The U.S. Bank Secrecy Act (BSA) and its anti-money laundering regulations have progressively expanded to apply to activities beyond cash and bank transfers, and the Anti-Money Laundering Act of 2020 widened their scope yet again. The law, which took effect at the start of 2021, included new rules on trade in antiquities, resulting in a September advance notice of proposed rulemaking (ANPR).
“The trade in antiquities may be exploited by money launderers and terrorist financiers to evade detection by law enforcement and to launder their illicit funds through the U.S. financial system,” the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) said in its announcement. “Terrorist organizations, transnational criminal networks, and other malign actors may also seek to exploit antiquities to transfer value to acquire new sources of funds, evade detection, and launder proceeds from their illicit activities. Some terrorist groups have generated revenue from permitting or facilitating the illegal extraction or trafficking of antiquities in territories where they operate.”
The 2020 act had considerable financial industry support for provisions including technology modernization and beneficial-ownership reporting requirements. It also brings more entities and transactions – and compliance responsibilities – into the hunt for criminality and corruption.
“The Corporate Transparency Act of 2020 and the Anti-Money Laundering Act of 2020 will improve transparency through the reporting of the beneficial owners of U.S.-registered shell companies and improve information sharing and other counter-trafficking capabilities,” said a recent House Financial Services Committee staff memorandum. It listed, among other pending proposals, a Combating Wildlife Trafficking and Proceeds Study Act, which “would require Treasury to examine the financing and proceeds of the illicit wildlife trade.”
FinCEN signaled further vigilance in a November “virtual exchange” on environmental crimes, with discussion topics including “illicit financial flows related to wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking, and possible solutions for better understanding the related illicit flows.”
In a December 3 announcement regarding the “whole-of-government” National Action Plan to Combat Human Trafficking, the Treasury Department said that it “plays a key role in countering human trafficking by leveraging financial expertise and broad authorities to target trafficking networks through a range of economic tools implemented through the Office of Terrorism and Financial Intelligence.
“Treasury has previously identified proceeds from human trafficking as a significant threat to the U.S. financial system and has made it a priority to disrupt and dismantle trafficking networks . . . Treasury also works closely with bodies such as the Financial Action Task Force (FATF) and partner countries to strengthen global financial standards to address this threat.”
A FinCEN ANPR announced on December 6 solicited “public comment on a potential rule to address the vulnerability of the U.S. real estate market to money laundering and other illicit activity.”
For compliance and risk managers, the antiquities rulemaking raises the question, is the addendum useful and sensible? Or is it overly cumbersome, with costs and benefits misaligned?
David X. Sullivan, Partner, McCarter & English
“Even prior to the proposed regulations, Treasury could have determined that one engaged in the trade of antiquities was indeed a financial institution,” says David X. Sullivan, a partner with Connecticut law firm McCarter & English. He believes the proposed language in AML Act section 6110 on antiquities may be defining them too narrowly, and therefore be subject to abuse in attempts to avoid complying with the act and the BSA.
Steven D. Feldman, another former prosecutor, now with Murphy & McGonigle in New York, sees it as useful without being overly burdensome on the industry. With uniform regulatory treatment, industry players will want to be compliant in not aiding the sale of illicit antiquities. Without this kind of regulation, “there’s a race to the bottom.”
“Those willing to turn a blind eye or not ask many questions get business opportunities that those trying to do the right thing must forgo,” Feldman explains. “By requiring minimal standards, there will be less incentive for people to look the other way.”
“A Useful Tool”
David Stewart of software and analytics provider SAS points to a 2020 Senate Permanent Subcommittee on Investigations staff report, The Art Industry and U.S. Policies that Undermine Sanctions, documenting how bad actors have taken advantage of the art market to evade sanctions and launder funds. The art market is described as “the largest legal, unregulated market in the United States.”
“If corruption is truly a priority for our National Money Laundering Strategy, then including art and antiquities dealers as covered institutions is a useful tool,” Stewart says. “The challenge for financial institutions will be the impact on their know your customer (KYC) processes.”
Lauren Kohr, senior director, AML at the Association of Certified Anti-Money Laundering Specialists (ACAMS), views the antiquities addendum as providing a more effective, holistic picture for law enforcement.
“Depending on the final rule, financial institutions may have to reevaluate their existing KYC, CDD [consumer due diligence], EDD [enhanced due diligence] and enhanced monitoring processes to ensure it aligns appropriately to the final rule requirements,” Kohr says.
“I anticipate it would make financial institutions’ monitoring more effective rather than burdensome,” she adds. “Financial institutions would likely subject these businesses and transactions to enhanced due diligence and monitoring depending on the risks” posed by money laundering and terrorist financing.
Caroline Brown, Partner, Crowell & Moring
Removing Veil of Secrecy
Caroline Brown, a partner in the Washington, D.C., law firm Crowell & Moring, says a “veil of secrecy” in art and antiquities markets has historically allowed highly valued objects to change hands without revealing purchasers’ identities. Now dealers will face new recordkeeping requirements.
“The art and antiquities trade can create opportunities to evade sanctions and fund the activities of terrorist groups and other illicit actors,” Brown says. “Subjecting a person ‘engaged in the trade of antiquities’ to AML regulation seeks to address those vulnerabilities and curb illicit use of the markets.
“While some antiquities dealers already have voluntarily established AML programs, the obligations to comply with [BSA] recordkeeping and reporting requirements will be new to many and could pose challenges especially to smaller and medium-sized companies.”
Vinson & Elkins partner Fry Wernick notes that although antiquities have been on regulators’ radar for some time, “the proposed change would certainly add another layer of internal scrutiny and extra diligence obligations for all those involved with the antiquities trade, and it behooves FinCEN to offer concrete, black-letter guidance to help dealers, banks, underwriters and others ensure that they are meeting regulators’ expectations.”
Ted Sausen, Subject Matter Expert, NICE Actimize
Ted Sausen, AML subject matter expert, NICE Actimize, says, “I believe the responsibility lies with the dealers of the antiquities. It is their responsibility to evaluate the parties involved . . . on both sides of the transaction.”
Braden Perry of the Kennyhertz Perry firm in Kansas City says that one of the biggest challenges for AML compliance is the constantly changing perceptions of risk.
“When AML risk changes solely based on regulation requirements, an organization must be able to tweak and adapt the entire regulatory process at the service level in real time,” Perry says. “Whenever a change or new adaption of risk interpretation is applied, the compliance program must reassess all the subjects in the database, recalculate the risk, and alert the compliance team should the subject have moved across the brackets of the systematic-based approach.”