became law “without there ever having been a single documented criminal case in the United States or Europe of antiquities being used as an asset with which to launder ill-gotten funds.” The Authentic Tribal Art Dealers Association (ATADA) derided “the false claims of involvement of the U.S. antiquities trade in general in money laundering or activities supporting terrorism.” Likewise, ConfédérationInternationale des Négociants en Œuvres d’Art (CINOA) expressed the view that “the scope of ‘illicit activity’ involving antiquities has been highly exaggerated by advocates of implementing such controls.” 

GlobalHeritage Alliance (GHA) protested that “FinCEN should focus on promulgating regulations solely designed to counter serious money laundering issues, and not be influenced by those with an axe to grind against the antiquities trade to issue overly complicated and draconian rules that can be exploited to repatriate artifacts in questionable cases.” The GHA specifically reproached the Manhattan District Attorney’s office for allegedly “misus[ing] investigative subpoenas for fishing expeditions directed against prominent New York City collectors.” The cultural property trade advocacy group portended that “there is a real danger information originally gathered to fight terrorism will instead be used to harass collectors and dealers in the hopes of forcing repatriations of objects to authoritarian countries ….”

Major auction houses, meanwhile, advised FinCen that the majority of their sales are not even cash-based, with
Christie’s explaining that “[c]ash transactions … in New York are rare” and that “the vast majority of auction house transactions are settled by bank wire transfer or credit/debit card.” Bonhams and Butterfields Auctioneers additionally called attention to the fact that “the revenue of entities in the art market is tiny when compared to that of the financial institutions.” Although Christie’s affirmed “that there can be money laundering and terrorist financing risk in the trade of antiquities,” it offered that “the vast majority of sales in antiquities are made for legitimate purposes.” In this vein, the ACPCP implored that transactions using “credit card, check, or bank transfer through an AML compliant financial institution must be exempt from further data collection and reporting.”


Secrecy in the antiquities market
Secrecy

The USCBS and its allies spotlighted opacity as a “key characteristic of the art market,” underscoring that there is “no requirement within the United States for an art merchant to maintain records of transactions or of the buyers, sellers, or consignors.” “[T]hat very secrecy,” USCBS argued, “is the reason why Know-Your-Customer (KYC) and Suspicious Activity Report (SAR) requirements are so necessary.” Notably, the group professed that “the antiquities market in the United States has indulged in even greater efforts to maintain secrecy of sales and those involved in transactions” as a result of “U.S. law enforcement efforts to interdict the illegal aspects of the antiquities market …, particularly … due to the activities of the New York District Attorney’s Office.” ArtAML observed, “While this [secrecy] can be for good reason such as collectors not wanting it to be known that they hold expensive items in a personal collection (potentially attracting robbery), this culture can open opportunities to criminals who wish to not be detected.”

The art market has been characterised by some as ‘opaque’ creating ML/TF risk,” Bonhams otherwise contended. “This is to overlook the reality that a seller’s identity will always be known to the parties needing to know it.” The auctioneer, therefore suggested, “Provided the intermediary – the auction house – knows the identity of both parties and can perform due diligence on those parties, it would not seem to us to be necessary to make further disclosure
.”

Christie’s concurred, insisting, “Where an intermediary, such as an auction house, is involved, there is no business reason for buyers and sellers to have the right to know each other’s identity.” Christie’s pointed out, “Both buyers and sellers expect confidentiality and rely on an auction house’s discretion.” That is because there are “justifiable reasons of personal safety and security of the property. In addition, sales of objects may be necessitated by circumstances, some very sensitive, such as financial difficulties, family disputes, or divorce.” Christie’s added that their auction house and others “conduct reasonable due diligence on the property for sale and the parties to the transaction” and that “[p]rovenance appears in public sales catalogues, which are published on auction house websites and include information about an item’s country of origin and the date on which it left that country.” The ACFCTF, nevertheless, expressed a concern about fraudulent provenance circulating in the antiquities trade.

