Money laundering has been a concern for years throughout various territories and industries, and the art world is no exception. The allure of client anonymity and exclusivity, subjectively high-value transactions, the ease of conducting transactions and transporting art across borders, the increasing rate of online transactions,¹ and the widely accepted use of third-party intermediaries to purchase, sell, and hold artwork, make art an appealing commodity for criminals seeking to launder funds.² Congressional Research Service estimates that money laundering and other financial crimes in the art market may amount to billions of dollars each year.³ This article explores the intricacies of money laundering in the U.S. art market and discusses regulatory and nonregulatory measures that already exist and still need to exist to successfully combat money laundering in the art world.

Understanding the Inner Workings of Money Laundering in the Art Market

There are various ways that criminals use art to launder money. For example, accepting art as payment to integrate illicit funds into the financial system, purchasing high-value art with questionably obtained funds then waiting years to sell it for a profit, and purchasing art with questionably obtained funds and offering it as collateral for a loan.⁴ While the second example is a trending topic, money laundering committed by sellers of counterfeit goods is less popular.⁵

Most recently, on January 18, 2024, Zsanett Nagy was sentenced by Judge Jennifer P. Wilson in the Middle District of Pennsylvania⁶ to prison for her part in a conspiracy to commit, inter alia, money laundering.⁷ Nagy and her ex-husband were convicted of selling counterfeit artistic goods known as “woodblocks” or “woodcuts,” which were misrepresented to be pieces made between the 15th and 16th centuries, to various buyers, and then laundered the proceeds from the sale over a couple of years.⁸ While Nagy and her ex-husband lived in Pennsylvania, their activities reached across the Atlantic to buyers in France. Before these French buyers noticed that the “antique” goods they purchased appeared to be counterfeit art, Nagy had moved the proceeds to her bank account, and quickly “cleaned” the money through the withdrawals of at least several thousand dollars.⁹

Regulatory and Nonregulatory Options

As the U.S. is a leader in the international art market, comprising 45% of the total shares of sales by value as of December 2023,¹⁰ it only makes sense that the U.S. has legislation in place to combat money laundering.

The Bank Secrecy Act (BSA) of 1970 was enacted to detect and apprehend money launderers in the U.S., and is the main legislation in the U.S. regulating money laundering activities.¹¹ The BSA, amended most recently by the Anti-Money Laundering Act of 2020,¹² imposes reporting and recordkeeping requirements on financial institutions to monitor transactions and identify suspicious activity.¹³ However, the art market largely remained exempt from these regulations, leaving it vulnerable to money laundering until 2021. Recent amendments have extended the BSA’s scope to include antiquities, but NFTs remain unregulated, creating potential loopholes for money laundering activities in the digital art space. Violating the BSA as an individual could result in civil penalties up to $100,000 per transaction, and if such violations are willful, the punishment could result in up to five years of imprisonment with a fine up to $250,000.¹⁴ Financial institutions and agencies face a higher punishment, with fines up to $1 million per violation.¹⁵

The most recent regulation combatting illicit activity such as money laundering and other financial crimes, is the Corporate Transparency Act (CTA), enacted in 2021, which went into effect on January 1, 2024.¹⁶ Under the new legislation, businesses that meet certain criteria, including limited liability companies owned by self-employed artists and creatives, must submit various types of personally identifying information¹⁷ to the U.S. Department of Treasury’s Financial Crimes Enforcement Network,¹⁸ with the hope that this information will provide law enforcement and the government with the information needed to disrupt financial anonymity that primes an industry for money laundering.¹⁹ Notably, on March 1, 2024, an Alabama federal judge ruled the CTA was unconstitutional and the required information under the CTA gave the government “unfettered legislative power,” which was not narrowed enough in scope to be held constitutional.²⁰ Now, the enforcement and implication of the CTA is uncertain and opens a can of worms regarding whether companies need to comply with the CTA.²¹  

In addition to the regulatory options that exist to combat money laundering, some nonregulatory options may include encouraging the creation, implementation, and use of private sector information-sharing programs to garner transparency among art dealers, auction houses, galleries, and art market participants. Additionally, as law enforcement and customs agents are ill-equipped to accurately assess the value of fine art, are uninformed about the intricacies of the art market, and thus struggle to recognize a suspicious art deal, updating guidance and field training for law enforcement, customs enforcement, and asset recovery agencies, could greatly impact the fight against money laundering in the art world.²²

Conclusion

While money laundering continues to pose a significant threat to the integrity of the art market, including continuing to cost the market billions of dollars annually, laws such as the CTA are pushing the U.S. in the right direction to combat money laundering activities in the art market. By art market participants cooperating and sharing their expertise with law enforcement and customs agents, stakeholders can protect the integrity of the art market and ensure that it remains a safe and legitimate space for artists, collectors, gallery owners, and investors alike.

