Steve and Katie speak with art market regulatory and compliance expert Jane Levine about the state of anti-money laundering regulations in the art world and the efficacy and limitations of new legislation proposed in the United States.
Resources
https://artrisk.com/insights/art-market-must-prepare-for-more-aml-scrutiny
https://www.congress.gov/bill/119th-congress/senate-bill/2400/text/is
Katie and Steve discuss topics based on news and magazine articles and court filings and not based on original research unless specifically noted.
Episode Transcription
Steve Schindler: Hi, I’m Steve Schindler.
Katie Wilson-Milne: I’m Katie Wilson-Milne.
Steve Schindler: Welcome to the Art Law Podcast, a monthly podcast exploring the places where art intersects with and interferes with the law.
Katie Wilson-Milne: The Art Law Podcast is sponsored by the law firm of Schindler Cohen & Hochman LLP, a premier litigation and art law boutique in New York City.
Steve Schindler: Hi, Katie, how are you?
Katie Wilson-Milne: Hi, Steve, I’m fine.
Steve Schindler: What have you been up to?
Katie Wilson-Milne: Well, surviving this August renaissance in September. Just getting back to the routine, and I’m glad that part of our routine is this podcast.
Steve Schindler: Yeah, we had all the New York art fairs.
Katie Wilson-Milne: Yes.
Steve Schindler: Seemed successful.
Katie Wilson-Milne: It was back with a bang, definitely.
Steve Schindler: Back with a bang. Yeah. Well, we’re here today and delighted to have on the podcast Jane Levine. Jane has extensive experience at the intersection of the international art market, art crime and regulatory compliance. She’s a former prosecutor having spent 10 years as an assistant US attorney for the Southern District of New York, where, among other things, she served as special trial counsel to the FBI art crime team. After leaving the US Attorney’s Office, Jane joined Sotheby’s, where she spent 13 years holding responsibilities as chief global compliance counsel and head of government affairs. Under Jane’s leadership, Sotheby’s created a worldwide compliance and ethics department covering offices in 40 different countries. Jane was also responsible for managing risk and conducting internal investigations relating to conflicts of interest, market and auction conduct, money laundering, fraud, forgery, cultural heritage claims, and title disputes. And I should just add parenthetically that that’s when I met Jane, when she was at Sotheby’s and it was always in my mind that when we were dealing with usually some sort of consignment and dealing with the general counsel’s office, if Jane showed up, there was trouble. Or there was a possibility of trouble, although it always got worked out, but it was a little bit of what went through my mind was, oh, Jane is involved. But now, having left Sotheby’s, Jane’s a founding partner of the Art Risk Group, a strategic risk advisory and investigative firm dedicated to the worlds of art, antiquities, cultural property, and high value collectibles, which I’m sure we will talk about today. So it’s a pleasure and welcome to the podcast, Jane.
Jane Levine: Well, thank you very much, Steve and Katie. And thank you for that introduction, describing me as a source of trouble, even though I…
Steve Schindler: Good trouble.
Jane Levine: Even though I try to spend most of my time…
Katie Wilson-Milne: Solving problems. You do, you do.
Jane Levine: Solving problems and preventing trouble.
Katie Wilson-Milne: You do.
Jane Levine: Thanks.
Katie Wilson-Milne: That’s what we say, too. We welcome our clients to come to us, so we can prevent their problems before they happen.
Steve Schindler: Right.
Katie Wilson-Milne: So we’re here, Jane, to talk about money laundering in the art world again, which Steve and I have talked about on the podcast before. And we’ve talked about it in the context of the Fifth Directive that changed how the art market players were supposed to behave in European transactions, including the UK. And then the increased scrutiny in the United States that Treasury undertook and Congress was interested in a few years ago, that ended up not directly extending regulatory compliance measures under the Bank Secrecy Act to the art market, but did so to the antiquities market. And I feel like in that time period, there’s been this sort of percolating sense that— is there some sort of government regulatory regime coming for the fine art market? And so far in the US, no, but at the same time, that has happened in Europe. So we’re trying to follow these developments and see what, if anything, does change in the United States and also how the European regulations, especially in the UK, are impacting the art market. So you recently wrote an article about more AML scrutiny potentially in the United States. And we’d love to hear both about what’s actually happening in US Congress on this issue. And, you know, I guess, do you think it’s really merited and where is it going? But there’s a new bill. So what— tell us about the new bill.
Jane Levine: Sure. Yeah, money laundering and the art market have a lot sort of long relationship. And a lot of media attention has been played to some very high-profile instances of bad actors intersecting with the art market. And I also think just sort of as a background to talking about the new bill, and hopefully we’ll get into this more, there’s also been a very concerted attempt to link money laundering and terrorist financing, okay, with certain things that happen in the art market, particularly what’s called the antiquities or ancient works of art markets. And I think that looms large in this whole subject, and it’s actually a big motivating factor into a lot of the regulation, not just in the US but in Europe and the UK. But back to the article that I recently put out, which focused on this new bill, it’s a proposed bill, which remarkably has bipartisan support, something we are not seeing a lot of lately. You know, whether this stands a chance of actually becoming law, most people would say no. But I think it merits attention from the art world, because sort of what we just said, it’s a subject that is not going away.
Katie Wilson-Milne: And what’s the bill called?
Jane Levine: So the bill is called, the name of it is the Art Market Integrity Act.
Katie Wilson-Milne: Such a name.
