Recently Enacted NDAA Expands the Bank Secrecy Act To Regulate the Antiquities Trade (and Possibly Eventually the Art Market)
The expansive National Defense Authorization Act for Fiscal Year 2021 (NDAA) that Congress enacted on January 1, 2021 (over President Trump's veto), extends the anti-money laundering and anti-terrorism financing requirements of the Bank Secrecy Act (BSA) to the trade of ancient artifacts. The NDAA also calls for a study into whether Congress likewise should broaden the BSA to regulate the wider art market.
Although the BSA already regulates the financial institutions that facilitate many of the high-dollar transactions in the antiquities trade, Section 6110 of the NDAA (Section 6110) amends the BSA to apply directly to persons "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." Exactly how the antiquities market will be regulated is not yet specified. Over the next year, the Treasury Department's Financial Crimes Enforcement Network (FINCen), in coordination with other federal law enforcement agencies, will promulgate the federal regulations that will spell out how the BSA will impact the antiquities trade.
Section 6110 directs FINCen to take into account the following considerations, among others, when issuing these new regulations: (i) which entities should be subject to rulemaking (taking into account factors such as size, type of business, domestic or international geographical locations); (ii) the degree to which the regulations should focus on high-value antiquities trades; and (iii) the need for disclosure of the identities of the actual, beneficial purchasers of antiquities, the purchasers' agents or intermediaries, and dealers, advisors, consultants, or any other persons who engage as a business in the trade in antiquities.
Section 6110 also directs the Treasury Department to study the extent to which the art market is used to facilitate money laundering and terrorism financing. This study is to be geared toward understanding the following issues, among others: (i) the extent to which the US financial system is impacted by bad actors using the art market to facilitate money laundering and terrorism financing; (ii) whether information on certain art transactions would be useful in criminal, tax, or regulatory matters; (iii) which art markets, if any, should be subject to regulation; (iv) the degree to which the regulations should focus on high-value trade in works of art; and (v) the need for disclosure of the identities of the actual, beneficial purchasers of works of art, the purchasers' agents or intermediaries, and dealers, advisors, consultants, or any other persons who engage as a business in the trade in works of art. Congress ultimately could decide to direct FINCen to issue rules regulating the art trade similar to those that it has directed FINCen to issue for the antiquities trade.
It is also worth noting that, as we explained in detail in our June 3, 2020 Advisory and follow-up December 3, 2020 post, the NDAA cracks down on people hiding behind shell companies to commit financial crimes by requiring many US companies to disclose to the federal government for the first time the identities of their beneficial owners.
Even before the new antiquities amendment, the NDAA's anti-money laundering and terrorism financing reforms garnered much attention by commentators due to their broad scope and significant impact on businesses that must disclose client information and bear the added costs of complying with the law. Now, thanks to Section 6110, these effects will also be felt in a new market sector, the antiquities trade, and possibly eventually the art industry as well.
The jury is out on whether extending the BSA to cover antiquities will actually make much of a practical difference. Payments for most large antiquities transactions in the United States are already handled through financial institutions and therefore are already regulated by the BSA. Moreover, many of the large, legitimate players in the art and antiquities markets already have robust compliance programs that meet BSA standards. Accordingly, it seems that the impact of these reforms, and the enforcement burden, will be greatest on small-scale transactions and on smaller dealers of antiquities and art, who may be less likely to have strong AML compliance controls in place and who are more likely to engage in cash transactions that would not already be screened by financial institutions' BSA programs.
If you have questions about how the NDAA's anti-money laundering and anti-terrorism financing reforms may impact your company, please reach out to the authors or any of their colleagues in Arnold & Porter's White Collar Defense & Investigations practice group.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.