"[I]f it is to be made a legal requirement to identify principals in any transaction involving antiquities in the US,” Bonhams suggested “that it should only be necessary for one person in the transaction to carry out due diligence to establish agents/principals to ensure there are no ML/TF risks” in order to avoid an “unduly burdensome” situation “with no reliance allowed between entirely reputable entities.” Bonhams further advised that “[i]t would be much less burdensome if governments could set up and manage a mandatory register of beneficial ownership of all entities that carry on business in their jurisdiction.” And Christie’s, in a footnote, pushed for the opening of the Becchina and Medici archives to “strengthen the ability of legitimate market players to complete their diligence process.”


Who and What Should be Covered

FinCen regulations should be sweeping, according to stakeholders like the
Clooney Foundation for Justice. They “must be broad and stringent” in order to “provide law enforcement with information on illicit financial flows to further dismantle criminal networks currently exploiting the antiquities market.” That means the regulations must have “no monetary thresholds, stringent due diligence requirements, disclosure of beneficial ownership information, and comprehensive SARs filings,” asserted the human rights organization led by George and Amal Clooney.

In fact, attested the Antiquities Coalition, “[u]nless and until the U.S. public and private sectors close the loopholes … they will leave wide open the world’s biggest economy to money launderers, artifact traffickers, drug smugglers, kleptocrats, oligarchs, terrorists, and the many other criminals proven to have exploited the art and antiquities market’s weaknesses.”

But Bonhams retorted that “[i]f a balance is not achieved, any regulation will militate against the art market as a whole … rather than focussing on identifying any potentially suspicious transactions.”

Both Sotheby’s and the Antiquities Coalition agreed with the idea of globally harmonized rules, but for different reasons. Sotheby’s called for AML/CFT regulations to be “proportionate” and “risk based” so as “to preserve the US share of the art market,” which it called “considerable.” For the American antiquities market to remain competitive, Sotheby’s said that “it will be important that AML measures mandated in the US are similar to those imposed in jurisdictions outside the US.” The Antiquities Coalition concurred that, “[a]t a minimum, FinCEN should mirror the regulations in other major market countries.” However, the Antiquities Coalition stated that the rationale should be “to ensure that incommensurate regulations don’t present loopholes for bad actors to take advantage of the U.S. financial system.”

ArtAML recommended rules “a) simple enough for the market to understand; b) clear enough for enforcement officials to understand; and c) flexible enough to allow for changes needed as implementation challenges arise.”

Monetary thresholds

Given that market participants generally seek the narrowest application of FinCen rules, and given that overseas AML/CFT rules already establish monetary thresholds, several commenters argued for the adoption of a minimum dollar value that would serve as a predicate before the BSA’s requirements would kick in.

Primarily smaller sellers urged the highest thresholds—in the millions.
Marcy Schillay, a dealer in Native American art and artifacts, pleaded, “It would be a tremendous burden for me to have to report according to requirements by AML laws … that I would probably be forced to retire. I urge you to omit ‘antiquities dealers’ from the Bank Secrecy act for sales below $5 million.” Don Siegel, another dealer, agreed, as did the Director of Native American Art at Hindman/Cowan's Auctions. In a similar vein, Tegan Johnson urged a” $2 million annual [minimum] to protect the majority of smaller businesses from unnecessary investigation.” Additionally, the ACPCP urged that the “threshold for individual sales to new clients should not be less than $1,000,000, and “[t]he threshold for annual sales for a gallery specializing in ancient art must be over $3,000,000.”

CINOA, nonetheless, advocated “for concentration on only ‘high-value’ transactions and higher-risk ‘conflict zone’ associated antiquities,” suggesting a $500,000 threshold so that “micro-businesses will not be overburdened … and any risk associated with high value antiquities transactions would be addressed (especially in conjunction with existing reporting required by a third-party facilitator, such as banks or insurers).”

Seeking either a 10,000 USD or Euro threshold were auction houses and the USCBS et al. 
Both Christie’s and Sotheby’s agreed to a minimum transaction amount and suggested €10,000, roughly equal to the minimums used by the AML/CFT regulations of the United Kingdom and the European Union. “We are in favour of an industry wide threshold applicable on a transaction basis,” Sotheby’s wrote, because it “ensures a level playing field among market participants,” with Christie’s reminding that “[m]arket participants will need guidance from FinCEN on how to calculate the transaction threshold (e.g., whether it includes sales tax and commissions).” HindmanAuctions urged a $10,000 individual transaction threshold too, but “with an annual transaction threshold for sellers of $100,000.” And despite the fact that the USCBS and its allies “oppose the incorporation of any monetary threshold for the definition of what is an antiquity,” there was agreement that “the [FinCen] regulations should apply to transactions that are valued at more than $10,000 per transaction ….”

