Congressman Wants Bank Secrecy Act to Regulate Art Trade

By CCP staff

This article appeared first on May 28, 2018 on the Cultural Property News website.
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June 28, 2018 – Congressman Luke Messer, an Indiana Republican, wants art dealers to be covered by anti-money laundering laws regulating banks and traders in bullion and precious stones. On May 18, Congressman Messer introduced HR 5886, subtitled, “The Illicit Art and Antiquities Trafficking Prevention Act,” which would apply the Bank Secrecy Act to dealers in art and antiquities. The bill is now before the US Congress’ House Financial Services Committee.

According to Congressman Messer, HR 5886 is intended to “reduce international money laundering and crack down on terrorist organizations like ISIS.”

Passage of HR 5886 would give the Treasury Department discretion to add dealers in antique coins, art and antiquities, even small businesses selling $50,000 per year, to the Bank Secrecy Act, 31 USC § 5312. Currently, the Bank Secrecy Act applies to banks, financial institutions, credit card institutions, casinos, and dealers in precious metals. The regulations are not specified in the bill, but release from Congressman Messer suggests that they will be similar to those applied to the category of dealers in precious metals, stones and jewels (31 CFR 1027.100).

If so, similar regulations would require detailed reporting to the Department of the Treasury Financial Crimes Enforcement Network (FinCEN). The detailed inventory, customer identification, and audit requirements would place a significant cost and time burden on small art businesses.

In other regulated industries, FinCen has required reporting of currency exchanges totaling as little as $1,000, Suspicious Activity Reports for amounts as low as $2,000, and has a $10,000 Currency Transaction Threshold. FinCEN also has the authority to lower this threshold.

It should be noted that there is no evidence that terrorists have used art and antiquities to launder money in the United States. In addition, as art industry studies make clear, the antiquities business is tiny, amounting to less than 1% of the art trade as a whole. Almost all high dollar art transactions are in the fields Old Masters, modern and contemporary art.

The vast majority of U.S. art purchases are by check, credit card, or wire transfer, all of which pass through banks and financial institutions already subject to FinCEN tracking and reporting requirements.

Numismatic groups have rallied to express concerns that common, inexpensive, and difficult to sell items such as collectible coins will have the same documentation requirements as gold and silver bullion or diamonds. There are an estimated 5,000 firms that deal in coins in the United States, mostly small businesses or sole proprietorships with sales under $1 million per year. (See: Jeff Garrett, “Coin Collecting: How Large is the Rare Coin Market?” Coin Week (Dec. 13, 2013)

Placing regulatory requirements on business that already use regulated institutions for banking seems like overkill, especially given the high cost of compliance for small businesses (estimates range from $2,000-5,000 per year), and the costs of government oversight.

Applying the proposed new regulations will be very expensive for the government as well. Anti-money laundering controls are generally applied to billion dollar financial industries and banks, but even then they have also been criticized as unduly rigorous and expensive to comply with. Forbes writer Frank Holmes described anti-money-laundering regulations as one of the five costliest financial regulations of the past twenty years. Holmes writes, “Although I think most of us would agree that catching terrorists is an admirable mission, the AML rules come at a very high cost to financial institutions. According to a 2016 study conducted by the Heritage Foundation, the current rules cost the U.S. economy between $4.8 billion and $8 billion annually. And with so few money laundering cases opened and investigated every year, each conviction since the law went into effect carries an estimated $7 million price tag.”
(See: Frank Holmes, The Five Costliest Financial Regulations of the Past Twenty Years: A Timeline, Forbes, May 18, 2017)

Others have noted that the privacy of art collectors will be at risk, and data collected could be used by federal authorities for ‘fishing expeditions’ into hitherto private art collections. Expectations of privacy among collectors selling because of hardship would no longer exist.

Most of all, the ancient and antique art industry worries that FinCen will demand provenance information that simply does not exist as part of its due diligence/chain of custody requirements. Dealers would like to have these records and be able to supply them; they often increase the value of an object. However, because many objects have been in circulation through private hands over decades or even centuries, such records rarely exist.

Although this fact is well known to anti-art trade activists, they are likely to be the first to demand that art dealers provide such non-existent records as part of the compliance process.

Following the new regulations will not be easy to do correctly, either, as evidenced by the Federal Financial Institutions Examination Council’s 442-page compliance program manual. Anti-money laundering compliance programs generally require businesses to:

  • Establish effective Bank Secrecy Act compliance programs.
  • Establish effective customer due diligence and monitoring programs.
  • Screen against Office of Foreign Asset Control and other government lists.
  • Establish an effective suspicious activity monitoring and reporting process.
  • Develop risk-based anti-money laundering programs

CPN will follow this issue as the bill moves through the House Financial Services Committee.

Here you will find the original article.

The European Parliament just passed a law adding art dealers to money laundering rules. We reported.

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