On February 4, 2022, the Treasury Department published its Study on the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art (the “Report”).[1] To the surprise of many and the relief of the U.S. art market, the Report concluded that there was no immediate need to impose new regulations on the art market to combat money laundering and terrorism finance. Although there is some potential for money laundering using high-value art, the Report recommended that regulators prioritize other sectors of the economy where greater risks are presented. Yet the Report also discussed how the art market remains susceptible to money laundering and describes how market participants can minimize this risk.


When the Anti-Money Laundering Act of 2020 (“AMLA”) became law on January 1, 2021, it was described as the most influential anti-money laundering (“AML”) legislation since the USA PATRIOT Act.[2] As previously discussed in this blog, in addition to various other provisions, the AMLA called for a study to assess the extent to which the art trade facilitates money laundering and terrorism financing, including an analysis of “the degree to which the regulations, if any, should focus on high-value trade in works of art” and “the need, if any, to identify persons who are dealers, advisors, consultants, or any other persons who engage as a business in the trade in works of art.”[3] Within a year of the AMLA’s enactment, the Secretary of the Treasury, in coordination with the Director of the Federal Bureau of Investigation, the Attorney General, and the Secretary of Homeland Security, was required to submit to the Senate Banking Committee and the House Financial Services Committee a report of her findings and determinations made in carrying out that study.[4]

The Report

While acknowledging the risk that “high-value art and the market in which it is traded can be abused by illicit financial actors to launder funds,” the Report recommended that Treasury “complete its ongoing work to close outstanding gaps in the U.S. AML/CFT regime related to beneficial ownership, real estate, and investment advisers and nonfinancial gatekeepers before turning its attention to the high-value art market.”[5] The Report only discussed money laundering, ignoring other known risk areas in the art market, such as the sale of forged or stolen artworks.[6]

The Report specifically focused on “high-value art.” To develop the Report, “Treasury considered a broad definition of high-value art to include tangible, visual art” and “identified functional qualities of visual art…(such as when it is primarily used as a store of value or medium of exchange) that can make the art susceptible to [money laundering].”[7] In 2020, Treasury defined high-value art as artwork having an estimated market value of over $100,000.[8] However, it did not rely on this criterion in the context of the Report, as the monetary threshold in question was not “specifically created to identify high-value art for the purposes of [money laundering].”[9] The Report found that high-value art becomes particularly susceptible to money laundering when it is bought through intermediary market participants, like auction houses and galleries, that allow sellers and buyers to remain anonymous.[10] Art can then be used to hide illicit proceeds for several years,[11] serve as collateral to receive a direct loan into a bank,[12] or be transferred anonymously through shell companies by fraudulent actors moving assets.[13] The subjective and evolving nature of art valuation also can provide opportunities for tax manipulation.[14] Against that backdrop, the Report explored nine general categories of art market participants that trade high-value art and discusses the ways in which those participants are potentially vulnerable to money laundering: (1) auction houses; (2) galleries; (3) art fairs; (4) online marketplaces; (5) museums, universities and other nonprofits; (6) third-party intermediaries; (7) art finance; (8) banks; and (9) free-trade zones and art storage facilities.[15] We discuss below three areas that may be of particular interest to this blog’s readership: auction houses and galleries, online marketplaces, and non-fungible tokens (“NFTs”).

Auction Houses and Galleries

The Report observed that auction houses are especially vulnerable to financial crimes. Auction houses operate on the secondary market, where art is resold and traded, and they may focus on profits rather than on an artist’s overall reputation.[16] The subjectivity of art valuation allows money launderers to manipulate prices by bidding through shell companies and “then easily hide the exchange of illegitimate funds.”[17] As auction houses may allow their clients to bid on behalf of an anonymous, ultimate buyer or shell company, auction houses become a convenient platform for these empty, or “straw,” bids. The Report commended optional guidelines that some auction houses have already adopted to conduct due diligence (sometimes operating through formal compliance teams) and hoped for less client resistance to these policies.[18]

While art galleries can simultaneously operate on the primary and secondary markets, the Report concluded that they are less vulnerable to money laundering than auction houses for several reasons, including gallerists’ tendencies to have personal relationships with their buyers (especially those who spend large amounts of money), and ongoing relationships with living artists.[19] Nevertheless, the Report warned that galleries may still inadvertently facilitate illicit finance schemes through complicit professionals.[20] In the same way museums “could help illicit financial actors abuse art valuations to illegally claim tax benefits,” gallery staff “could ignore signs that customers may have acquired art or the funds to purchase art through criminal activities” to reap financial benefit.[21]

Online Marketplaces

Throughout the ongoing COVID-19 pandemic, most art market participants have relied on online viewing rooms (“OVRs”), online sales and social media platforms.[22] The Report observed that “[s]ales of high-value art online are growing, and the popularity of online auctions has increased significantly during the COVID-19 pandemic. Despite a contraction of overall high-value art sales in 2020 from previous years, online sales of high-value art (including by galleries, dealers, and auction houses made online through their own websites, viewing rooms, and other platforms, as well as those made through third-party platforms and online art fairs) reached a record high of $12.4 billion in 2020, more than double the online sales from the previous year.”[23]