1. Alexandrea (Andrea) Tracy & Deborah Hrbek, Advising Art Market Participants on Anti-Money Laundering Regulations, American Bar Association (Jan. 16, 2024), https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2023-24/december-january/advising-art-market-anti-money-laundering-regulations/.↩
2. Department of the Treasury, Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art,3, (Feb. 2022), https://home.treasury.gov/system/files/136/Treasury_Study_WoA.pdf. ↩
3. Congressional Research Service, Transnational Crime Issues: Arts and Antiquities Trafficking, CRS Reports (Mar. 1, 2021), https://crsreports.congress.gov/product/pdf/IF/IF11776. ↩
4. See Department of the Treasury, supra note 2, at 25. ↩
5. AML Compliance Blog, What Is Art Money Laundering And How Does It Work?, Alessa (Dec. 27, 2023), https://alessa.com/blog/art-money-laundering-explained/. ↩
6. See USA v. Washington, et al., Case No. 1:23-cr-00002-JPW-2 (2024). Note, no appeals have been filed by Nagy, who appeared pro se before Judge Jennifer P. Wilson. ↩
7. Hungarian Woman Sentenced For Fraud And Money Laundering For Selling Counterfeit Art, U.S. Attorney's Office, Middle District of Pennsylvania (Jan. 18, 2024), https://www.justice.gov/usao-mdpa/pr/hungarian-woman-sentenced-fraud-and-money-laundering-selling-counterfeit-art. ↩
8. Id. ↩
9. Id. In addition to Nagy’s sentence, Nagy was ordered to pay $107,159.25 in restitution to the buyers. Id. ↩
10. Alexandrea (Andrea) Tracy & Deborah Hrbek, Advising Art Market Participants on Anti-Money Laundering Regulations, American Bar Association (Jan. 16, 2024), https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2023-24/december-january/advising-art-market-anti-money-laundering-regulations/.↩
11. Law Enforcement Overview, U.S. Treasury Financial Crimes Enforcement Network, https://www.fincen.gov/resources/law-enforcement-overview (last visited Mar. 8, 2024). ↩
12. Prop. Treas. Reg. § 1.704-1, 87 Fed. Reg. 34224 (June 6, 2022). ↩
13. Elizabeth T. Davy & Sharon Levin, Anti-Money Laundering Deskbook: A Practical Guide to Law and Compliance, Chapter 4: Anti-Money Laundering Legal and Regulatory Landscape (2d ed. 2023).  ↩
14. 31 U.S.C. §§ 5322(a).↩
15. 31 U.S.C. §§ 5321. ↩
16. Miranda Fraraccio, What Every Small Business Needs to Know About the Corporate Transparency Act, US Chamber of Commerce (Dec. 19, 2023), https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act. ↩
17. U.S. Beneficial Ownership Information Registry Now Accepting Reports, Treasury Financial Crimes Enforcement Network (Jan. 1, 2024), https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports.↩
18. Angela Davic, Self-Employed Creatives and US New Anti-Money Laundering Law, The Collector (Jan. 10, 2024), https://www.thecollector.com/self-employed-creatives-and-us-new-anti-money-laundering-law/. ↩
19. ↩ Id.
20. National Small Business United, d/b/a the National Small Business Association, et al. v. Janet Yellen, in her official capacity as Sec'y of the Treasury, et al., No. 5:22-CV-1448-LCB, 2024 WL 899372, at *21 (N.D. Ala. Mar. 1, 2024). ↩
21. Mengqi Sun, Judge Strikes Down Law Requiring Corporate-Ownership Disclosure, The Wall Street Journal (Mar. 4, 2024) https://www.wsj.com/articles/judge-strikes-down-law-requiring-corporate-ownership-disclosure-e6cf9ec7.↩
22. Sofia Aizenman, The Art World of Digital Assets: How Non-Fungible Tokens Create a Loophole in Anti-Money Laundering Regulations, 44 Cardozo L. Rev. 1179 (2023); see also Alexandrea (Andrea) Tracy & Deborah Hrbek, Advising Art Market Participants on Anti-Money Laundering Regulations, American Bar Association (Jan. 16, 2024), https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2023-24/december-january/advising-art-market-anti-money-laundering-regulations/. ↩