Antiquities, art, and archaeology

Even if a baseline transaction amount were to be selected by FinCen, which antiquities would be covered? Once again, the Antiquities Coalition advanced a broad, anti-crime approach. “We strongly believe that separately defining and regulating ‘art’ and ‘antiquities’ creates more problems than it solves,” pressed the organization. “As such, we have suggested that FinCEN consider regulating both art and antiquities as ‘cultural property,’” which would be categorized as “covered goods” under the BSA.

The USCBS also wished to cast a wide net over antiquities, but it applied an archaeological perspective to narrow the definition to “all objects that are at least one hundred years in age, that are the product of human activity, and that are of cultural, historical, art historical, archaeological, scientific, or religious significance.”

Market stakeholders echoed this archaeological approach
. The Art Dealers Association of America (ADAA) defined “antiquities” as “an object of archaeological interest,” and Hindman Auctions labeled an antiquity as “an archaeological object of ancient origin that was discovered through excavation or exploration underwater.” They are different from other works of art, the auction house said, because the “antiquity was preserved through burial on land or in the ocean.” Sotheby’s called antiquities “a category of art.”

The online seller,
1stdibs.com, stressed that antiquities should not include “more recent ‘vintage’ items or colloquial ‘antiques’ from the last century, or that are only a few hundred years old,” “natural items such as fossils or aged natural items,” or “older furniture, rugs, tapestries and furnishings for domestic or commercial furnishing [that] normally would not be considered ‘antiquities.’”

Cut-off dates

Several stakeholders suggested a cutoff date, hovering either around the beginning of the Middle Ages or approximately a millennium later.
The Holocaust Art Restitution Project (HARP) proposed, “Antiquities should be defined broadly as works of art and cultural objects made in antiquity. These works of art and objects should encompass objects of cultural significance created before the year 500 C.E., including objects that were discovered through archaeological means ….” HARP added, “Objects created before 500 C.E. that are considered to be works of art since their creation, i.e., objects that were not discovered as a result of any form of terrestrial or aquatic excavation, should also be considered antiquities for the purposes of FinCEN’s regulations.” The organization also boldly suggested that sellers "should be required to provide provenance for the object dating back to the year 1907 at minimum.”

The
CCP counseled that “an ‘antiquity’ should be defined as an artwork or artifact made for public or private use dating to before 500 A.D., the end of the Roman Empire ….” The GHA endorsed this concept but further recommended, “If FinCEN thinks a more recent date is more appropriate, 1500 AD makes sense because it roughly corresponds to the Renaissance, the Fall of Constantinople, the Discovery of the Americas, the end of Pre-Columbian civilizations, and the highpoint of Empires in China and India.”

Bonhams currently employs a more recent date for an antiquity in its business, explaining that its “traditional definition of antiquities is objects from 4000 BC to the 12th Century AD and geographically originating from Egypt, the Near East and Europe.” It confirmed that “other major auction houses are consistent in this approach,” and pointed out that “others use the term more broadly to include ancient Chinese, Tibetan, African, South-East Asian and South American….”

Ethnological objects

Mark Johnson, a Los Angeles dealer of ethnographic art, expressed concern that an even more recent cut-off date would encompass “[t]he vast majority of ethnographic art, which normally consists of non-excavated items like textiles, beadwork, basketry, costumes, and wood carving are less that 100 years old.” That is perhaps why several market participants backed specific exclusions for ethnological items.
We believe the U.S. domestic tribal and international ethnographic art trade should be specifically excluded from the definition of ‘antiquities’ and exempted from regulatory reporting requirements,” wrote the ATADA. Similarly, the owner of the MatoskaTrading Company anxiously was “concerned that I could become subject to onerous regulation should historic American Indian art become classified as an ‘antiquity.’”

Coins

Numismatic advocacy groups, at the same time, urged exemptions for coins and for coin dealers because, as the International Association of Professional Numismatists (IAPN) averred, the “antiquities and numismatic trade are distinct.” And both the IAPN and the
Ancient Coin Collectors Guild (ACCG) advanced their contention that the numismatic trade has a low AML/CFT risk.

