The Art Industry Must Prepare for Congressional Increasing its Regulation of Money Laundering in the Art Market
November 24, 2021
In efforts to increase its regulations on the art industry, Congress has expanded the scope for financial institutions to regulate and scrutinize art-related transactions. Specifically, the Financial Crimes Enforcement Network of the United States Department of Treasury (“FINCEN”), earlier this year, issued formal notice to financial institutions of efforts related to trade in antiquities and art. In its FIN-2021-NTC2 notice, FINCEN informed the financial instructions about (1) the Anti-Money Laundering Act of 2020 efforts related to trade in antiquities and art, (2) information about existing illicit activity related to antiquities and art, and (3) provide specific instructions for filing Suspicious Activity Reports related to trade in antiquities and art.
The purpose of the United States Anti Money Laundering Act codified in 31 United States Code § 5312 was to “to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations, or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.” 31 U.S.C. § 531. Ever since the enactment of the anti-money laundering rules, Congress has required financial institutions to expand the filing of reports related to art dealers of antiquities.
This year, Congress passed legislation to expand the definition of financial institutions that must acquiesce to the reporting rules. The Bank Secrecy Act has expanded its application to dealers in antiquities for subsection of § 5312 to include the following “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities”. For the time being, the word “antiquities” has not been formally defined by Congress, and it is anticipated that formal regulations will be issued before or around the date this act is enacted.
Moreover, those in the art industry, particularly those involved with the dealing of antiquities, must be aware of potential reporting requirements they must adhere to because of the enactment of the act. Upon issuance of the act, art dealers who engage in the trade of antiquities may have to timely file beneficial ownership information reports with FINCEN on an annual basis. Specifically, it is the reporting company related to the engagement of the trade of antiquities who must file the beneficial ownership information report, which includes corporations, limited liability companies (“LLC”), or other entities that have been selected to report the beneficial ownership information. See H.R. 6396 Section 6403(a)(11).
In addition to the expanded requirements for art dealers of antiquities, it is also anticipated that the FINCEN of the United States Department of Treasury is to release guidance and/or pass further legislation expanding its regulation of art dealers outside of the context of the dealing of antiquities as well. Such expansion may increase the reporting requirements for art dealers to the FINCEN on an annual basis as well.
Each year, taxpayers pay substantial fines and penalties related to its inadvertent and non-willful failure to comply with FINCEN reporting requirements. These penalties and fines are enforced by the United States Department of Treasury and could result in an expensive bill for taxpayers without little recourse. Thus, it is important for taxpayers in the art industry to be aware of its reporting requirements to the United States Department of Treasury.
In sum, taxpayers can save a lot of money simply by being attuned to their FINCEN reporting requirements. If you are an art dealer who seeks advice regarding disputes or compliance with the Internal Revenue Service or FINCEN, please do not hesitate to contact our firm if you have any questions.
Author: Rami M. Khoury, Attorney
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