Forbes: New Sanctions Announced For Art Deals With Sanctioned Persons
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued an advisory on sanctions risks arising from dealings in high-value artwork associated with persons blocked pursuant to OFAC’s authorities, including persons on OFAC’s List of Specially Designated Nationals and Blocked Persons. This applies to art galleries, museums, private art collectors, auction companies, agents, brokers, and other participants in the art market because high-value artwork transactions may play a role in blocked persons accessing the U.S. market and financial system in violation of OFAC regulations.
These participants in the art market need to maintain a risk-based compliance program to mitigate such risks since the Berman Amendment to the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) does not categorically exempt all dealings in artwork from OFAC regulation and enforcement.
The high value art market is well known for lack of transparency or the identity of buyers and sellers or the past ownership of artwork. As such, the OFAC sees the art market as particularly vulnerable to those engaged in illicit financial activity, including sanctions evasion. Shell companies and intermediaries are also frequently used to purchase, hold, or sell such artworks, as well as to remit and receive payments.
The Treasury Department has previously warned art and luxury goods dealers to be alert to the schemes of illicit actors who hide funds in high-value assets in an attempt to mitigate the effects of U.S. sanctions. Given the risks associated with such transactions, in 2019 OFAC posted on its website frequently asked questions (FAQs) reminding members of the art community of their sanction compliance obligations with respect to E.O. 13224, as amended, affirming transactions with SDGTs involving artwork or interests in artwork are prohibited, and that U.S. persons who engage in prohibited transactions may be subject to civil or criminal penalties.
Separately, a July 2020 report by the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs examined how Russian oligarchs designated by OFAC and listed on the SDN List under E.O. 13661, were linked to shell companies involved in high-value artwork purchases. In another example, a March 2020 report of the United Nations North Korea Panel of Experts describes galleries and exhibitions in Beijing and Hong Kong hosting works of art produced by the UN-designated Mansudae Art Studio, an art studio in Pyongyang.6 According to press reporting, North Korea is also known to have earned an estimated tens of millions of dollars in revenues producing and exporting statuary to foreign nations.
The OFAC has provided organizations with a framework for the five essential components of a risk-based sanctions compliance program, that is (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing; and (5) training. These go against the grain of what has, in the past, been a habit of anonymity and privacy in the art market, but the sanctions are significant enough to make a review of the what to require in any art transaction moving forward.