For a long time, as long as art has been an investment commodity, it has been used to launder money among the wealthy. A seller determines a price, has it appraised for that price by a friendly professional, and then sells it among his inner circle, often via a shell company or offshore entity. The details of the sale can conceal where money came from or where it goes, reduce tax burden, or make capital irretrievable. In 2020 a Senate subcommittee called the international art market “the largest legal unregulated market in the United States.”
In 2020, a bill moved through Congress to impose stricter oversight on art and antiquities dealers. While President Trump vetoed it, the Senate overrode him and authorized the National Defense Authorization Act on January 1, 2021. The Act requires that dealers adopt programs and protocols meant to detect and stop money laundering.
Requirements include requiring that art be sold under the true name of an owner – even art owned by a limited liability company must attached to an ‘ultimate beneficial owner,’ the person profiting from the sale at the end of the day. There will be no exemptions for art that is incorporated out-of-country.
Quite recently, similar legislation was undertaken in the U.K.
Detractors are saying that this is a government coup of the art business, or that it will be used to ‘regulate the art business’ by class- or social- conscious legislators. Art dealers and auction houses are speaking with congressional committees about balancing the expenses of enforcing the new requirements. And the non-monetary costs, too.
The most critical part of creating functioning, fluid anti-money laundering policies according to Michael McCullough, art lawyer, “is finding the right balance between complying with law and continuing to honor a client’s need for discretion and privacy.”