ALERT: Art market participants should be aware that OFAC has issued an advisory concerning high-value artwork, defined as that which has an estimated market value of more than $100,000. Violating OFAC regulations constitutes a strict liability offense, meaning that the accused party need not have knowledge that a person or intermediary has been blocked or sanctioned to be found liable. When engaging in a transaction involving high-value artwork, art market participants should consult OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) and potentially request a license from OFAC. They should also implement compliance programs to help minimize risk across the board and consult with legal counsel regarding specific vulnerabilities.
On October 30, 2020, the Office of Foreign Assets Control (OFAC) within the U.S. Department of the Treasury issued an advisory to art market participants, concerning dealings in high-value artwork. OFAC considers “high-value artwork” as that which has an estimated market value of more than $100,000. The advisory follows the release of an extensive Senate report in July 2020, whose findings revealed how two Russian oligarchs used the U.S. art market to evade sanctions for years. Notably, the bipartisan report detailed how a relatively lax regulatory approach to the art market in the US has created “an environment ripe for laundering money and evading sanctions.” The report recommends amending the Bank Secrecy Act, adding high-value art to the list of regulated transactions that require background checks and identity verification. Unlike the EU and UK, the US does not have anti-money laundering regulations for art market participants in place.
OFAC is now putting art market participants on notice that they may be at risk of sanctions when dealing in high-value artwork, if transactions ultimately involve blocked persons (particularly those on OFAC’s List of Specially Designated Nationals and Blocked Persons, or SDN List). OFAC’s advisory and guidance urges art market participants – including art galleries, museums, private art collectors, auction houses, agents, and brokers – to implement and maintain risk-based compliance programs as a mitigating measure. Since the art market operates with a lack of transparency and a high degree of anonymity, blocked persons can (and do) evade sanctions by using third parties and shell companies to complete transactions. These transactions are not automatically exempt from OFAC regulations, and may result in million-dollar fines.
It appears the trend towards art market regulation in the US will continue, particularly in light of COVID-19’s effects on online risks. OFAC’s advisory is likely a precursor to future legislative action, and art market participants should therefore be cautious when it comes to high-value artwork.