Is the Art Market Ready to Change its Ways?

By: Gracie Loesser

With global sales exceeding $64 billion in 2019, the market for arts and antiquities has reached staggering heights. The state of the art market is perhaps best exemplified by the 2017 record-breaking sale of Leonardo da Vinci’s Salvator Mundi painting. Purchased at a Christie’s auction for $450 million, the work remains the most expensive painting ever sold. However, when you start to examine the details of the transaction, cracks in the art world’s shiny veneer become evident. The painting lacked a reliable provenance, or record of prior ownership, before the sale occurred. Since the sale, computer scientists, art historians, and museum experts have come forward with evidence suggesting da Vinci was not the sole artist of the work, further compromising the painting’s value. More worryingly, no one knows where the work is currently located. The official buyer was actually an intermediary for the true owner, the Crown Prince of Saudi Arabia. Despite assurances that the work would ultimately be displayed in the Louvre Abu Dhabi, the museum never received the painting. The work’s whereabouts became a source of rumor, with some reports suggesting it was in storage in Geneva and other reports stating it was on the Crown Prince’s luxury yacht

This chaos is indicative of the international art market in general, which has become a popular tool for the uber-wealthy looking for a way to shield assets and for powerful criminals to circumvent the law. As evident in the Salvator Mundi sale, the art market has historically welcomed buyer and seller anonymity. The trade of antiquities also has a culture of anonymity that facilitates illegal activities; secretive sales with unidentified parties have made it increasingly difficult for authorities to monitor and prevent the trade of looted and illegally acquired artifacts.

However, that culture of anonymity may soon be a thing of the past. In 2021, Congress passed the Anti-Money Laundering Act, placing a range of new stringent requirements on U.S. antiquities market participants. The Act adds antiquities dealers and advisors to the list of entities regulated by the Bank Secrecy Act, a statute designed to combat financial crimes by requiring certain kinds of organizations, such as banks, real estate companies, and pawnbrokers, to implement strict internal controls and to notify law enforcement of any suspicious conduct. Regulations vary by type of organization but generally require entities to verify the identities of anyone they do business with. The Financial Crimes Enforcement Network is still in the process of developing industry-specific rules for the antiquities market. Whatever they may be, they will certainly have a significant impact. 

Notably, Congress did not include art dealers and advisors in their recent legislation. Those in the art market remained understandably concerned, as evidence suggested that Congress planned to increase regulation of art sales in the future. A recent damning Senate report on the art market highlighted how the trade of high-value art undermined U.S. foreign and domestic policy. The report listed several recommendations, including adding art dealers to the institutions regulated under the Bank Secrecy Act and putting increased pressure on auction houses and art dealers to verify customers. In response to the report, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an advisory on high-value artwork, which stated that any individual involved in the art trade must be careful about who they do business with or face civil penalties; specifically, the advisory warned against doing business with designated terrorists or agents of any country subject to U.S. sanctions. 

Despite this evidence of growing political interest in regulating the art market, the Treasury Department released a report just a few days ago that will cause art dealers and advisors to breathe a sigh of relief. In response to the Senate’s formal request for a study investigating illegality in the art market and recommending next steps for regulation, the Treasury has now stated that it does not believe the art market requires immediate regulation. The report identifies many issues with the market but suggests Congress could institute regulatory measures at some point in the future.

The Treasury report suggests that the art market will not undergo a major overhaul in the near future. However, U.S. art dealers, advisors, and market participants would be wise to start preparing to amend their organizational processes. Although there is much still unknown about what regulations might be adopted, some resources should prove as helpful guidance. Given the similarities between the industries, the forthcoming regulations adopted for the antiquities market will provide insight into what kinds of regulations can be expected for the art trade. Additionally, organizations such as the Responsible Art Market initiative have developed guidelines for art market participants who wish to combat money laundering and other illicit activity voluntarily. Finally, one can look at recent anti-money laundering and illegal importation laws enacted in the European Union requiring compliance from the art market.

Indeed, if art dealers and other players in the world of high-value art sales want to avoid government regulation in the future, it is in their own self-interest to combat illicit activity by removing the shroud of secrecy from their transactions. 

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