US Treasury report says increased art market regulation not urgent – ARTnews.com

The US Treasury Department has released a new report on findings related to illicit activity in the high-end art market. The department found that while the $50 billion industry is vulnerable to various financial abuses such as money laundering, other regulatory issues take higher priority. The study concluded that further government regulations are not immediately needed.

The market sector most vulnerable to illicit art-related transactions are companies offering financial services, which are not legally bound by any anti-money laundering or anti-terrorism standards, according to the report. Meanwhile, the Art Collateral Loan “can be used to disguise the original source of funds and provide cash to criminals,” according to the report. The Treasury also found that smaller galleries and museums, which transact at a lower price and volume, were less vulnerable to illegal activity than larger sellers like auction houses.

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Terrorist financing, an illegal business through which funds are funneled to terrorist groups, is “a lower risk area” in the art market, perhaps due to the vast geographic distance between global centers of art market and the regions where terrorism is most active. A few instances of such funding have been identified in countries such as Lebanon and the Democratic Republic of Congo., but there was “limited evidence” of links between terrorists and the highest echelons of the art market.

The Treasury has noted several documented cases where the art has been used by international actors such as Russian oligarchs to Nigerian state officials to launder money and evade government sanctions. Describing art as a “highly mobile” asset class, the study says these cases have demonstrated how valuable works of art can serve as vehicles for international transactions to go undetected between countries.

A senior Treasury official who oversaw the study, Scott Rembrandt, said in a statement that “bigger underlying issues are at play” within the art market network, such as service providers financiers complicit in clients’ illegal activities and the abuse of front companies to conceal transactions due to surveillance – are of more immediate concern to the US government. Policies elsewhere in the world have also emphasized verification of individual activities in commerce. A new law in the UK that came into effect in 2020 requires dealers and auction houses to identify their buyers and sellers, whose sources of wealth must now be verified before transactions.

The US agency recommended that in order to mitigate financial abuse in the art market in the future, a system allowing financial firms and art sellers to share information about suspicious clients could be a potential solution. The study proposed a database among companies that links unusual user activity to artistic transactions. According to Rembrandt, while some malicious actors have abused certain sectors of the high-end art market, the study found that these risks “may not reach a critical national security threat or vulnerability.”

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