On 30 October 2020, OFAC issued an advisory and guidance on the potential sanctions risks arising from dealing in high-value artwork. OFAC’s publication is not necessarily a new area of concern – similar risks have presented with the trade of and dealing in precious gems and antiquities as means of money laundering and terrorism financing. However, as the world uncovers more clever sanctions evasion tactics by designated parties – as seen in the shipping industry – a refresher for high-value assets like artwork is due.
In the advisory, OFAC highlights the following vulnerabilities in the art industry:
- Lack of transparency
- High degree of anonymity and confidentiality
- Shell companies and/or intermediaries (art dealers) are commonly employed to sell, purchase, and hold the pieces – similarly to process payments between the sellers and purchasers
As expected with much of OFAC’s guidance, the advisory includes encouragement for galleries, museums, private collectors, auction houses, agents, brokers, and other such industry participants, to implement a risk-based compliance program to mitigate sanctions risks. OFAC emphasizes that facilitation of transactions indirect or direct with specially designated nations (SDNs) would generally be prohibited and may result in civil penalties regardless of intent or active participation.
Furthermore, this guidance explained that transactions are not necessarily exempt from OFAC regulation under the Berman Amendment to the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) that “generally exempts from regulation “the importation from any country, or the exportation to any country . . . of any information or informational materials, including but not limited to . . . artworks.” 50 U.S.C. § 1702(b)(3); 50 U.S.C. § 4305(b)(4).” OFAC specifies the following conditions in which transactions would be subject to their purview:
- Transactions conducted in which blocked persons or their facilitators attempt to evade sanctions by exchanging financial assets (i.e. cash, gold, or cryptocurrency) for high-value artwork or vice versa;
- Transactions involving artworks in which a blocked person (including an SDN), has an interest, to the extent the artwork functions primarily as an investment asset or medium of exchange.
In a time in the world when economies are struggling and many people are turning to alternative forms of payment or liquation of assets to get by – the manipulation of these luxury industries is appropriately opportunistic. To protect yourself, your assets, and the fine arts world, heed OFAC’s warning by introducing the following measures to your business:
- Require vendors to provide names and addresses – sign & date form authorizing sale;
- Verify the identities and addresses of all new vendors and customers, particularly in high risk geographies (i.e. Sub-Saharan Africa for diamonds/gems, the Middle East for antiquities, Venezuela or Russia for artwork);
- Take note of proposed sales at higher than market value, report any items believed to be stolen;
- Avoid cash or other such low-digital footprint transactions;
- Be informed of all relevant and applicable financial crime and sanctions regulations; and
- Appoint a designated compliance officer to manage, investigate, and when necessary report suspicious activities.
“The mobility, concealability, and subjective value of artwork further exacerbate its vulnerability to sanctions evasion,” OFAC said in the advisory.