[co-author: Ashley Connelly]

On New Years Day 2021, Congress passed the 2020 Anti-Money Laundering Law (AMLA 2020). As we reported last April, the 2020 LBA included sweeping reforms aimed at strengthening protections against money laundering, terrorist financing, and other illegal activities. In previous installments in this series, we have discussed the new expanded beneficial ownership requirements and significant improvements to the Bank Secrecy Act (BSA) whistleblower program under the law. In this third installment of the series, we will examine the extension of BSA / anti-money laundering (AML) obligations to antique dealers, which to date have not been subject to AML rules and regulations.

On September 24, the Financial Crimes Enforcement Network (FinCEN) published an advance notice of a regulatory proposal seeking comment on the implementation of a provision of the AMLA 2020 requiring dealers in antiques, an industry that was largely part not regulated until now, be subject to the AMLA. rules under the BSA. For years, lawmakers and watchdogs have expressed concern that bad actors are exploiting the secrecy of the antiques trade to facilitate money laundering and terrorist financing.[1] Recent headlines about the looting of cultural heritage sites in the Middle East and the sale of artifacts from those sites on the black market have amplified these concerns.

AMLA 2020 requires regulation of the antiques trade by amending the BSA to include antique dealers, including advisers, consultants or anyone else who engages as a business in the solicitation or sale of antiques. ‘antiques. Entities regulated by the BSA must implement rigorous procedures to prevent illicit financial activity and ensure compliance with the law, including monitoring transactions for potential red flags, reporting suspicious activity and carrying out an investigation. rigorous vigilance with regard to customers. Under this heading, there is a range of requirements applied to different types of regulated entities. The FinCEN opinion invites practical comments on how best to implement the legal requirements for the antiques trade. Comments are due by October 25, 2021.

The FinCEN advisory invites comment on a wide range of questions that will help them identify who qualifies as an antique dealer, what an antique is, and what effective know your customer requirements should look like on the market. antiques market. To answer these questions, FinCEN could take a similar path to the one it followed by extending the BSA to trade in precious metals, stones and jewelry in 2005. However, FinCEN is seeking comments on how AML risks in the antiques trade arise and, based on these comments, may place more or less onerous requirements on dealers in that space, including possibly requiring the reporting of suspicious activity.

Below, we discuss some of the key areas and issues that FinCEN seeks to explore in this request for comment.

Antiques market background. As a first step, FinCEN researches information on the basics of the antiquities trade in order to define the categories of entities and persons who may be subject to regulation. The agency wants to know if there are commonly understood definitions of the roles and responsibilities of those involved in the trade. He also asks how to distinguish a work of art from an antique. In addition, the opinion asks for information on how antique transactions are conducted: are they financed or paid in cash? FinCEN would also like to know where the funds for a transaction typically come from. In addition, the agency wants to get information on the distribution of the antiques market based on the value of transactions (for example, X% of all transactions are greater than $ Y), which can be useful to the agency. to establish value thresholds in order to determine both which market participants should be regulated and which types of transactions should be subject to reporting obligations.

Information flow and exchange. Second, FinCEN is interested in learning about the current antiques market experience with money laundering and other illicit financial activities. For example, what information do people involved in a transaction typically have access to? What information does the buyer receive about the seller and what information does or should the buyer be entitled to? What information does the seller receive regarding the buyer and the payment? FinCEN also wants to know why this information can be withheld in certain transactions. FinCEN then asks which areas of the antiques market are particularly vulnerable to illicit financial activity. The agency wants to understand if these factors can be based on geography and how participants based abroad can affect the risk factors in a particular transaction.

Current AML standards. Third, FinCEN is seeking feedback on how the antiques market is currently managing these risks. The agency is seeking comments on the safeguards currently implemented by the market to protect against illicit financial activity. For example, the agency wants to understand the type of due diligence that market players currently perform in different types of transactions and which market players can identify and most effectively guard against illicit financial activity.

Implementation of final rules. Finally, FinCEN asks for detailed comments on how its final rules should be implemented to most effectively combat money laundering in the antiques market. FinCEN wishes to explore to what extent it would be possible to distinguish antiques transactions by amount and purpose (e.g. for-profit or not-for-profit activity) and how to approach the definition of these limits. FinCEN would also like to understand how the weight of the existing regulatory framework for financial institutions would affect the antiques trade. For example, how would KYC requirements apply in this context and what potential negative effects could disclosures have on business?

While the scope and extent of these new rules remains uncertain, bringing the antiques trade under the BSA regulatory framework will undoubtedly be a sea change for a well-established global industry which, until now, operated without regulation. Interested market participants have until October 25 to submit comments on the many critical aspects of this rule. In particular, given the agency’s relative ignorance with this industry, the comments received by FinCEN have the potential to significantly affect the final rulemaking process.

We will continue to monitor developments and provide an update as these regulations take shape. In the meantime, interested parties should consult with legal counsel regarding the potential implications of FinCEN’s opinion for their particular activities and determine whether comments on any aspect of the agency’s proposal would be prudent.

End Notes

[1] Staff S. Comm. On the homeland Sec. & Gov’t Affairs, 116th Cong., Representative on the art industry and US policies that undermine sanctions (2020).

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