OFAC-Office of Foreign Assets Control that function under the U.S.Treasury department has published an advisory that is concerned about how art markets would attract individuals and business entities that are involved in illicit fund movement and illegal activities. Certain features like establishment of very high level of anonymity in art related transactions, absence of transparency make it vulnerable for racketeers and sanction evaders.
As per OFAC reports, shell companies that operate across jurisdictions and intermediaries are often made to purchase, to hold and to sell the art products. By way of concealing their identity from the law enforcement agencies and sanctioning authorities, the individuals and the companies (blocked persons and specially designated nationals (SDN)) indulge in unlawful activities like misusing the shell companies to handle huge payments on their behalf thereby ultimately exploiting the US financial system.
OFAC would impose civil penalties for sanction circumventions even if that person doesn’t know or has reason to know that he was engaged in a prohibited conduct/transaction. OFAC has further clarified that it would issue IEEPA (International Emergency Economic Powers Act) and TWEA (Trading with the Enemy Act ) based sanctions on art transactions that involve, a person in the SDN list, a blocked person having interest whether the art functions as a medium of exchange or an investment asset. Hence, the OFAC art advisory puts greater emphasis on the urgency to adapt risk-based compliance framework and due diligence by the art galleries, museums and other associated parties like brokers, auction companies, agents etc. U.S. persons willing to conduct a high value art trade should be cautious about the sanctions risk.
Author: Rajashree, MBA, CAMI
(PonSun AML Academy)