The Report found that the art market is “split into two distinct categories: (1) online marketplaces, which includes online art fairs, purchases from the websites of galleries and auction houses, and other non-art-specialized third-party marketplaces such as social media and other sales listing sites (such as eBay) and (2) the digital art market where digital art with no physically tangible presence (such as works secured with NFTs) is traded.”[24] The Report covered the two areas separately and notes that online marketplaces are vulnerable to money laundering because “[d]ealers, galleries and auction houses can struggle to verify that the bearer of the collected identity documents is the same as the person listed on the documents.”[25] This is especially true on third-party sales websites (social media marketplaces, eBay, etc.), where due diligence requirements are rarely implemented and transactions occur without the interference of art market professionals. The Report noted that these online venues “are not purely focused on the art market; therefore, they do not have the same market incentives as the participants in the art market, such as reputational concerns when dealing with an artist’s eminence or potentially concerning counterparties.”[26]


The Report described NFTs as a separate “emerging digital art space” that “represents something quite new.”[27] Despite their novelty, “NFTs generated a record of $1.5 billion” in the first three months of 2021.[28] On March 11, 2021, digital artist Beeple’s NFT sold for over $69 million via online auction.[29] The Report observed that NFTs have several unique characteristics. Compared to the traditional art market, “NFT platforms range in structure, ownership, and operation, and no single platform operates the same way or has the same standards or due diligence protocols.”[30] NFTs are governed by smart contracts that determine the tokens’ essential characteristics such as their sale price and the individuals entitled to the revenue generated by each sale. The fact that NFTs and their smart contracts are blockchain-based allows them to be publicly verifiable, trackable and auditable.[31] In addition, unlike with traditional virtual assets such as bitcoin, NFTs “are considered provably unique digital assets” and their exchange rate does not fluctuate.[32] Instead, an NFT’s transactional value depends on a single transaction between a buyer and a seller.

According to the Report, it is still unclear whether NFTs can be considered virtual asset service providers (“VASPs”) as defined by the Financial Action Task Force (“FATF”). If NFTs were to fall under the FATF’s definition of VASPs, they would become subject to the U.S. Financial Crimes Enforcement Network (“FinCEN”) rules for money service businesses, including U.S. AML/CFT obligations.[33] The Report noted that NFTs may indeed be prone to money laundering.[34] For example, money launderers could purchase NFTs with illicit funds and create fake blockchain records of sales. The digital nature of NFTs also makes them significantly easier to exchange than traditional, physical art. This characteristic would allow money launderers to transfer NFTs “without concern for geographic distance and across borders nearly instantaneously,” and without the need to “pay for shipping services such as insurance, transport, or customer duties. . . .”[35] The Report also noted that, while traditional art market sellers have financial and reputational incentives to protect artists’ reputations, “sellers of digital art do not necessarily have the same incentives.”[36] The structure of smart contracts encourages quick and repeated sales that may overpower the incentive to verify a buyer’s identity and can create a situation where transactions are too rapid to allow due diligence investigations.[37]

Next Potential Regulatory Considerations and Other Recommendations

Even though the Report concluded that it is not yet crucial to impose new AML reporting requirements on the art trade, it enumerates possible ways to address the susceptibility of the high-value art market to abuse by illicit financial actors. Without providing a timeframe, the Report stated that Treasury “should consider several nonregulatory and regulatory options,”[38] such as:

• Enhanced Private Sector Information Sharing: The creation of a standard process could facilitate information-sharing requests among private sector entities and potentially allow law enforcement access to such information during investigations. The Report suggested that a single database with third-party identity services to protect and verify the identity of buyers and sellers in the market could provide helpful information to galleries, auction houses and other art market intermediaries and law enforcement agencies. This would allow visibility into first-time clients and help determine whether the customer has interacted with other facets of the art market.[39] “[T]his type of registry would allow smaller players in the market to better assess their customers for potential risks without putting an insurmountable burden on entities with fewer resources and could solve additional non-illicit finance inefficiencies inherent to the art market.”[40] The Report also observed that market participants noted during the study that no formal process exists to report potential financial fraud. The Report suggested that FinCEN could consider “proactive outreach” and “the use of recordkeeping and reporting requirements” to monitor suspicious activities in the high-value art market.[41]

• Law Enforcement Updates: Law enforcement agencies could increase training on financial crimes involving the high-value art market and include experts on the links between financial crimes and the art market to identify unique risks and opportunities presented to criminals in the art market.

• Expansion of FinCEN, AML and CFT: FinCEN could develop new recordkeeping and reporting requirements that target the high-value art market, and “[t]hrough these requirements, FinCEN could require certain covered businesses to provide information such as the identity of natural persons that are purchasing art without an intermediary; the natural persons behind, and nominees who control, shell companies used in purchases of high-value art; reporting on third-party intermediaries such as interior designers or art advisors and the clients they represent; or other data collection as FinCEN deems necessary.”[42] However, the Report noted that these approaches have limitations and risks, as “the opaque nature of the art market presents significant enforcement and compliance challenges that could limit the effectiveness of these tools.”[43] It proposed further examination of whether AML/CFT requirements, potentially including customer identification, should be applied to art market participants. The Report also advocated moving certain AML/CFT requirements from banks to art finance services that have a deeper understanding of their art market clients.