Jane Levine: So who could be against integrity?
Steve Schindler: Art market integrity, sure.
Jane Levine: And just for the nuts and bolts of what it is and what it would do, it would amend the law called the Bank Secrecy Act, the BSA, we refer to it as. And the Bank Secrecy Act, which is ironically, originally about secrecy that needed to be applied by banks relating to everyone’s financial banking information, has sort of become actually the vehicle for transparency, you know, bank openness. And it’s the anchor for requiring what’s called financial institutions— typically we think of banks and brokerages, but that has been expanded to cover many sectors. And so now this bill would include the art market, with a very broad definition, within the scope of the Bank Secrecy Act. What does that mean? It means if and when— if it passes, and if and when Treasury through FinCEN adopts regulations, there could be requirements on the people who handle art to have compliance programs for anti-money laundering, know your customer, all kinds of due diligence, and there’s a menu of things we can talk about.
Steve Schindler: Right.
Jane Levine: So that’s what this would do if it passed.
Steve Schindler: The sort of things that they have now in Europe and the UK and Switzerland.
Jane Levine: Exactly.
Katie Wilson-Milne: And maybe we should pause to talk about what that actually looks like. So that could be something like when a client comes to you and wants to buy through an offshore entity or an LLC that the gallery has to probe and ask, well, who actually owns this entity? Who is the person behind every layer of corporate organization? And give me some identifying information about that person. And it could be asking questions about money that’s going to a foreign bank account or a bank account that the name doesn’t match the customer, right, Jane? I mean, are there other easy examples?
Jane Levine: You’re jumping to the more complicated scenarios that could face somebody in the art market. And you mentioned what I would refer to as beneficial ownership, right? So drilling down into who are the humans that own or control this asset or this bank account or this company that’s asking me to do a deal. You’re absolutely correct that under a BSA, Bank Secrecy Act, AML regulations, under regs that are in existence now in Europe and the UK, that is a requirement. And it would be required here if this law passed. In some ways, it’s already required in that everyone, whether you’re an entity or a person that’s within the scope of the Bank Secrecy Act or not, has a legal obligation to make sure you’re not dealing with sanctioned parties.
Steve Schindler: Right.
Jane Levine: So how would you know that if you don’t know who you’re dealing with?
Steve Schindler: Right.
Jane Levine: There could be requirements that would be mandatory, not just good practice, to drill down into, say, the beneficial owner, or if you see something that doesn’t add up, that doesn’t make sense, to ask more questions and get documents. All of that’s true, but I think it’s important to keep in mind that all of these AML regs, ones in Europe, UK, even the proposed ones in the US, are fundamentally risk-based. And I say that because there is a lot of fear and concern about how is this going to play in the art market? Will it overburden small businesses? Will it bring the doors closed to galleries? Is it going to be an overly burdensome and impossible task for the art market to do this? And I think people need to keep in mind that there is a risk-based philosophy behind this. And if you’re running a business or an institution that faces a very low risk profile for dealing with bad actors or Russian oligarchs or criminal proceeds, if you are in a very low-risk position, your compliance AML program will be a lot less rigorous, a lot less expensive, and not very burdensome.
Steve Schindler: And how would you define— what does it mean to be low-risk in that, in the way you’ve described it?
Jane Levine: Sure, so, well, first of all, you probably heard all the, you know, the term the risk assessment. Everyone— that’s one of the features of these bills, do a risk assessment. And it doesn’t need to be a very expensive project where you call in, you know, McKinsey and Bain for millions of dollars. You want to take a look at your business, like low risk could mean dealing primarily with a known group of clients located in the United States that you’ve been dealing with for a very long time. You have no reason to think anyone that’s walking into your shop or that you’re talking to or you’ve been introduced to is a criminal.
Katie Wilson-Milne: And they’re buying in their own name. Exactly. From US bank accounts that match their name.
Jane Levine: Exactly.
Steve Schindler: How old-fashioned!
Jane Levine: And, you know, and there’s nothing.
Katie Wilson-Milne: Yeah, but we know that that’s…
Jane Levine: And, you know, there’s nothing on public media that’s going to suggest they’re connected to anything. Like, the overwhelming number of transactions in the art world, at least in my experience, are not suspicious. So, right then and there, you can put many, many transactions, the bulk of most businesses, into a lower risk category. And as a practical matter, that means, you know, you can satisfy many of these obligations by knowing your client, getting an identification. It doesn’t mean conducting a private investigation or doing source inquiry background checks or paying money to have, like, a surveillance done on your clients. Of course, you also need to be able to recognize when something falls into the other categories you mentioned, Katie, and not bury your head in the sand and just because you want to do the deal, ignore obvious things that don’t add up.
Katie Wilson-Milne: And isn’t— I mean, I tend to agree with you that most transactions in the art world, let’s say just the high-end art world, are unproblematic. But I think the problem which we see all the time is that actors wouldn’t know if they were, right? That there’s such a lack of digging into your client’s business, because it’s not culturally appropriate. It’s not the norm. There’s a fear with dealers, one, they may not know to do it or know how to do it. But I think also a worry that if they break this norm of sort of we’re all friends and we don’t need to know anything about each other, that they’ll lose their business, because they won’t, their clients won’t accept that kind of invasion of privacy. And that, I think we see all the time in all kinds of transactions of all sizes, just a total lack of insight into how many intermediaries there are, who’s the ultimate beneficiary of the ultimate buyer or seller. Maybe it’s fine, I guess is what I’m saying, but how would you know?
