Insights from the U.S. Treasury Department’s Study of the Global Art Trade

The U.S. Treasury Department this week released its long-awaited Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art. The 40-page report paints a picture of a self-regulated global art industry with limited evidence of money laundering and practically no evidence of terrorist finance and in need of no urgent government intervention. But beneath this current image lurk future risks to U.S. economic and national security. As art itself evolves in the growing digital world, the potential for malign actors to leverage increasingly valuable digital art markets to bypass global laws could grow.

Q1: Why was this study commissioned?

A1: Over the past decade, growth in the value of the global art market has increased attention on the industry. Between 2009 and 2019, the value of global art market transactions grew from $34.5 billion to $64.4 billion, mostly driven by high-value art sales. By 2020, sales of individual artwork valued at over $50,000 represented 10 percent of international auction house sales by volume but over 85 percent of sales by value. The United States dominates with 42 percent of global art market sales, compared to China and the United Kingdom with 20 percent of the market each. Leading auctioneers and gallerists in this high-value segment promote themselves to clients based on their confidentiality and secrecy. In many high-value transactions, buyers and sellers remain unknown to one another or governing authorities. Unlike many other high-value sales industries such as financial services or real estate, the art market remains largely unregulated at the national or international level.

High-profile sales—both legitimate and illegitimate—have boosted public focus on the global art market. Though legal, the 2017 sale of Leonardo da Vinci’s Salvator Mundi to Crown Prince Mohamad bin Salman of Saudi Arabia for just over $450 million stoked public outcry, especially considering that the painting sold for only $1,500 just 10 years earlier. The 2016 release of the Panama Papers exposed several high-profile cases of how actors leveraged loopholes in the art market to circumvent international laws. In one notable case, Russian oligarchs Arkady and Boris Rotenberg were able to evade U.S. sanctions by purchasing over $18 million in art in the U.S. market and hiding these purchases behind intermediary shell companies.

This evidence of high-end art being used for money laundering sparked congressional regulatory interest. In 2020, the U.S. Senate Committee on Homeland Security and Government Affairs commissioned an investigation into The Art Industry and U.S. Policies that Undermine Sanctions, which found the art market to be the largest legal, unregulated U.S. market. A year later, Congress passed the Anti-Money Laundering Act of 2020 as a part of the National Defense Authorization Act for Fiscal Year 2021. Among other amendments to the underlying Bank Secrecy Act, this legislation directed the Treasury Department to conduct a study of how money laundering and terrorist financing is facilitated through the trade in high-value works of art.

The Treasury Department’s study examined nine distinct segments of the high-value art market based on their potential risks for facilitating illicit finance to propose additional regulation and review. It focused primarily on visual art—such as paintings, sculptures, photographs, and ceramics—and secondarily on emerging digital art forms.

Q2: What did the study find and recommend?

A2: The Treasury Department’s study found several potential money laundering vulnerabilities across the nine high-end art market segments but found little evidence of terrorist financing in the art world. The Treasury Department found three main mechanisms for the art market to be leveraged for illicit finance:

  • Art can be used as a medium of exchange or value transfer where illicitly generated funds can be integrated into the U.S. financial system.

  • The purchase and sale of art can also be used to hide illicit proceeds as the value of an artwork grows over several years.

  • Finally, art can be used as collateral to disguise illicit proceeds through direct loans and financing that multiply the impact of illicit funds.

The Treasury Department found that legacy actors in the global art trade—major auction houses, galleries, art fairs, and banks—face relatively low levels of illicit finance risk. Though these actors often transact the highest-value works in the art market, they have built-in profit incentives to counter money laundering by conducting financial due diligence, building relationships with and maintaining records on clients, and maintaining their public reputations. Online marketplaces and nonprofits such as museums, universities, or hospitals that buy or sell art are at a higher level of risk due to the limited resources these institutions have to identify and respond to illicit transactions compared to larger market players. Emerging actors largely on the fringe of the traditional global art market—third-party intermediaries, art finance firms, and free trade zones/art storage facilities—face higher levels of illicit finance risk.

Despite these risks, the Treasury Department highlighted that the art industry is not required to abide by Anti-Money Laundering/Combatting the Finance of Terrorism (AML/CFT) regulations. In line with general Treasury Department requirements, art market actors that facilitate transactions over $10,000 must report these transactions with a Form 8300 to the Internal Revenue Service (IRS) and the Treasury Financial Crimes Enforcement Network (FinCEN). Beyond this reporting requirement, however, art market financial due diligence is purely voluntary. This means that U.S. authorities cannot take enforcement actions against art market participants with insufficient or nonexistent AML/CFT regulations and lack legal mechanisms other than subpoena or court order to acquire customer information.

