Consistent with efforts in recent years to apply banking laws to the art market, the prospects of passage of a bill in Congress that would apply these rules to a broad category of consultants and attorneys have recently increased. The “ENABLERS Act,” a nomenclature gimmick that was apparent from the moment it was proposed, was briefly appended to the annual National Defense Authorization Act, which by long-standing tradition passed easily by the US House of Representatives on July 14, 2022 was passed. This tactic, which was also used to extend the reach of the Bank Secrecy Act to antique dealers in 2021, greatly increases the chances that what at first seemed like a shady publicity stunt could become law. readers of Art Law Report will not be surprised if the attempt to put a square peg – the art market – in a round hole – the banking supervision – is viewed critically. However, this calculation is considerably worse. Adding to the confusion is that, despite widespread media coverage Appendix Regarding the NDAA, the ENABLERS Act as originally proposed is not included in the NDAA’s version passed the House of Representatives last week (it was added and then revised, despite at least one report to the contrary). What has been approved for now leaves out the worst parts of the ENABLERS Act. But, ironically, the perception that it’s a done deal can lead to reduced vigilance about its prospects. While this law will never become law, it has come much closer than it should have.
There is little empirical evidence that the art and collectors market is particularly vulnerable to bad actors within the market itself. Are art galleries, consultants or lawyers more likely to engage in money laundering than other companies? Absolutely not. This is not due to lack of slander. But as a Treasury Department report this year confirmed, these financial crime regulations work best when applied to financial institutions, which are all but unavoidable in the modern world when it comes to payments and remittances. The intrusion of bad actors who victimize these very art market players is no excuse for an overarching surveillance state by forcing the creation of a network of whistleblowers. Insinuating this substantive idea into a defense bill is deeply cynical and appears to be the tactic of choice for backdoor politics.
The bill (HR 5525) was introduced on October 8, 2021 by Rep. Tom Malinowski of New Jersey as the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act, or ENABLERS for short. The existing banking secrecy law, 31 USC § 5312(a), imposes various obligations on regulated entities, primarily banks, to file reports of suspicious activity with the Financial Crimes Enforcement Network (FinCEN). The most well-known of these obligations is the reporting of cash transactions over $10,000. That obligation was extended in 2021 to “antique dealers,” a term undefined by law or regulation almost two years later.
In particular, last year FinCEN issued its Congress-mandated report on the state of risk in the art market. FinCEN’s report highlighted the risks of malicious actors using the art market to launder money, but effectively concluded that additional regulation was not warranted.
The ENABLERS Act would continue this trend, adding to the entities covered by the Bank Secrecy Act: “a person engaged in the dealing in a work of art, antique or collector’s item, including a dealer, consultant, consultant, custodian, gallery, auction house, museum or any other person engaged as a business in the promotion or sale of works of art, antiques or collectibles”, as well as any attorney involved in financial transactions or related administrative activities on behalf of another person”, a fiduciary or corporate service provider, CPAs, “an individual engaged in public relations, marketing, communications, or other similar services to provide anonymity or deniability to another individual” and certain third-party payment services.
That’s quite a list. The addition of trade in art or collectibles is similar to other proposals that never made it into law, most recently in 2018’s Illicit Art and Antiquities Trafficking Protection Act, which never became law. It’s a broad definition that includes almost literally anyone involved in the art or antiques market in any way that would treat them like a bank.
That, believe it or not, is the tightest part of the bill. And while I can appreciate the eye-roll that will ensue, perhaps the worst part of this very bad idea is the suggestion that any attorney involved in a financial transaction share those obligations as well. Everyone hates lawyers until they need one, as they say. But the suggestion that lawyers inform their clients not only violates centuries-old existing law, it also abhors public order.
Therefore, we are making a short detour into the currently attacked attorney-client privilege. The privilege was recognized as a legal right by the English Chancery Court as early as 1577, in the case of Berd vs Lovelace (1577), 21. Eng. Rep. 33 (chap.). Professor Wigmore, the author of the definitive evidence paper, described it as “designed to ensure the client’s subjective freedom in seeking legal advice”. John Henry Wigmore, Evidence § 2317 (1St ed., Little Brown & Co. 1904). As the Supreme Court later noted in affirming this view: “If privilege did not exist at all, each would be left to his own remedies. Deprived of any professional help, a man would not dare consult an experienced person, or dare to tell his solicitor only half his case.” Blackburn versus Crawford’s tenants, 70 US 175 , 192-93 (1865). This concept also exists to some extent in the law of each state and was codified in the Federal Rules of Evidence in 1974.
The revision language that has passed the House is narrower, but hardly acceptable. It would now include in the regulated group “legal or accounting services” which includes “services for the formation, association or incorporation of a company or other legal entity”. This is still a very broad category that could easily include attorneys being consulted for the creation of ownership structures to hold art. “Shell Corporation” is a popular straw man in this regard, but read literally, the proposed bill would place an attorney between its clients and the law to confidentially assess what the client said. This is totally untenable. If you threaten to consult yourself, the unintended consequence is that more people will not seek advice on how to comply with the law.
It really boils down to this: do you think the government has a right to know what you tell your lawyer in confidence? Do you think the government has the right to speak your words in confidence with your lawyer, take them out of context and fine you or jail you? Perhaps there is a government that you entrust with this power. I haven’t met any yet. In other words, pick the issue on which you disagree with one of the major political parties. Would you be confident that a government under this party would act discreetly if in possession of your most intimate confidential information? count me out
What then is the case for this bill? What I have seen cited most often leads to the impetus for the so-called Pandora Papers, which succeeded the so-called Panama Papers. According to the International Consortium of Investigative Journalists, its Offshore Leaks database “contains information on more than 810,000 offshore companies that are part of the Pandora Papers, Paradise Papers, Bahamas Leaks, Panama Papers and Offshore Leaks investigations.” These papers, it has been suggested, are “stripping away Destroy the secrecy of corporations and trusts incorporated in tax havens and expose the people behind them. This includes the names of the real owners of these opaque structures, if available. In all, the interactive application reveals more than 750,000 names of people and companies behind secret offshore structures. They come from leaked records and not from a standardized business register. . . “The NDAA, which passed, calls the Pandora Papers “the largest exposé of global financial data in history.” There is another way to describe these people and the data they disclosed: victims of a crime in which this data was stolen. As mentioned, none of these papers were publicly filed, they were “leaked”.
Two wrongs don’t make a right. Gallery owners, lawyers and accountants are not bankers. It’s certainly to be applauded that someone noticed and scraped the worst part of the bill, but the celebration of data breaches still oozes from the current bill.