Jane Levine: Well, I mean, the cultural features you’re describing are ones this— we’re all familiar with, having spent a lot of time in the art world, in the art market. But I guess I would counter that a little bit by saying— and I faced this a lot in my work at Sotheby’s, and the number of times many people were very well-intentioned— was I couldn’t possibly ask so-and-so to provide their ID, because they’ll go to Christie’s.
Steve Schindler: Right, right.
Jane Levine: And I think that most people in the world who are legitimately walking around and conducting business are not offended. They’re used to being asked for these questions in so many other aspects of their legitimate life. And if you explain or you have somebody who can explain that this is just A, this is just good healthy practice, this is to protect you and us, and et cetera, et cetera, you get over that hump very quickly. And the reluctance to cooperate with a very simple request, like I need this for my file kind of request, this is just how we conduct business, in and of itself, could be, could be. It may not, but it could be. So, and it’s true, the art world wants many aspects of it, want to lag behind and not get with the program as it were. But I think people would be surprised at how often the question asked did not get an adverse response. In fact, many people would say, I was waiting for you to ask me for that. I was surprised you didn’t ask me.
Steve Schindler: Right. Well, I think also in what you did at Sotheby’s and when you were there, you regularized it in at least a segment of the art market.
Katie Wilson-Milne: Yeah.
Steve Schindler: Because now when you deal with either of the major auction houses, you know you’re going to get those questions. You know you’re not going to just be able to say, oh, it’s a private owner who would prefer not to be known. You know— and that has become the norm in the auction world. And so I guess it’s a question of whether or not that can be transposed to or incorporated into the private art market. And also in the auction world, if— particularly Christie’s and Sotheby’s are both doing it, then that sort of fear about, “oh, they’re going to go somewhere else,” is kind of off the table at that point.
Katie Wilson-Milne: I think that’s completely right. And the issue is, are the auction house practices really a good indication of how the art market more broadly can behave? And I think we do see a divide of funny business. But I think even a few years ago, I mean, you could, there was a real recognition at auction houses that this was sensitive, right? You could, it wasn’t like, I’m buying a car or a house. Here are the list of documents, send them to me. Here’s the email or the portal. It was like, why don’t you call someone and you can just tell me over the phone? And, you know, there was a kind of a recognition that there were families that have sensitive issues and a lot of people. And it was different than other industries, I think even at the auction level, in terms of how gentle you guys were with getting information. Do you agree with that?
Jane Levine: Well, I think it’s, you know, it’s funny going back to where we started off, the Bank Secrecy Act. I think that when people are asked these questions when opening an account at a bank, there’s some understanding around the world that like the bank is not allowed to post your personal bank account information online. And it’s part of the DNA of the financial system that there’s a confidentiality. In fact, Bank Secrecy Act started with saying the government needs a subpoena in order to get your bank records. I think part of the concern that people had when the art world, auction houses, started to ask for more underlying information was confidentiality, which can be a legitimate concern, because you have 1,000, 1,200 people working all over the globe at a place like Sotheby’s or Christie’s, and who is going to have access to my information? You don’t know how it’s kept secured. So I think some of that handholding was assuring clients, customers, that in addition to asking for this, there’s also secure information security and confidentiality, which I just do want to add, because this gets misunderstood often, not, I’m sure, by the two of you, but in the world, you know, that’s often cited that there’s so many anonymous transactions in the art world, in the private Swiss collector, in the catalog, and you know, the number of times I’ve had to explain, well, that’s not an indication of what the auction house knows. That’s what is being publicly shared, and that could be for many reasons, including protecting the privacy of the person selling or the family or the collector or whatever. So when I speak of the confidentiality, I don’t mean that, you know, it’s legitimate to come in and do a transaction and we’re not going to know who it is because you’re not up to sharing it. It’s time to sharing it publicly or sharing it even sometimes widely internally within the organization.
Steve Schindler: And we’ve had that experience where dealing with Sotheby’s or Christie’s where we will say here’s— this is the information that you want, but, you know, please make sure to keep it within the compliance office or with the general counsel’s office because you don’t want all the specialists to know necessarily. There are sometimes legitimate concerns. And one of the things that I think the auction houses have an advantage here in that there is a fairly clear sort of corporate structure there, whereas in most galleries, even the big ones, there isn’t, you know. There is just a lot of different power centers, a lot of people running around, interns, and the ability for them to keep things as confidential as an auction house is able to, I think, is open to some question.
Jane Levine: Right.
Katie Wilson-Milne: No, that’s a good point. So just to maybe take a little bit of a step back, we’ve been talking about the Bank Secrecy Act and sort of broad strokes. And, you know, I guess this is a two-part question. One is, what is the Bank Secrecy Act actually require regulated institutions to do specifically? And if it’s not that specific, then how do those institutions get regulated? How do those regulations get promulgated to different industries, and are they industry-specific?
Jane Levine: Great question. And we could spend a long time discussing that, but we won’t. No. In general, it’s a great question, and I think it’s important to understand how it works, because in general, the Bank Secrecy Act, you know, generically will require what’s listed as a financial institution. And if you go to the definition section, you will see, in answer to your question, many, many industries who have been brought in the fold. So of course, it starts out with banks and brokerage firms, and the types of financial institutions you would expect to see. And then it’s going to include casinos, insurance companies. There’s a special segment for jewelry dealers, et cetera, et cetera, travel agents, car dealers. It’s a wide group of people.