The Treasury Department identified several nonregulatory recommendations federal agencies could pursue on their own to counter money laundering in the art market: the Treasury Department could facilitate greater private sector information sharing among art market participants, law enforcement agencies could update asset forfeiture guidance and internal training, and FinCEN could better target industry reporting requirements. The Treasury Department also suggested that Congress could enact new regulations to bring the art market under AML/CFT requirements and harmonize industry requirements with newly enacted regulations under the European Union’s Fifth Anti-Money Laundering Directive (5AMLD).

While the Treasury Department identified several illicit finance vulnerabilities in the global art trade and recommended policy remedies, the agency did not find evidence that these vulnerabilities are being exploited at a large scale. Money laundering in the high-end art world remains limited, and terrorist finance through works of art is practically nonexistent. In comments made after this study’s release, Treasury Department officials stated that tackling issues of shell company abuse and complicit professionals are higher priorities to combat illicit finance.

Q3: How might the growing digital art trade complicate these findings?

A3: The Treasury Department’s report touched on emerging risks from the digital art trade. Non-fungible tokens (NFTs) are the leading form of emerging digital art. An NFT is a unique digital representation of a good, where authenticity is recorded on a blockchain public ledger. Just like physical pieces of art, NFT prices are set based on the subjective valuation in transactions between buyers and sellers. They can also be transferred between parties across borders, though with even greater ease online than by physical means. Valuations of the global NFT market are still in their infancy, but market research firm Chainalysis estimates users sent at least $44.2 billion of cryptocurrency through NFT marketplace smart contracts in 2021—a scale rivaling that of the $50 billion worth of transactions in the traditional art and antiquity market in 2021. The emergence of “the metaverse” as a future virtual reality world that could parallel the physical economy also suggests that the digital art market could rival or overtake the traditional art market in the coming years.

The main factors that make the traditional art market susceptible to money laundering—industry opacity, product portability, and subjective value—could all be accentuated in the emerging digital art market. Though the blockchain ledger that NFTs are based upon theoretically makes all transactions public and traceable, the sale of NFTs through peer-to-peer (P2P) sales can bypass intermediaries or transaction recording. NFTs also present a greater risk for self-laundering transactions. An actor can purchase an NFT with illicit funds, repeatedly trade it with themselves to create a blockchain record of sales and boost its value, and then sell the NFT to an unwitting customer to acquire clean funds far easier than through traditional art sale processes. The NFT market is also structured to allow smart contract transactions and fees that incentivize rapid trading. The Treasury Department notes that this incentive for rapid transactions weighs against incentives that traditional art institutions have to conduct due diligence on transactors and report suspected illicit transactions.

While the traditional art market is largely unregulated, the digital art market is even less so. The Treasury Department expressed uncertainty as to whether NFT sales platforms qualify as virtual asset service providers (VASPs) that have AML/CFT obligations under U.S. law. In the absence of additional guidance Congress, some find it unclear as to how this growing digital marketplace for NFTs can be properly regulated.

Q4: What may come next for the global art trade and illicit finance?

Q4: Like the security risks associated with many high-value U.S.-led industries, the future of the art trade will depend on how it responds to technological and geopolitical disruptions.

Emerging technology and the growing, yet still unclear, value of NFTs and the metaverse also raise questions about the future of the art market and the extent to which it could be leveraged for illicit finance. While anonymity, transferability, and ease of transactability all raise the profile of NFTs and other digital assets as vehicles for money laundering, their long-term worth as a store of value is less certain than more established forms of art.

Fragmentation among the art world’s top markets—the United States, the European Union and the United Kingdom, and China—present additional uncertainty. The European Union and the United Kingdom have so far taken the lead on art market regulatory tightening under 5AMLD, which the United Kingdom has committed to fully implement even after Brexit. Under these new rules, art market participants are subject to the same anti-money laundering requirements as bankers and lawyers in addition to other Know Your Client (KYC) and Customer Due Diligence (CDD) checks. The United States is exploring similar requirements for its art market, but the threshold to which it will further scrutinize art transactions may differ from Europe’s. 5AMLD covers works valued above €10,000 ($11,440), but the Treasury Department’s Office of Foreign Asset Control (OFAC) has suggested a higher threshold of $100,000. Transatlantic misalignment, coupled with limited Chinese interest in strengthening AML/CFT policies in their art market, suggests a fragmented future for the global art trade where regulatory arbitrage and illicit finance risk could grow.

Aidan Arasasingham is a program coordinator and research assistant with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Matthew P. Goodman is senior vice president for economics at CSIS.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). 

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Aidan Arasasingham

Aidan Arasasingham

Former Research Associate, Economics Program
Matthew P. Goodman

Matthew P. Goodman

Former Senior Vice President for Economics