“All coin dealers,” the ACCG further claimed, “are micro or small businesses.” Therefore, “[i]mposing expensive and time-consuming regulations … may drive many out of business …. Without proof of a serious money laundering problem in the industry, coin dealers should not be subject to regulations designed for antiquities dealers.”

The IAPN, ACCG, and others drew attention to the fact that the United Kingdom carved out a coin dealer exception from its own money laundering regulations.

FinCen rules and ancient coins

“The term [“antiquities”] should explicitly exclude coins and ethnological objects,” entreated the GHA, and the CCP likewise petitioned that an “’antiquity’ … should exclude coins manufactured for use in trade.” The GHA’s stated rationale was that coins “are traded separately from antiquities, are serviced by different trade associations, are the subject of separate academic treatment, and typically are of limited monetary value.”

The
National Federation of Independent Business (NFIB) took a step further by petitioning for a small business carve-out from the BSA’s AML/CFT reporting requirements. “America’s small businesses, and their owners and employees, should not have to yield their freedom,” NFIB scripted, “because the [Treasury] Department thinks doing so might someday and somehow contribute something of interest to the Department’s efforts against crime and terrorism.”

More carve-ins and carve-outs

The list of sought-after inclusions and exclusions abounded further as various stakeholders lobbied to add or subtract commercial and non-commercial transactions and other categories from the BSA’s mandate. Some highlights are presented:

  • USCBS et al.: “We believe that ‘trade in antiquity’ should include nonprofit as well as for-profit transactions.
  • “AAMD, on behalf of its members, urges FinCEN to exclude non-profit museums from any definition of participants engaged in the “trade in antiquities.”
  • “The ‘trade of antiquities’ should relate to commercial activity as opposed to charitable donations to museums and other institutions. GHA does not believe non-commercial, not-for-profit activity should be targeted. However, to the extent it is covered, it should include activities of US archaeologists excavating in countries with high risks of corruption, money laundering and terrorist activities.”
  • The ADAA “respectfully requests that FinCEN recognize the clear intent of Congress to narrowly cabin the scope of the BSA amendments to only capture dealers in antiquities and not dealers in art.”
  • ACPCP: “Members in good standing of the top dealer’s organizations should be exempt (CINOA, IADAA, AADLA) as they are already required to observe strict business practices that preclude suspicious transactions.”
  • Therefore, CCP recommends that if regulations are imposed on antiquities dealers that [] the definition of an “antiquities dealer” should be limited to businesses that actually purchase and sell art and artifacts….”
  • 1stdibs.com, Inc.: “Thus, any definition of ‘trade in antiquities’ should be careful to exclude online marketplaces that are neither the buyer nor seller of goods. This is particularly important for marketplaces that support a broad range of items and are not specialized in or limited to antiquities.”
  • Christie’s: “SARs should be encouraged but not mandatory, similar to the requirements for precious metals dealers.”


Next Steps

Regular readers of CHL will recall that this blog has been calling for a law like the AML Act in posts since 2014. Now that the statute has been enacted, final rules must be adopted. The AML Act requires the US Treasury Secretary to issue proposed rules by the end of December, and it is expected that FinCen will publish a notice of proposed rulemaking in the coming weeks. That will prompt another comment period before Treasury issues a final rule.

Meanwhile, similar BSA AML/CFT requirements for art dealers, advisors, consultants, and others engaged in the art trade will have to wait. That’s because Congress asked "Treasury and its law enforcement partners [to] further study the risks posed by the facilitation of money laundering through the trade in art."

Stay tuned.



Text and original photos copyrighted 2010-2021 by Cultural Heritage Lawyer Rick St. Hilaire, a blog commenting on matters of cultural property law, art law, art crime, cultural heritage policy, antiquities trafficking, looted, antiquities, stolen relics, smuggled antiquities, illicit antiquities, museum risk management, and archaeology. Any unauthorized reproduction or retransmission without the express written consent of CHL is strictly prohibited. The materials presented on this site are for informational purposes only and do not constitute legal advice. Retain a lawyer to receive legal help. The provision of this information to the reader, moreover, in no way constitutes an attorney-client relationship. Blog url: culturalheritagelawyer.blogspot.com.