Katie Wilson-Milne: A very great group of industries, yeah.
Jane Levine: Yes, and it’s been amended to as Congress has seen fit.
Steve Schindler: Including the antiquities market.
Jane Levine: Including the, you know, dealers and antiquities. However, in order for regulations to actually be imposed on the sector, there has to be the regulatory process, and the Treasury Department, FinCEN, has to actually issue regulations.
Katie Wilson-Milne: Because the Bank Secrecy Act itself does not have a list of requirements.
Jane Levine: It doesn’t. It’s not specific. There’ll still be generic requirements, for example, to report suspicious activity. There are certain very broad things that…
Katie Wilson-Milne: Like no money laundering.
Jane Levine: Well, money laundering is actually prohibited under a different statute, which we should mention, because it’s another important kind of atmospheric thing for people in the art world to understand, that whether or not this bill passes, or whether or not the fine art market, the whole thing gets in here, there are laws on the books that prohibit money laundering and apply to everyone.
Steve Schindler: Yes.
Jane Levine: And those have been around. So the crime of money laundering is 18 USC., 1956 and 57, and they’re very long statutes and they apply. So you’re not allowed to launder money just because there’s not this reg. These regulations under the Bank Secrecy Act, what they do is mandate, I guess, what could be called sort of controls and programs to prevent, to enable these sectors to prevent the laundering in the first place. And that’s where you would see, as you do in the more, the regs that are issued for other sectors, you would see a requirement that there be a customer due diligence program, CTD. And for other certain high risks, you would have to have an enhanced due diligence program. You would be required to drill down into beneficial owners, as you talked about. Ongoing monitoring, it’s not a one and done. You have to show that you are constantly looking at your business, your client base. Those are the types of things that are specified in the program. Training is mandated. Often, it will require appointment or the naming of an anti-money laundering officer, a person who is responsible. These are things that are in place in Europe and the UK.
Katie Wilson-Milne: In the art market.
Jane Levine: In the art market. High-value goods with a very broad definition. These are the types of requirements that would come into play under the BSA.
Katie Wilson-Milne: But just to be clear, between the BSA— an industry coming under the purview of the BSA, let’s say like the Antiquities Market recently, which we’ll talk more about, I think, in a minute, and the regs actually being issued by FinCEN, there’s a little gap, right? Or maybe a big gap between knowing that you’re regulated in this way and that you have to have certain protocols in place and knowing what those protocols may be. So what happens in that?
Jane Levine: Yeah, well, let’s just address that, because we should be clear for your listeners that, as of today, there have been no final regulations issued under the BSA that are applicable to the antiquities dealers. Exactly. So there isn’t a document you can go to and say, okay, this is exactly what I am required to do as an antiquities dealer. However, I have just rattled off five or six things that are generically in almost every other regulation. They are pretty similar to what you see in Europe and the UK. So I think a person in that industry would be hard pressed to say, “I did nothing because you didn’t tell me that I was supposed to do anything.”
Katie Wilson-Milne: They should be doing it anyway.
Jane Levine: Of course. Yeah. And so I think that’s common sense. And as I said, there are some aspects of the BSA that will apply whether there are regs or not. I mean, obviously, that would require more finer legal advice. You guys could come in and help people, but I wouldn’t be resting on my merry laurel saying, “well, no regs.” I would just wait and just sit around. And I think— I’ll address this now since we’re on the topic and it’s on my mind— I think that there’s a lot of opposition to this type of regulation in the art world. And for many of the reasons you sort of mentioned, it’s not a part of the culture, people think it’s gonna be burdensome, it’s easier for the large auction houses than the smaller shops, et cetera. And I think there’s also opposition because— I know we’re gonna get to this a little— people think that there’s not really a rationale, it’s not needed. The connection between the terrorist financing and national security interests are overblown, many people will say. And we can talk about that, because I have some thoughts on that, but even if we put aside that particular rationale, many of the measures that would be required, knowing your client, for example, looking out for suspicious things, protect the art market against other crimes and unethical things that happen, that are not necessarily terrorist financing.
Katie Wilson-Milne: And dysfunction.
Jane Levine: And dysfunction.
Steve Schindler: Right.
Jane Levine: And prevent crimes that are more rampant: consignment fraud, commission fraud, title shenanigans. There are so many things that I’m sure you see every day in your practice that I’ve seen all the time that can be supported as recurring things that happen in the art market a lot and plague many innocent businesses. And these things, these steps we’re discussing, go a very long way to protecting you against that kind of stuff.
Katie Wilson-Milne: It’s true, but it appears that it will not voluntarily happen. So, you know, because I think you could have an abstract conversation with a client and say all these things, and they might sort of nod, and they’re not going to build it into their business. They’re just not going to do it.
Jane Levine: So, hope springs eternal.
Steve Schindler: Well, I think also there, I mean, again, as you said before, it’s risk-based. So, we all know, and this is true in the auction houses too, that there are thousands and thousands of transactions. You know, it’s not possible to do due diligence on every single transaction that comes through an art gallery or an auction house, because they’re just too many, right? And so, how do you…
Katie Wilson-Milne: I think it’s possible at one of the top galleries. Sure, they could do it. They’re doing it in London, you know.
