News
Print Article

OFAC issues new art world guide (warning)

09/11/2020

At the end of October, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), its sanctions administration, issued a new advisory on the potential abuse of the high-value art market by Specially Designated Nationals and Blocked Persons (SDNs).

https://home.treasury.gov/system/files/126/ofac_art_advisory_10302020.pdf

https://www.arnoldporter.com/en/perspectives/publications/2020/11/ofac-issues-guidance-on-sanctions-in-art-scene

According to OFAC, high-value artwork is any piece valued at more than $100,000.

The advisory highlights that the art market is exceptionally vulnerable to a range of illicit activities, including sanctions evasion, because of “the mobility, concealability, and subjective value of artwork.” Historically the trade has also been notoriously opaque, with anonymity and secrecy for buyers and sellers the commonly accepted norms, and shell companies and intermediaries used to facilitate the trade and provide ‘cut outs’ for those involved.

To make the point, the advisory notes several cases in recent years where high-value art has played such a role. In December 2019, for example, the US designated Nazem Said Ahmad, a Lebanon-based art collector, for providing alleged support to to the Islamist extremist group, Hizballah.

https://news.artnet.com/art-world/sanctions-nazem-ahmad-art-collector-1734558

According to the US government, Ahmad was one of the group’s major financial backers, and he and his business organisation were used by the group to undertake terrorist financing and money laundering activities.

Ahmad is alleged to have invested funds in high-value artwork in an attempt to avoid the impact of US sanctions, opening an art gallery in Beirut as a front. At the point of designation, Ahmad’s collection included works by Pablo Picasso and Andy Warhol, and was worth tens of millions of US dollars.

The advisory also highlights how the North Korean regime has earned tens of millions of US dollars by selling pieces from the Mansudae Art Studio, an art studio in Pyongyang, to galleries in the People’s Republic of China and Hong Kong. It further notes the examples of brothers Arkady and Boris Rotenberg, Russian oligarchs designated by OFAC in 2014, who the US Senate Homeland Security Committee recently alleged to have used a complex shell company structure to purchase art after they were designated.

To tackle these kinds of risks, OFAC stresses the need for all relevant players on the high-value art market – galleries, museums, private collectors, auction companies, agents and brokers – to undertake a risk-based sanctions and AML/CFT compliance programme.

It also states that any potential involvement with a designated individual or entity should prompt immediate engagement with OFAC for guidance, and an application for a potential license to undertake a transaction. This might be allowed depending on the specific circumstances.

Nonetheless, the advisory still takes a strong enforcement line, stating that OFAC will enforce sanctions on transactions involving high-value art in which an SDN has any interest, if there are reasons to believe that they are using it as “an investment asset or medium of exchange” for future conversion into cash, gold or VAs. The advisory further clarifies that the department sees no exemptions under the so-called ‘Berman Amendment’ to the International Emergency Economic Powers Act (IEEPA), which allows any import or export of information-based materials.

Although it is not clear whether any specific case or strategic trend has prompted the issue of this new advisory, it comes as one more example of an increasing emphasis by a wide range of law-makers and regulators on the potential abuse of the art market by financial criminals. The EU’s 5th Anti-Money Laundering Directive (5AMLD), for example, brought high-value art market players within the scope of AML/CFT obligations, and all member states were expected to have transposed the requirement into law by January of this year. The UK – one of the world’s leading locations for the art trade – has also introduced the same requirements.

Despite the industry’s past reputation – and almost accepted status – as a murky place to do business, levels of regulatory expectation from authorities are now rising. It seems clear that all those involved in the high-value market will need to take a more forward-leaning approach towards fighting financial crime in the future, and as the OFAC advisory notes, a key element in doing so will be thorough effective client due diligence.

General

The Team

Meet the team of industry experts behind Comsure

Find out more

Latest News

Keep up to date with the very latest news from Comsure

Find out more

Gallery

View our latest imagery from our news and work

Find out more

Contact

Think we can help you and your business? Chat to us today

Get In Touch

News Disclaimer

As well as owning and publishing Comsure's copyrighted works, Comsure wishes to use the copyright-protected works of others. To do so, Comsure is applying for exemptions in the UK copyright law. There are certain very specific situations where Comsure is permitted to do so without seeking permission from the owner. These exemptions are in the copyright sections of the Copyright, Designs and Patents Act 1988 (as amended)[www.gov.UK/government/publications/copyright-acts-and-related-laws]. Many situations allow for Comsure to apply for exemptions. These include 1] Non-commercial research and private study, 2] Criticism, review and reporting of current events, 3] the copying of works in any medium as long as the use is to illustrate a point. 4] no posting is for commercial purposes [payment]. (for a full list of exemptions, please read here www.gov.uk/guidance/exceptions-to-copyright]. Concerning the exceptions, Comsure will acknowledge the work of the source author by providing a link to the source material. Comsure claims no ownership of non-Comsure content. The non-Comsure articles posted on the Comsure website are deemed important, relevant, and newsworthy to a Comsure audience (e.g. regulated financial services and professional firms [DNFSBs]). Comsure does not wish to take any credit for the publication, and the publication can be read in full in its original form if you click the articles link that always accompanies the news item. Also, Comsure does not seek any payment for highlighting these important articles. If you want any article removed, Comsure will automatically do so on a reasonable request if you email info@comsuregroup.com.