The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued an advisory notice to art market participants, highlighting the risk of dealing in high-value artwork associated with sanctioned persons and entities.

For some time, the US authorities have been concerned that the international art market is used for money laundering and sanctions evasion. In July this year, the US Senate Subcommittee on Investigations published a 150-page report alleging that art works are extensively traded for criminal purposes, sometimes using shell companies or anonymous intermediaries, although critics claim the report exaggerated the problem.

The subcommittee’s report demanded tighter regulation, proposing that the Treasury 'maximize its use of suspicious activity reports filed by financial institutions' and that the Banking Secrecy Act should be extended to cover art dealers when handling multi-million dollar transactions. It also suggested that OFAC should 'issue comprehensive guidance on the steps auction houses and art dealers should take to ensure they are not doing business with sanctioned individuals or entities'.

Now OFAC has made its first response to this report, by issuing its advisory note to art dealers and auction houses. The note highlights the risk of incurring penalties stemming from dealings in high-value artwork associated with blocked persons and entities.

'The Government usually takes this step – issuing a warning – as a precursor to embarking on some sort of action so that a target cannot later complain that it was not put on notice of the risks associated with violating a sanction', commented Georges Lederman, Special Counsel at law firm Withersworldwide. 'This is all the more important as a violation of OFAC regulations is a strict liability offence', he added.

Lederman points in particular to a footnote in the advisory that urges particular caution when dealing with works worth more than USD100,000......