Steve Schindler: But look at, I mean, I have even had situations with auction houses where, I mean, sure, at the very top end of the art market, you’re going to get a lot of diligence, but there are a lot of things and objects that are sold all along the way that…
Katie Wilson-Milne: Well, there’s a dollar threshold, so…
Steve Schindler: Right, there is, but…
Katie Wilson-Milne: It’s low.
Steve Schindler: I guess I still think that it’s, it is risk-based, so, I mean, you can make some judgments as to, okay, maybe we can’t track down every single thing that comes through, but…
Jane Levine: You know, it’s interesting you say that, see, that you couldn’t do it on every transaction. I think, to Katie’s point, it’s a question of what it is that you set out to do. And at a basic level, it can be done, and it is being done. And to know your client can be as simple as just documenting who the person is.
Katie Wilson-Milne: I mean, think about getting a VAT refund when you go to Europe and buy a pair of shoes, which I’m sure you do all the time, Steve. And I do, so, you know…
Steve Schindler: And they still owe me money, actually, I realize now.
Katie Wilson-Milne: Well, it never adds up, actually.
Steve Schindler: Does it actually come?
Katie Wilson-Milne: It never adds up. But, or you get back and you’re too tired to check, but… But the point is you go into whatever store and you want the refund and you show your passport. And they do hundreds of those a day, you know?
Jane Levine: Yeah.
Katie Wilson-Milne: And it’s a retail store.
Steve Schindler: Right.
Jane Levine: And it’s not… How hard is it to flag that money is coming in from a bank at five to ten countries that are on a list?
Steve Schindler: Yeah. And I think there is some growing sensitivity. I mean, the kinds of things that might have passed years ago, I think, you know, particularly money coming from unknown places and multiple countries are different. I mean, those are the kinds of things now, I think, just because also art dealers are dealing in art fairs in Europe, they’re dealing with auction houses. And I think there’s a kind of sensitivity to some of the most egregious types of things, whether you have a compliance program or not, just being sensitive to some red flags that I think didn’t used to be quite so alarming.
Katie Wilson-Milne: Yeah. I mean, I totally agree with Steve that dealers are going to be very upset and confused about this and feel like it’s a huge imposition. I think as a society, when you look at what is an optimal sort of market system, it can be done, right? But I understand for the dealers, because everything is so informal, there is such a lack of hierarchy and structure that it will require them to run their businesses differently.
Steve Schindler: Right. So the sponsors of the Art Market Integrity Act have come forward to sort of say, as many people have said from time to time, that there’s a serious problem in the art market with respect to money laundering and dealing with terrorist entities and countries, and so we need this bill. And yet, back, it was in 2024, the Treasury Department had done a risk assessment and had concluded that, at least with respect to the conventional art market, you know, putting aside NFTs and the like, which are sort of dying their own death anyway, that there wasn’t a great risk in the art market, that it wasn’t flooded with sort of money laundering and criminal activity. And so, that’s why, at the time, the bill was not extended to the art market. And now, there is a kind of a resurgence of that. And so, where do you think the truth lies?
Jane Levine: Ah, the truth.
Katie Wilson-Milne: And why is, like, Senator Fetterman, right, is the, one of the lead sponsors, why is he interested in this?
Jane Levine: Well, I have no specific insight. And actually, to be serious, I wasn’t on this round involved in any of the advocacy steps. I was more involved in 2020 when I was head of government affairs at Sotheby’s, and we had an interest in this law. So I can’t tell you exactly what happened behind the scenes with members of Congress. But from looking at it from the outside and reading the press statements, the statements by the co-sponsors and the statements of the supporting endorsers, it does strike me as heavily influenced by the claims and allegations of a connection between terrorist financing and that kind of organized crime and national security interests and the art market. And that’s where the statements are directed. And that is probably, again, I’m speculating, the hook that brought the bipartisan group together. And those allegations have been around for a long time. There’s a lively debate out, which you can research in the media as to whether some of the wildly high numbers attached to the amount of art money laundering crime in the art market are supported or not. There have been studies debunking them. What I find very interesting and important is that there are advocates on all sides of the antiquities issues. And I mean the pro-market and the very, you know, and I lean very pro-preservation and, you know, protection of archaeological sites. That’s, you know, I sort of stand more on the archaeological side.
Steve Schindler: Interesting. I wouldn’t have thought that about you, Jane.
Jane Levine: Well, I believe very… Yeah, you’re teasing me, Steve. But even, but people on all sides of this argument are critical, have been critical of these allegations. But anyway, I think that’s probably linked. Now, there are problems, very serious problems, that the world needs to address when it comes to illicit trade in cultural objects, whether they’re antiquities or colonial era, all kinds of illegally obtained cultural goods. Whether an AML regulation under the Bank Secrecy Act that requires the kinds of customer due diligence and all the things we have just spent time talking about will address those issues, to me is an open question.
Steve Schindler: Because those are more object-driven, provenance.
Jane Levine: That’s more about provenance and import-export and the European Union has enacted, and I know you know this, a separate regulation of an import license requirement that has the market…
Katie Wilson-Milne: Harder…
Jane Levine: And a topsy-turvy. And that, and those requirements, which is another podcast, you know, really address the issue of provenance and did it leave legally, and that has a different impact…
Katie Wilson-Milne: Can you prove that an artwork was exported legally?
