The U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) recently warned of sanctions risks for those dealing in high-value artwork, in an advisory issued on October 30, 2020. The advisory urged "caution" with regard to any artwork with an estimated market value of U.S. $100,000 or more when dealing with restricted parties, including those on OFAC's List of Specially Designated Nationals and Blocked Persons (SDNs). Given other restrictions preventing access to the U.S. markets and financial systems, there is concern that restricted parties are increasingly turning to high-value artwork to evade those prohibitions.
The advisory serves to put art galleries, museums, private collectors, auction companies, agents, brokers, and others in the art market chain on notice for compliance with U.S. sanctions risks. Moreover, for those in the luxury art world, there is no automatic safe harbor from OFAC regulation or enforcement. While the "Berman Amendment"1 to the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) generally exempts certain informational materials including "artwork," OFAC does not interpret this provision as applying to sanctions evasion when a blocked or restricted person is involved.
High-value artwork has become an attractive means for those seeking to evade these laws, because of the lack of transparency and common factors of anonymity and confidentiality associated with such transactions. Often shell companies and intermediaries are introduced to facilitate a transaction, thereby obscuring the true parties in interest. This, along with the ease of mobility and subjective value of artwork, leads to underscore the vulnerability of such transactions to sanctions violations.
Notably, these are not empty threats by the administration, with global investigations and enforcement recently undertaken. In December 2019, a diamond dealer and art collector based in Lebanon was listed as a Specially Designated Global Terrorist, pursuant to Executive Order (EO) 13224, for his actions providing material support to Hezbollah.2 In March, a United Nations report identified certain galleries and exhibitions involving persons listed on U.N. restrictions.3 More recently, in July 2020, a report from the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs identified how two Russian oligarchs designated by OFAC and listed as SDNs under E.O. 13661 were associated with shell companies that traded in high-value artwork.4
OFAC laws and regulations restrict U.S. persons from engaging in transactions, directly or indirectly, with restricted parties, including SDNs, blocked persons, and those subject to comprehensive embargoes, unless authorized. Moreover, as these laws are applied under a theory of strict liability, no intent is required to show a violation. Thus, involvement in a high-value artwork transaction can unwittingly expose you to significant civil penalties for sanctions violations even if you didn't know a restricted party was involved. So, if a collector buys an art work which was previously owned by a SDN (restricted person) from a gallery or auction house, and had no idea of its illegal source, they can still be held liable under this Advisory. Therefore, if you are involved in luxury goods and high-value art transactions, you should consider whether you have adequate protections and warranties in place. Implementing a rigorous screening and compliance program is critical for minimizing the risk of inadvertent sanctions violations. If you have any questions about how this might impact you, please feel free to reach out to the authors at Venable for guidance.
[1] See 50 U.S.C. § 1702(b)(3); 50 U.S.C. § 4305(b)(4), respectively.
[2] https://home.treasury.gov/news/press-releases/sm856.
[3] Letter dated Feb. 26 from the Panel of Experts established pursuant to Resolution 1874 (2019) to the President of the Security Council, S/2020/151 (Mar. 2, 2020), available at https://undocs.org/S/2020/151.
[4] https://www.hsgac.senate.gov/imo/media/doc/2020-07-29%20PSI%20Staff%20Report%20-%20The%20Art%20Industry%20and%20U.S.%20Policies%20that%20Undermine%20Sanctions.pdf.