• Harmonizing International Requirements: “[M]any art market participants believe that harmonization of U.S. regulations with existing regulations in the European Union would present less of a regulatory burden and prevent regulatory arbitrage globally than if, for example, the United States decided to impose a higher threshold for high-value art-related SARs [i.e., Suspicious Activity Reports].” However, the Report took issue with the EU’s €10,000 reporting threshold, suggesting instead that, in the U.S., SAR requirements could be considered around the $50,000 transactional level, or $200,000 in yearly transactions by a single buyer at a single institution. It also suggested implementing certain requirements for institutions that generate $500,000 to $1 million in annual sales, like a customer identification program, customer due diligence obligations, hiring a compliance officer, and creating a system of internal controls to ensure ongoing compliance.[44]

The Report concluded that “there is some evidence of [money laundering] risk in the high-value art market and little evidence of [terrorist financing] risk” in the country’s art market,[45] an industry that generated $21.3 billion in sales in the U.S. in 2020.[46] However, high-value art is less vulnerable to fraud than larger markets like real estate, where transactions can include “the purchase of high-value property, the use of legal entities to conceal the ultimate owner, all-cash purchases, and the use of intermediaries who are not covered by AML/CFT obligations.”[47] The Report found a low risk for small and medium sized galleries, neither of which are “the preferred venue for illicit actors to launder large volumes of funds.”[48]

Treasury Department officials told reporters that the Report is only the beginning of the process. They may reexamine money laundering in the art market after addressing more systemic fraud issues.[49]

[1] U.S. Dept. of the Treasury, Study of the Facilitation of Money Laundering and Terror Financing Through the Trade in Works of Art, at 20 (Feb. 2022), https://home.treasury.gov/system/files/136/Treasury_Study_WoA.pdf (the “Report”).

[2] Carl A. Fornaris, Kyle R. Freeny, Marina Olman-Pal & Claudio J. Arruda, The Anti-Money Laundering Act of 2020: Congress Enacts the Most Sweeping SML Legislation Since Passage of the USA PATRIOT ACT, National Law Review (Jan. 19, 2021), https://www.natlawreview.com/article/anti-money-laundering-act-2020-congress-enacts-most-sweeping-aml-legislation-passage. A description of key aspects of the legislation is available here.

[3] William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283 § 6110(c), 134 Stat. 3388, 4561-63 (2021), https://www.appraisers.org/docs/default-source/default-document-library/ndaa-bill-text.pdf?sfvrsn=82f194d7_0. In recent years, both Congress and the Treasury Department’s Office of Foreign Assets Control (“OFAC”) have flagged the art market’s money-laundering risk.

[4] Pub. L. No. 116-283 § 6110(d).

[5] Report at 34.

[6] See e.g., Nora McGreevy, A Swindler Almost Sold These Forged ‘Masterpieces’ for $14.7 Million, Smithsonian Magazine: Smart News (Apr. 1, 2021), https://www.smithsonianmag.com/smart-news/con-artist-almost-sold-these-forged-paintings-147-million-black-market-180977385/.

[7] Id.

[8] U.S. Dept. of the Treasury, Advisory and Guidance on Potential Sanctions Risks Arising from Dealings in High-Value Artwork at 1 (Oct. 2020), https://home.treasury.gov/system/files/126/ofac_art_advisory_10302020.pdf.

[9] Report at n.32.

[10] Report at 20.

[11] Id. at 23-25.

[12] Id. 25.

[13] Id. 20.

[14] Report at 7.

[15] Report at 11-19.

[16] Id. 9.

[17] Id. 20.

[18] Id. 32.

[19] Id.

[20] Id. at 29.

[21] Id.

[22] Report at 14.

[23] Id. at 11.

[24] Id.

[25] Report at 14.

[26] Id.

[27] Report at 14.

[28] Id at 26.

[29] Report at 26; see also Christie’s, Beeple’s opus, https://www.christies.com/features/Monumental-collage-by-Beeple-is-first-purely-digital-artwork-NFT-to-come-to-auction-11510-7.aspx.

[30] Report at 26.

[31] Id.

[32] Id.

[33] Id.

[34] Id. at 27.

[35] Id.

[36] Id.

[37] Report at 27.

[38] Id. at 30.

[39] Id. at 29.

[40] Id.

[41] Id. at 30-31.

[42] Report at 30.

[43] Id.

[44] Id.

[45] Report at 1.

[46] Clare McAndrew, The Art Market 2021, Art Basel and UBS (2021), https://www.artbasel.com/about/initiatives/the-art-market.

[47] Report at 34.

[48] Id. at 13.

[49] Graham Bowley & Zachary Small, U.S. Study Finds Further Regulation of the Art Market Not Needed Now, The New York Times (Feb. 4, 2022), https://www.nytimes.com/2022/02/04/arts/design/art-market-regulation.html.