ART BLOG

January 1, 2024

New Laws Crush the Secretive World of Art Transactions.

U.S. federal and global Anti-Money Laundering (AML) and Know Your Client (KYC) laws require parties in financial transactions, including art deals, to know the parties involved and to keep financial records.

The purpose of AML/KYC laws is to help prevent many illegal activities including money laundering, terrorism financing, identity theft, and other financial crimes.

The often complex and challenging law generally mandates that advisors, attorneys, bankers, buyers, escrow agents, sellers, and all other parties diligently establish procedures and keep records verifying the identities of all parties in a transaction.

Key aspects include:

Customer Due Diligence (CDD) Rule: The CDD Rule, which amends Bank Secrecy Act regulations, aims to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains. The CDD Rule requires covered financial institutions to establish and maintain written policies and procedures that are reasonably designed to:

1. Identify and verify the identity of customers
2. Identify and verify the identity of the beneficial owners of business entities, partnerships, syndicates, etc.
3. Understand the nature and purpose of customer relationships to develop customer risk profiles
4. Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

Bank Secrecy Act / Anti-Money Laundering (BSA/AML): The BSA provides a foundation to promote financial transparency and deter and detect those who seek to misuse the U.S. financial system—including the buying and selling of art—to launder criminal proceeds, finance terrorist acts, or move funds for other illicit purposes. The BSA requires parties in a transaction to establish a BSA/AML compliance program.

KYC Requirements: KYC is a critical function and a requirement in complying with AML laws. It involves verifying a customer’s identity, financial activities, and risk level. KYC requirements often include collecting and verifying identity information such as Name, Birthdate, Address, and Taxpayer Identification/Social Security Number.

AML Procedures: Robust AML procedures often include clear, up-to-date written policies, a designated compliance officer with the power to influence the company’s actions, proper training so employees understand the company’s policies and procedures, and periodic reviews to keep the program tested and current.

These are general requirements, and the specifics can vary based on local regulations and the nature of organizations and transactions.