Not a pretty picture: Money laundering and America's art market

Not a pretty picture: Money laundering and America's art market
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Last week, a U.S. Senate subcommittee released results of a bipartisan investigation that confirms what the Antiquities Coalition, which I chair, and many members of the anti-money-laundering community have long warned: Bad actors are exploiting the $28.3 billion American art market — with serious consequences for the United States and our national security. 

The 150-page report from the Permanent Subcommittee on Investigations (PSI) details how a pair of Russian oligarchs allegedly laundered at least $18 million through the American art market in recent years, evading U.S. sanctions imposed in March 2014 on Vladimir PutinVladimir Vladimirovich PutinWatchdog confirms State Dept. canceled award for journalist who criticized Trump Former intelligence agency director Robert Cardillo speaks out against 'erratic' Trump Kremlin: Putin calls for reset between US and Russia on cyber relations before elections MORE’s inner circle following his invasion of Ukraine. Sens. Rob PortmanRobert (Rob) Jones PortmanMcConnell locks down key GOP votes in Supreme Court fight Romney undecided on authorizing subpoenas for GOP Obama-era probes Congress needs to prioritize government digital service delivery MORE (R-Ohio) and Tom CarperThomas (Tom) Richard CarperThe conservative case for phasing out hydrofluorocarbons Democrat asks for probe of EPA's use of politically appointed lawyers Overnight Energy: Study links coronavirus mortality to air pollution exposure | Low-income, minority households pay more for utilities: report MORE (D-Del.) spearheaded this inquiry in the hope of discovering why the sanctions, which President TrumpDonald John TrumpFederal prosecutor speaks out, says Barr 'has brought shame' on Justice Dept. Former Pence aide: White House staffers discussed Trump refusing to leave office Progressive group buys domain name of Trump's No. 1 Supreme Court pick MORE continued this year, had not been more effective. A million documents, dozens of interviews and two years later, investigators have provided at least one answer: The art market’s continuing exemption from standard laws and regulations, which now cover all other sectors of comparable risk and size, gifted these sanctioned Russians with an easy backdoor into the world’s biggest economy. 

The subcommittee’s announcement was a surprise, but the scenario it illustrates is not. Nor is it likely that the two Russian billionaires cited in the report — construction and energy magnates Arkady and Boris Rotenberg — are alone in allegedly taking advantage of the art market’s loopholes. According to one congressional staffer, the PSI's published findings were “only the tip of the iceberg.” 

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We should have seen this coming — and, in fact, many did. The nearly 20 years since the 9/11 attacks have made clear that terrorists, money launderers, sanctioned individuals and other criminals can and will misuse our financial system. In response, policymakers, both here and abroad, have collaborated on creating laws, regulations and guidance for both the private and public sectors to detect, report and prevent the misuse of anything of value to enable illegal activity. 

Unfortunately, in the United States, that direction has not yet included the art market.

The PSI report correctly sounds the alarm that art remains “the largest legal, unregulated market in the United States.” Dealers, galleries and auction houses are not yet covered by our primary anti-money laundering law, the Bank Secrecy Act (BSA), which requires at-risk industries to assist the U.S. government in preventing and detecting financial crimes. The statute already applies to dealers in precious metals, stones and jewels, as well as sellers of automobiles, planes and boats, casinos, real estate professionals, travel agencies and pawnshops.

There is a clear need for reasoned regulations for all entities with financial footprints in the global economy. The art market is particularly vulnerable to abuse by organized criminals and terrorists, with its multibillion-dollar scale and long-standing culture of secrecy. It is no longer rational to exempt it from common-sense protections. 

We were thus pleased to see the PSI report join our calls in recommending that Congress "amend the BSA to add businesses handling transactions involving high-value art.” This would require such institutions to report suspicious activity, perform customer due-diligence and record-keeping and establish and maintain compliance programs. These are all good business practices that are already aligned with the art market’s own codes and standards. 

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Any changes to the BSA would provide an extensive "notice and comment" opportunity for all stakeholders, so there can be debate on any challenges, as well what constitutes appropriate programs and training for the art sector. Businesses operating internationally already face similar conversations. The European Union recently required those handling art transactions valued at 10,000 or more euros to comply with their anti-money-laundering laws, including verification of the identity of the seller, buyer and ultimate beneficial owner (which, as the name suggests, refers to the person or persons who ultimately benefit from its sale). The United Kingdom has similar legislation. Unless the United States takes similar action, we risk our jurisdiction becoming a safe haven for criminals, which is unacceptable given that we still make up 44 percent of the global art market.

Increased transparency is in everyone’s interest — including that of the market itself. Scandals, prosecutions and 150-page PSI reports rightfully erode faith in the art world and that, in turn, will affect the bottom line. Building trust, by conducting due diligence and other best practices, and staying within not only the letter but the spirit of the law and ethical guidelines, will help legitimate business to grow and remain competitive internationally.

However, the PSI report and its troubling revelations make clear that a push may be needed, lest some continue to hide behind voluntary guidelines to avoid their professional responsibilities. We thus ask Congress to finish this charge — already included in a number of pending bills — by applying the BSA to the art market immediately. For our national security and global standing, we must add the multibillion-dollar art industry to the community of private-sector combatants in the battle against money-laundering and terrorist financing.

Deborah Lehr is chairman and founder of the Antiquities Coalition, based in Washington, which works to fight the illicit trade in cultural property and its use in funding organized crime and terrorism.  Previously she worked in the US government and at the New York Stock Exchange and Merrill Lynch.