Jane Levine: Which……export legally, what’s the provenance… Before a certain date is very hard. Right, incorporating various, you know, legally significant or insignificant dates and that. But I think that the rationale being advanced by Senator Fetterman and the co-sponsors is also contributing to some of the opposition, because I can understand that many people in the art market are kind of reacting like, we’re not supporting terrorists. There are no terrorists here. Now, I would say, as I did before, but there’s other stuff going on that you need to know about and to clean up this market and make it a fun place and not ridden with fraud and conflicts and other things that people like to write about. Maybe these are good things. It’s just a different rationale.
Katie Wilson-Milne: And we do know that sanctioned parties do use the art market, right? And I guess the question is, how significant does that problem need to be to regulate? But as we’ve said, I mean, OFAC compliance is required, right? Which means that you’re supposed to look up if anyone, any party you’re dealing with is on a list of sanctioned people that the US government prohibits you from doing business with. That’s already the law that we know that art market players aren’t even doing that. And so giving them a tool, a requirement so that they just do what they’re already supposed to be doing, you know, it does seem kind of rational, right? They’re supposed to be doing it anyway. It’s not a new substantive legal requirement. It’s just giving some specific tools to make sure they’re actually doing it. There’s something logical about that, right? That we all see in the art market that there’s so little of this.
Jane Levine: You’re absolutely right. The OFAC and the economic sanctions apply across the board to everybody. No need for a sector specific law, and it’s strict liability, so you would think people would have an incentive. Now, are participants in the art market automatically regularly running every single person they deal with through the lists? I think at the high level, yes. At the big auction house level, yes. Maybe some of the bigger mega dealers, yes.
Steve Schindler: Yes.
Katie Wilson-Milne: Maybe.
Steve Schindler: Maybe, I would say.
Katie Wilson-Milne: Sometimes.
Jane Levine: Maybe sometimes. I mean, look, that to me is also, I guess, a little bit of a no-brainer in that you can run these checks for free online. You don’t even need to retain any automatic, automated platform. You can if you have that volume.
Katie Wilson-Milne: You can’t run them if you don’t know the ultimate beneficial owner, right? If it’s some shell company with a random name, that’s not useful.
Jane Levine: Exactly. Which is why you are advised, whether you are regulated or not, to ask that question and understand who are the human beings that actually own or control this asset or company. You know, that I can’t stress enough. I think people dealing with entities that are obfuscating ownership are really playing a dangerous game. And the degree to which the sanction players are in the art market, is it more than any other luxury market? Hard to say.
Katie Wilson-Milne: Yeah, maybe not.
Jane Levine: But I do think one point that I often make, and I’m going to make it here, is just my understanding of the way money laundering works and the way it’s thought of from a prosecutor’s perspective. You know, it’s, first of all, the sanction is a separate crime from money laundering. So that’s a very different subject. But you have a situation where people are committing crimes that are generating money, proceeds. It’s not automatically, in addition to the underlying crime, money laundering just because they got money from it. It’s a separate crime that involves the intent to use those proceeds to further the illegal activity, to hide the illegal activity, to move the money. So, a lot of people, I think, misunderstand that any crime that involves money, once there’s a transaction with that money, is also money laundering. Not the case. When people make a lot of money through illicit means, and it’s cleaned, it’s in the bank account, under their name, maybe in a major bank, because they’ve already laundered it in a way, and then they come to a gallery or a dealer or a Sotheby’s or a Christie’s, they’re often doing what we call the integration part. And it’s impossible for a retail member of the economy to catch that. And that’s where I think we need to kind of remember, like it’s one thing for a person who’s on the list, who could be discovered, or who could be discovered to be a beneficial owner of an entity, et cetera, and you miss that, bad on you, you should catch that. But there’s a lot of the instances that are being talked about, or situations where…
Katie Wilson-Milne: You’re not going to catch it, of course.
Jane Levine: There’s nothing anyone could do. And I think we need…
Katie Wilson-Milne: Right, because if JP Morgan or whoever hasn’t caught it…
Jane Levine: The Citibank and JP.
Katie Wilson-Milne: You, gallery, are not going to catch it. So you said earlier that the BSA has been extended to apply to the antiquities market, to jewelry or diamonds, or other luxury markets. So is it just the natural next step that this would hit the fine art market, or is there something different about those industries that really merited inclusion that is not the case in the fine art market? I mean, it’s just interesting how they’ve all… It’s been sort of separated out. And this was a big issue a few years ago when the antiquities market became part of the regulated industries, but the fine art market didn’t itself. And, you know, why that was distinct?
Jane Levine: Well, you know, again, I think the evolution of additions of sectors into the BSA kind of followed, you know, where the attention is. So in the case of jewelry diamonds, you know, this is more of a kind of well-known way that, and I think it was very popular at the time of the passage, that, you know, you throw a bunch of loose diamonds in your…
Steve Schindler: Yeah, it’s very easy to transport them, to sell them, yeah.
Jane Levine: Exactly, and so…
Steve Schindler: No one’s doing provenance research.
