Encouraging Responsible Markets and Trade Practices

The National Defense Authorization Act for Fiscal Year 2021 (NDAA), among other things, comprehensively modernizes the Bank Secrecy Act (BSA) and provides for the establishment of a coherent set of risk-based priorities. The BSA was first enacted in 1970 and remains the regulatory framework for AML and counter-terrorism financing efforts in the United States. After almost twenty years without major reform, today’s BSA update brings much needed provisions that adequately address present day challenges and opportunities.

Under the BSA—which, again, is the country’s primary AML law—designated entities must assist the government in preventing and detecting financial crimes. While what this requires varies according to the individual or institution involved, in general, the law reinforces good business practices like performing customer due diligence and record keeping. In some cases, it may also involve anonymously reporting suspicious activity. In addition to expected businesses, such as banks, the statute already applied to sellers of precious metals, stones, jewels, automobiles, planes, and boats, as well as to casinos, real estate professionals, travel agencies, and pawn shops.

The overarching goal in making these changes is to broaden the mission of the BSA to safeguard national security. The update closes significant gaps in AML and counter-terrorism financing efforts, including by adding the trade in antiquities to coverage under the BSA. In addition, the U.S. Department of Treasury and its law enforcement partners will conduct a study on the risks posed by the facilitation of money laundering through the art market.

Title LXI, “Strengthening Treasury Financial Intelligence, Anti-Money Laundering, and Countering the Financing of Terrorism Programs,” closes a major loophole by beginning to remove the art market’s current exception from what are now standard laws and regulations protecting all other sectors of comparable risk and size—and, with them, our national security and economic integrity.

Specifically, Sec. 6110(a) applies the BSA to “a person 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.”

Importantly, Sec. 6110(b)(2) requires the Secretary of the Treasury (acting through the Director of FinCEN), in coordination with the FBI, HSI, and Attorney General, to consider the appropriate scope for the rulemaking before issuing a proposed rule. The antiquities market’s input will be critical to tailoring effective rules during the “notice and comment” period to come. But, judging from other sectors, regulations would likely include anonymously reporting suspicious activity, performing customer due diligence, and record keeping. So, basically, good business practices in the 21st century, which are already required by the art market’s own industry guidelines and best practices.

As its name suggests, the BSA clearly applies to banks, but it also covers a wide range of businesses much more similar to the art market—sellers of precious metals, stones, jewels, automobiles, planes, and boats, as well as casinos, real estate professionals, travel agencies, and pawn shops.

The art market’s absence from this list has long been a major loophole, the consequences of which were made clear in the bipartisan Congressional report The Art Industry and U.S. Policies that Undermine Sanctions, released in July 2020. This report, published by the U.S. Senate’s Permanent Subcommittee on Investigations after a two-year investigation, revealed how a pair of Russian oligarchs evaded sanctions and laundered millions of dollars through leading American auction houses and dealers. The art market’s continuing exemption from standard laws and regulations gifted these sanctioned Russians with an easy backdoor into the world’s biggest economy.

Recognizing this, Sec. 6110(c) requires that the Secretary of the Treasury, in coordination with the Director of the FBI, the Attorney General, and Secretary of Homeland Security, conduct a study of the art market, considering almost exactly word-for-word the same considerations as taken in rule-making for the antiquities market.  The important distinction is that Sec. 6110(c) does not require a rule to be issued following the conclusion of the study.  Notably, the study will determine whether information on certain transactions in the trade of works of art has a “high degree of usefulness” in criminal, tax, or regulatory matters.