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Treasury releases report on money laundering risks in the art market

When the Anti-Money Laundering Act 2020 (AMLA) was passed, the definition of a ‘financial institution’ was expanded to include anyone “engaged in the trade of antiquities, including an advisor, a consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” 

June 8, 2022
KYC News
Fintech
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When the Anti-Money Laundering Act 2020 (AMLA) was passed, the definition of a ‘financial institution’ was expanded to include anyone “engaged in the trade of antiquities, including an advisor, a consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” 

In addition, AMLA also directed the Secretary of the Treasury, in coordination with the FBI, the Attorney General, and Homeland Security Investigations, to launch a study to identify potential money laundering risks in the art market.

Earlier this month, the Treasury Department finally released its findings on the money laundering risks related to high-value art. Overall, the study concluded that the market is “ripe for regulatory arbitrage”. This is because:

  • The dollar value of single transactions is high
  • It’s easy to transport works of art
  • There’s a long-standing culture of privacy in the market
  • Purchases are often made with cash
  • There’s a lack of transparency relating to private transactions
  • Prices are highly subjective
  • Purchases are often made using shell companies

As part of their report, the Treasury Department also noted that three common money laundering schemes are likely to affect the high-value art market. These are:

  1. Offering and accepting art as payment to integrate illicit proceeds into the financial system
  2. Buying art with illicit proceeds, holding it for extended periods of time, and later selling it for a profit
  3. Using art as collateral for loans to disguise the original source of the funds

Concerns over online art and NFTs

The most significant finding of the study related to the emerging online art market, which is creating new money laundering risks. This is because, not only is the market growing rapidly (sales more than doubled during the pandemic), but the virtual nature of the market means there are additional obstacles when it comes to verifying buyer identity. Similarly, it’s difficult to regulate peer-to-peer transactions in third-party marketplaces.

On top of this, NFTs are creating unique and unprecedented challenges to AML practices. This is because direct peer-to-peer NFT transactions and the ability to instantaneously conduct cross-border transactions make the digital art market susceptible to exploitation.

Within the report, the Treasury Department noted that fraudsters could use illicit funds to purchase an NFT, and then engage in multiple resales among themselves to project legitimacy and artificially inflate the NFT’s price. Following this, they could sell the NFT to a buyer for ‘clean money’. 

In an attempt to address the highlighted risks in both the traditional and digital art markets, the Treasury Department has recommended several regulatory and non-regulatory actions for market participants and government agencies, including:

  • Market participants could create information sharing programs to enable buyer transparency and grant government access to information in investigations
  • Government agencies could increase their focus on financial crimes involving high-value art in guidance and training for law enforcement to better understand how to identify and investigate such transactions
  • FinCEN could seek more detailed information from institutional market participants to disincentivize criminals to launder funds through that market or impose comprehensive AML measures on certain participants

Ensure AML compliance with Veriff

The regulatory landscape relating to AML policies is changing constantly. Regardless of whether you’re involved in the art market, the fintech space, or gaming, you need to actively keep up with ever-changing regulations and ensure you know exactly who your customers are.

Thankfully, our AML and KYC compliance solution can help you fight financial crime and show regulators that you take compliance seriously. It can verify the identity of your customers, check them against PEP and sanctions watchlists, and provide ongoing monitoring.

To discover more about how our solution can help you meet your compliance requirements, book a demo with our team today.