Art Market Actors Can Be Held Liable for Facilitating Sanctions Evasion, U.S. Treasury Warns
November 4, 2020
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an advisory targeting art market actors on October 30, warning them that doing business with individuals on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List)—even unwittingly—may render them civilly liable for facilitating sanctions evasion.
This “Advisory and Guidance on Potential Sanctions Risks Arising from Dealings in High-Value Artwork” noted that the art market features “a lack of transparency and a high degree of anonymity and confidentiality”—often manifesting in the form of shell companies and intermediaries that obscure the identities of buyers and sellers alike. Art itself, the advisory added, is generally mobile, concealable, and subjective in value, making it the ideal pawn for financial criminals.
The OFAC advisory named several examples of criminals previously suspected of using the U.S. art market to evade sanctions, including Russian construction and energy magnates Arkady and Boris Rotenberg—who, according to a 150-page report released by the U.S. Senate’s Permanent Subcommittee on Investigations in July, laundered no less than $18 million using high-value artwork.
“U.S. persons are generally prohibited from engaging in transactions, directly or indirectly, with persons on the SDN List, other blocked persons, and those covered by comprehensive country or region embargoes,” the OFAC advisory warned, stressing that civil penalties could be imposed on the basis of “strict liability”—that is, regardless of whether or not the art market actor in question knew that the transaction he or she was engaging in was prohibited.
While the Berman Amendment to the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) generally exempts the import or export of artwork from regulation, the OFAC advisory clarified that this exemption does not go so far as to free art market actors from the responsibility of ensuring that they are not engaging in a transaction that helps an individual on the SDN List evade sanctions, emphasizing that OFAC “will apply IEEPA- and TWEA-based sanctions to transactions involving artworks in which a blocked person, including a person on the SDN List, has an interest, to the extent the artwork functions primarily as an investment asset or medium of exchange.”
“U.S. persons involved in the high-value artwork trade should be mindful of this sanctions risk, and OFAC strongly cautions that any U.S. person considering a transaction with a blocked person involving high-value artwork should seek guidance or a license from OFAC,” the OFAC advisory concluded.
The International Consortium of Investigative Journalists published an article about the OFAC advisory on November 4. In preparing “Secretive high-end art world can be vehicle for dirty money, US Treasury warns,” reporter Spencer Woodman—who previously covered financial crimes in the art world when the FinCEN Files made headlines in September—spoke with Antiquities Coalition Executive Director Tess Davis.
“The advisory serves as another reminder that the $28.3 billion American art market is the largest unregulated industry in the United States,” Davis told ICIJ in an email.
That being said, as Woodman observed, the OFAC advisory “does not carry the force of law” — a fact that has led Davis to emphasize that “more action is needed.”
“If the US doesn’t act, we do risk our jurisdiction continuing to be a safe haven for criminals,” Davis said.
In order to encourage the United States to take decisive action against financial crimes in the U.S. art market, the Antiquities Coalition’s nonpartisan think tank convened the Financial Crimes Task Force. This diverse group of experts worked to create 44 recommendations for the U.S. government, the U.S. financial industry, the U.S. art and antiquities sector and the international community. The policies, practices and priorities it released on September 24—including a call for Congress to explicitly apply the BSA to dealers in cultural property—can be implemented to protect the American art market from money laundering, terrorist financing, sanctions violations, tax evasion, fraud, forgery, and related crimes.
For more information about the Financial Crimes Task Force and its recent report, click here.