Jane Levine: And so that became a sector. And I think with the antiquities, there was the original AMLA 20 AM, the Anti-Money Laundering Act of 2020, that was on the table to regulate the entire art market. And as Steve said, instead of including the whole art market, antiquities and, for lack of a better word, fine art, included antiquities, and then directed Treasury to do a study, which it did, in which it concluded that there’s some stuff going on here, but this isn’t really a top priority. It did conclude that. And so, you know, I think it had a lot to do with the connection that was being drawn and maybe had a lot of media attention between the antiquity sales in Iraq and Iran and places where there’s intense armed conflict, political instability, and, you know, bad situations going on in terms of looting sites and using whatever proceeds to support. There are instances that I think generated the attention. Now, you ask why, what was the impetus now? You know, again, I don’t have any great insights into why, but I do think, and we mentioned this seems like a long time ago when we started talking, but Europe and the UK not only have had these regulations in place, but they’re beefing them up. They have just recently enhanced and, you know, fortified their regulations over AML in general. And they’re starting to enforce. Yes, and the enforcement is ramping up, and I think this was viewed by people, the proponents of regulation, as an opportunity. And I think you see in the material that’s put out to support the proposed bill, there’s mention of that this would bring the US into harmony with the rest of the world.
Katie Wilson-Milne: And, you know, which it’s definitely not, right? The rest of Europe.
Steve Schindler: It’s not, although to some extent, right, because you have some of the, at least the mega-galleries are international, and they have spaces and offices in a lot of different places. They’re already subject to these regulations in Europe. And so…
Katie Wilson-Milne: Which should ease their transition.
Steve Schindler: Should ease their transition a little bit, I would think.
Katie Wilson-Milne: So, Jane, on that note, how are these rules in Europe and the UK being received? I mean, is the art market navigating? Because we talked a lot on the podcast and in our practice about how many small galleries in London or Paris were going to deal with stuff like this. And I think all the same questions we have here about culture apply, this is a very international art market, as Steve just said. So how, I mean, the art market hasn’t fallen apart there, but how is it being rolled out?
Jane Levine: Well, you know, I think your comments on reluctance to do things proactively are pretty well demonstrated. And from what my colleagues in Europe tell me, it’s kicking and screaming. I think that, on the other hand, it’s moving slowly. So the first requirement was register. And you’re seeing recently, there have been some reports of notable galleries that didn’t register, which is kind of head scratching, and they got nabbed, and they got fined, and they were reported in the press. And then their comments were like, oh, this was just a lapse in administrative error. We’re totally in compliance now.
Katie Wilson-Milne: Yeah, because they didn’t have the team in place to do all that stuff.
Jane Levine: It’s kind of hard to imagine that you missed the obligation. It’s been all over the media. So registration, really a pretty low bar. And I think now what we’re going to see in the next few years is whether or not there will actually be enforcement. And I think a lot of that is going to depend on whether there really is anything to enforce. Will there be a lot of reporting of suspicious activities? And will that lead to investigations of real crime or just, oh, that was a misunderstanding? I think it remains to be seen. But I think, look, again, it’s the risk-based aspect that I think I like to stress because I think it’s not helpful for people to be fearful and hand-wringing about these kinds of risks. I think there is, that it’s more productive to think of, okay, how can I implement something that works, that will keep me in the right side of the law, keep my business actually safe from anyone I don’t want, and not be too over-burdensome. And that’s where I think the constructive thinking needs to go, and it can be done. And I think the protesting around it, I understand it well, I know why people feel this way, and if there’s any message I can convey, is it doesn’t really, it does not have to be the kind of thing that destroys a business.
Steve Schindler: Well, it’s just also interesting in the time that we’re in here today in the United States, that any kind of bill that is suggesting an increase in regulation, at least to my mind, the odds are a little bit against it, because you certainly have an administration that is very much about deregulating industries.
Katie Wilson-Milne: But inconsistently.
Steve Schindler: Inconsistently, for sure.
Katie Wilson-Milne: I think it’s hard to map on an ideology.
Steve Schindler: You never know, but we’re not exactly in a political environment that is saying, oh, let’s have more regulation of things.
Jane Levine: Right, which is kind of why, and again it’s just my guess, but I think it’s the national security and terrorist financing linkage.
Katie Wilson-Milne: Which there is there, very poor regulation.
Steve Schindler: That’s true.
Jane Levine: That is being trumpeted as the impetus to the bill. But I think it does remain to be seen the European timeline for the implementation of the anti-money laundering authority that’s in Frankfurt. It’s a long timeline. We watch these things happen slowly. So, that’s another aspect of this that I think, anyone listening, you know, reading about this and listening in a panic, it takes a lot, you have a lot of time to figure it out. The rigs haven’t been issued for the antiquities market yet.
Steve Schindler: And what is your sense, just if you have one, whether the antiquities market or a lot of the dealers are actually adopting AML best practices in light of the fact that they are now required by the Bank Secrecy Act, but in fact, there are no specific regulations. Have you seen or aware of a change in the way antiquities dealers operate here in the United States?
Jane Levine: Well, you know, the change that I’ve seen, and I think many of us have seen, is probably related more to other law enforcement actions in that space than the antiquities BSA regulation, you know, the high-profile repatriations, forfeitures by the federal district attorney, the museum, many museums. Although many have a long way to go on this subject, but many of them have very starkly increased their provenance requirements for not only acquisition, but acceptance of loans or donations rather. And I think that has really impacted the market and probably put a, you know, a chill on a lot of what had been going on. And as we discussed, so much of what needs to be addressed with ancient works of art and cultural heritage works is its provenance, is about the property itself and less about the background of the people. Although, of course, those can be connected if the person is a known trafficker. Yes, but…
Katie Wilson-Milne: The context of looting, where it is happening in the world, does bring that intersection, I think.
