Artnet.com: 'New U.S. beneficial ownership register law seen likely to affect fine art dealers, investors'

Here, in a story originally published on news.artnet.com, New York-based journalist Eileen Kinsella explains how the new regulations – which took years to make it through Congress – currently target antiquities dealers, "but could soon apply across the art market", compelling fine art dealers to adopt anti-money-laundering practices whenever they handle the buying and selling of artworks, on behalf of U.S. taxpayers...

On Jan. 1, the Senate overrode President Trump’s veto of the National Defense Authorization Act, a bill that includes a new law requiring antiquities dealers to comply with the requirements of the Bank Secrecy Act. As a result, such antiquities dealers will now have to adopt anti-money laundering programs designed to root out illegal practices.

One of those requirements involves identifying and registering the so-called “ultimate beneficial owner”, or true owner, of a limited liability company (LLC). Now, savvy collectors and investors – who rely on offshore entities and shell companies to conceal their true identities when executing art trades, particularly high-value ones – will have a harder time doing so.

The US treasury department is expected to draft regulations on the specific policies that antiquities dealers must implement.

Congress has already given the department guidance on which topics to address, including suggesting that the regulations vary by the size of the business, the size of the transaction, the location of the transaction – and whether the dealer must identify the purchaser when he or she is working through an agent or intermediary.

The new regulations could also extend beyond the antiquities market.

This year, the treasury department is expected to complete a study on whether there is evidence of money laundering in the broader art market. The Senate banking committee will then use the findings to determine whether the same anti-money laundering provisions applied to antiquities dealers should apply to all art dealers.

According to one art law attorney, the outcome of that study is a foregone conclusion. "An alliance of government regulators, class-conscious legislators, and art market critics will seize upon the opportunity to convince the Biden cabinet to regulate the art business,” says Michael McCullough, of the New York firm Pearlstein and McCullough.

Observers in the auction and gallery art markets have been closely following the bill, which comes on the heels of related legal measures taken in the UK.

A representative for Christie’s said the auction house “welcomes the opportunity to work with U.S. regulators on appropriate and enforceable anti-money laundering guidelines.”

The Art Dealers Association of America (ADAA), meanwhile, has been in talks with congressional committees about the bill, with the hopes of balancing the burden on those in the trade.

“The ADAA has sought to ensure that any new regulation is adequately supported by data about the scale and scope of any identified problems,” the organization said in a statement.

Its legal and public policy advisers have been working with lawmakers to “generally introduce them to, and educate them about, the vibrant small businesses that make up the community of art dealers in the United States.”

Challenge of 'finding the right balance' 

Pearlstein and McCullough's McCullough says that the most difficult aspect of creating a workable anti-money laundering policy is "finding the right balance between complying with law and continuing to honor a client’s need for discretion and privacy". 

Washington, DC-based attorney Peter Tompa, who represents organizations that lobby for museums and dealers, agrees, noting that anti-money laundering programs typically cost thousands of dollars per year to implement, as well as significant time and effort on the part of those having to carry them out.

“The costs to small and micro business are substantial,” he says.

“Furthermore, it is impossible to ‘fly under the radar screen’ of such requirements; such regulations are enforced by the banks, which will close accounts that do not comply.”

Many in the industry say they’ve been expecting stricter legal scrutiny for a while. Last year, a subcommittee in the U.S. Senate issued a strongly worded report on the international art market, calling it the “largest legal unregulated market in the United States.”

That analysis left “no doubt,” according to attorney Nicholas O’Donnell, “that regulators have the art market in their sights, and the market must respond if it wants to have a say in the oversight that is sure to come.”

FinCEN to oversee U.S.
beneficial ownership register 

As reported by the American Expat Financial News Journal last week, the passage of the Corporate Transparency Act, which was sponsored by Democratic New York City Congresswoman Carolyn Maloney, would have come as a surprise to some observers, who never thought the U.S. would ever agree to a beneficial ownership register.

But now, as a result of the bill's provisions, going forward, corporations, limited liability companies and “similar entities” all will be soon begin having to disclose their "beneficial owners" to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

FinCEN will be responsible for storing and reviewing the information it receives under the new regime, which will not be available to the public, unlike some other beneficial ownership registries.

This article was published with the permission of Artnet News, the news affiliate of ArtNet.com, a fine art market website with offices in New York, London and Berlin, where it originally appeared on Jan. 6, under the headline "Lawmakers Are Cracking Down on the ‘Unregulated’ US Art Market. Here’s How a New Anti-Money Laundering Law Will Affect Dealers", and written by Eileen Kinsella. 

To read it on the news.artnet.com website, click here.