The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an advisory on 30 October to highlight sanctions risks arising from dealings in high-value artwork by individuals or entities sanctioned by the US. The advisory is targeted at a wide range of art market participants including art galleries, private collectors, auction houses, agents and other participants who may face exposure to transactions involving sanctioned persons.
The non-binding advisory sets out certain features of the art market which make it susceptible to exploitation by those seeking to evade sanctions. These include:
- a high degree of anonymity and confidentiality;
- the frequent use of shell companies and intermediaries;
- the subjective value of artwork; and
- the mobility and concealability of artwork.
Taken together, these factors mean that the art market is an attractive place for criminals to not only conceal and launder money but also, as this advisory highlights, to access the US financial system in violation of sanctions.
The advisory contains examples of individuals, including Specially Designated Global Terrorists (SDGT), who have sought to nullify the effect of US sanctions through the acquisition or sale of high-value artwork. OFAC affirms that transactions with SDGTs involving artwork or interests in artwork are prohibited and that US persons who engage in such prohibited transactions may be subject to civil or criminal penalties.
Although the import and export of artwork is generally exempt from sanctions by virtue of the “informational materials” exemption, OFAC state that they do not interpret this exemption to allow blocked persons or their facilitators to evade sanctions by exchanging financial assets for high-value artwork or vice versa.
In order to combat the risks posed by sanctions-related violations, companies should implement risk-based compliance procedures, including thorough due diligence, so that parties to a transactions are known and identified. This approach should be familiar to companies given the emphasis on risk-based compliance to deal with a range of financial crime risks, including sanctions and money laundering.