July 22, 2019

July 22, 2019

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New Application of Anti-Money Laundering Rules to Art Transactions

Art dealers and intermediaries are about to face new transparency regulations in several European nations. Art brokers and dealers involved in any cross-border transactions with people in E.U. nations should pay careful attention to the new rules as they roll out over the next year.

I. New European Union Rules

A recent European Council Directive will likely have a significant impact on European art and antiquities transactions by requiring brokers and dealers to identify buyers and sellers in most transactions.  The Directive, intended to increase transparency in the art market, aims to make it harder to launder money through anonymous art sales.

This Directive builds on more broadly applicable European Council directives designed to prevent abuse in financial transactions. (Council Directive 2015/849, art. 2 (EU) (“Fourth EU Money Laundering Directive”)). The Fourth EU Money Laundering Directive targets both money laundering, i.e., the transfer, concealment, or acquisition of property derived from criminal activity, as well as terrorist financing, i.e., providing funds that may be used to carry out terrorist activities.  (Fourth EU Money Laundering Directive, art. 1).

The recent Fifth EU Money Laundering Directive expands the scope of these rules to art dealers and brokers, specifically:

persons trading or acting as intermediaries in the trade of works of art, including when this is carried out by art galleries and auction houses, where the value of the transaction or a series of linked transactions amounts to EUR 10 000 or more; and

persons storing, trading or acting as intermediaries in the trade of works of art when this is carried out by free ports, where the value of the transaction or a series of linked transactions amounts to EUR 10 000 or more.

(Council Directive 2018/843, art. 1 (EU) (“Fifth EU Money Laundering Directive”)).

Under the new Fifth Directive, art gallerists, auction houses, brokers and dealers must conform to due diligence requirements designed to increase transparency, including:

…identifying the customer and verifying the customer's identity…

identifying the beneficial owner and taking reasonable measures to verify that person's identity…

verify[ing] that any person purporting to act on behalf of [a] customer is so authorised and identify[ing] and verify[ing] the identity of that person…

(Fourth EU Money Laundering Directive, art. 13).

The Fifth EU Money Laundering Directive will have a significant impact on legitimate art transactions.  Those involved in such transactions will need to take appropriate steps to determine the real parties in interest in the art transaction. This requirement runs counter to the industry practice in many transactions, where agents and intermediaries sometimes control information about the ultimate buyer.

The Fifth EU Money Laundering Directive became operative on July 9, 2018 but has no force until adopted in the national law of EU Member states. States have until January 2020 to adopt the provision into their national laws. Electronic copies of the Directives may be found here and here.

II. New Rules in the U.S.

U.S.-based art dealers, brokers, gallerists and auction houses should carefully consider how the Fifth Directive will apply to them if they are involved in art transactions occurring at least in part in E.U. Member states that have implemented the Directive in their national law. As with other E.U. rules, such as the E.U. General Data Protection Regulation, the applicability of E.U. law to U.S. entities is not always straightforward.

Here in the U.S., legislators have proposed similar rules, but none have yet been acted on. In the last session of Congress, a bipartisan House bill was introduced to amend the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq) to include “dealers in art or antiquities.” (115 H.R. 5886). Like the E.U. Fourth Directive, the Bank Secrecy Act aims to prevent money laundering and terrorist financing, in part through recordkeeping standards and mandated reports of possible criminal activity. If the Act were amended to include those involved in art transactions, art dealers would be subject to the same requirements.

Electronic copies of the proposed bill (now expired) can be found here, and the Bank Secrecy Act can be found here.

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Jonathan Freiman Lawyer Wiggin Dana Law Firm
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Jonathan represents companies, foundations, universities, individuals, and sovereign nations in complex disputes, including appeals, disputes over art and artifacts, and complex transnational litigation.

He represents clients in appellate and post-trial matters nationwide, having handled appeals in almost every federal circuit court and in state appellate courts from Florida to California to New York. He has successfully vindicated clients’ most important intellectual property interests on appeal, including defeating a Nobel Prize winner in...

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David Hall corporate lawyer Wiggin and Dana
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David joined Wiggin and Dana after more than two decades as a federal prosecutor with the U.S. Department of Justice (DOJ). His experience investigating and prosecuting high-stakes cases makes him uniquely qualified to represent clients needing a seasoned counselor and trial lawyer.

David is a member of several of the firm's practice groups that draw on his government experience, including International Trade Compliance; White Collar Defense, Government Investigations, and Corporate Compliance; Cybersecurity and Privacy; Unmanned Aerial Systems; and Art and Museum Law.

He represents corporations and individuals in investigations and prosecutions by the DOJ and other federal and state agencies and in complex civil litigation. He conducts internal investigations and corporate compliance assessments for companies, including those in the defense, financial, and health care industries. He advises clients concerning the Foreign Corrupt Practices Act, the False Claims Act, and cybersecurity and data privacy, including assessments of policies and procedures, as well as data breach preparation and response.

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Timothy Cowan litigation lawyer Wiggin and Dana
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Tim is an Associate in Wiggin and Dana’s Litigation Department in the New Haven office.

Before joining Wiggin and Dana, Tim was a summer associate for The House of Representatives Legislative Counsel. Prior to that, he was an extern for Magistrate Judge Stephen C. Williams in the Southern District of Illinois, and a legal intern for the Equal Housing and Opportunity Council, Lawyers for Human Rights in South Africa, and the Suffolk County District Attorney’s Office.

Tim received his J.D., cum laude, from Washington University School of Law, where...

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