Jane Levine: Absolutely. If a person shows up with undiscovered material and they say, oh, you know, this was in an old collection of my Syrian father, you know…
Katie Wilson-Milne: Ask some questions.
Jane Levine: Ask some questions and, you know, I think it’s generated more from the increased public awareness of this issue and less from the BSA amendment and the imposition of AML regs.
Katie Wilson-Milne: But any looted object is attached to a crime, right? So it would bring in, especially in the Middle East, like just potentially a vast majority of objects moving in the last couple of decades, would be attached to some crime, even if it’s just a local looter pulling it out of the ground, not ISIS being involved in the looting, right?
Jane Levine: Of course. And again, that’s another subject I know you know about and talk about, but we talked a little about generic laws that apply to everyone. Well, you know, the National Stolen Property Act will apply to every person, whether they’re regulated under the PSA or not. And so if an object is looted, it’s in violation of an ownership law, and all the elements of that offense are met and can be demonstrated. That could be a problem.
Katie Wilson-Milne: And that could be a predicate for a money laundering offense if the proceeds of that activity are used.
Jane Levine: Yes, it could be a predicate because that criminal statute is one of the money laundering predicates.
Katie Wilson-Milne: Yes.
Jane Levine: So there’s an incentive to make sure you understand the history of the object and the people you’re dealing with for many multiple reasons. And that’s, I think, what we’re saying. Is it not just because there are BSA, AML regulations that are coming down the pipe, but there are already laws on the books that you have to be careful of.
Steve Schindler: And maybe that’s a better selling point on some level, right? Because I think people and people in the business understand that a little bit. I think when you say, oh, you’re going to be regulated like banks are regulated, and it sometimes sounds just like a lot of paperwork. And it will be more paperwork or extra work. And I think it’s still the case here because we work with galleries. I mean, many of them do not have the internal sort of staff and kind of structure to deal with that set of requirements, which is why they turn to organizations like yourselves. Or should in order to do that.
Jane Levine: Yeah. And you can’t succeed with the line that compliance won’t be any more work for you. Like it will.
Katie Wilson-Milne: It will be more work. Absolutely.
Jane Levine: I think, though, the message I try to deliver is it’s not going to be the same program that you see in place at the bank you’re dealing with. It doesn’t need to be. It’s risk-based. And it doesn’t have to be overblown and scary. And there could be benefits, like get nabbed for other crimes. The high-profile instances that are cited for the OFAC violations, the same five cases that are trotted out, they may not be that common, but they’re in the category of what we used to call low probability, but very high impact. And so you could live your life like insurance, like that’s not going to ever happen to us. But if it does and you don’t take inexpensive, not that over burdensome measures to protect yourself, and it happens, it’s high impact. It’s game over. It costs way more money and reputational damage, et cetera, et cetera. So just getting people to think that way about it.
Katie Wilson-Milne: I think that’s a shift that has to happen in the art market mindset shift that we see in so many areas of law. I mean, like employment law, just the overuse of independent contractors. And I think somebody, some lawyer at some point has explained probably to someone at the gallery or any art business what the difference between an employee and independent contractors. And it’s still, people think it’ll never happen to them, right? And then they get audited and they have these huge damages. And that stuff does happen. But I think it’s the same mindset. It’s just like it hasn’t happened to me yet. It’s not going to. And how to create a shift where the norm is actually to just defer to some, like you said, even if relatively minor systems in place to pay more attention.
Jane Levine: You know, I mean, another thing, we’re happy to talk to people for an hour and kind of give some training, education about what to look for. I think people are scared. I don’t blame them. You don’t, if you’re not in this world and you’re not a lawyer or you haven’t worked in this field, the sound of this is daunting. And the words they use, customer due diligence, E, enhanced due diligence.
Katie Wilson-Milne: UBO, yeah.
Jane Levine: SARs. There’s like an alphabet soup of things. What is a SAR? And it can just be translated into, okay, like the things you rattled off, like, okay, is the person you’re dealing with, is that where the money is coming from? People get that.
Steve Schindler: Right.
Jane Levine: That’s easy. And we can translate and just like, look for these things. The red flags list, it’s not that. It’s common sense. It’s not that overwhelming when you talk to people about it, like, oh, okay, that makes sense. So, you know, another calming word I have.
Katie Wilson-Milne: Hope springs eternal.
Steve Schindler: Anyway.
Katie Wilson-Milne: Well, thank you so much, Jane. This was wonderful and hopefully we’ll have you back to talk about some more developments on this or other topics.
Steve Schindler: Thank you, Jane.
Jane Levine: It was great. Thank you.
Steve Schindler: And that’s it for today’s podcast. Please subscribe to us wherever you get your podcasts and send us feedback at podcast@schlaw.com. And if you like what you hear, give us a five-star rating. We are also featuring the original music of Chris Thompson. And finally, we want to thank our fabulous producer, Jackie Santos, for making us sound so good.
Katie Wilson-Milne: Until next time, I’m Katie Wilson-Milne.
Steve Schindler: And I’m Steve Schindler, bringing you The Art Law Podcast, a podcast exploring the places where art intersects with and interferes with the law.
Katie Wilson-Milne: The information provided in this podcast is not intended to be a source of legal advice. You should not consider the information provided to be an invitation for an attorney-client relationship, should not rely on the information as legal advice for any purpose, and should always seek the legal advice of competent counsel in the relevant jurisdiction.
Music by Chris Thompson. Produced by Jackie Santos.