Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art
- Source: Treasury.gov
Treliant Takeaway:
Firms and platforms in the digital art market may have AML/CFT obligations under FinCEN’s rules for money service businesses (MSBs) in the US and should consider setting up a risk-based AML/CFT compliance program including appropriate due diligence, monitoring and reporting. Treliant’s team of Global Financial Crimes Compliance experts can help.
Highlights:
The U.S. Department of Treasury published a study on February 4, 2022 about the risks of money laundering (ML) and terror finance (TF) through the trade of art.
Summary of the salient take-aways from the study:
- Non-fungible tokens (NFTs)[1] and the emerging online market may present new ML risks. Due diligence of potential buyers and sellers is less common in exchanges that host digital art transactions.
- Some platforms that trade in NFTs may be considered as virtual asset service providers (VASPs) by FATF and may come under FINCEN regulations.
- There is some evidence of ML risk in the institutional high-value art market but little evidence of TF risk.
- The high-dollar value of individual art transactions, the ease of transporting works of art, the culture of privacy including private transactions, and the increasing use of art as an investments makes trading in high-value art susceptible to ML. In addition, ML risk may be increased due to involvement of illicit and bad actors facilitating transactions by bribing merchants, professionals and financial service employees.
- Aspects of the Institutional high-value art market make it a poor option for money laundering. Use of cash is infrequent and financial institutions are required to report high-value cash transactions. Additionally, some market participants (including select auction houses and galleries) perform due diligence on potential buyers and sellers. The due diligence is voluntary and most art market participants are not subject to anti-money laundering/countering the finance of terrorism (AML/CFT) regulations.
- The study concludes that the art market should not be an immediate focus for the imposition of comprehensive AML/CFT requirements, given other sectors that pose ML/TF risks.
[1] NFTs are digital units, or tokens, on an underlying blockchain that represent ownership of images, videos, audio files, and other forms of media or ownership of physical or digital property.
Author
