Thread by @propelforward

Is #FINCEN coming for #NFT #Art markets? A thread about the #NDAA, Anti-Money Laundering Act of 2020 (AMLA), its expansion of BSA coverage to include “dealers in antiquities,” & what it might mean for the #crypto art world: (link to notice here: fincen.gov/sites/default/… ) /1

Why regulate transactions of antiquities (&maybe art)? The concern is that art & antiquities can be used for money laundering, to violate sanctions, & “have been linked to ...criminal networks, ...terrorism, & the persecution of individuals or groups on cultural grounds.” /2

On Jan. 1, 2021, Congress passed the NDAA, which expands existing anti-money laundering (AML) requirements on a variety of fronts, including the addition of “dealers in antiquities” to the definition of “financial institution.” /3

Specifically, financial institution now includes: “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” ... But there are a number of open questions: /4

Who exactly does this cover? We need regulations to tell us what is /is not an “antiquity.” How old must a thing be to become an antiquity? Does it include newer art? We also don’t know whether “Advisor” and “consultant” extends to service providers like lawyers & accountants. /5

We don’t know whether museums that purchase art will be included within the scope of the new law. And we don’t know what “business” means- will those who engage in occasional or sporadic transactions be subject to obligations? /6

This is critical not just to the mainstream art world, but also to the #NFT sector. These #digital assets that confer rights & powers as to audio visual experiences, are generally thought of as a new frontier of digital art. NFTs trade on highly liquid & open marketplaces. /7

If #NFTs are lumped in with “antiquities,” liquid trading markets may find themselves subject to material data retention & reporting obligations. This may restrict trading, slash liquidity, and impose new costs & burdens on intermediaries. /8

What obligations? Implement AML/CFT programs, collect & retain information, file regular reports (i.e. CTRs and SARs), just like other regulated financial intermediaries. it is unclear whether all of the existing obligations imposed on other regulated financial intermediaries /9

will be imposed on antiquities dealers; we will find out sometime this year. The law is not effective until rules and regulations are approved. We can expect those rules/regs sometime this year; the Sect’y of Treasury has 360 days from the enactment of the AMLA to issue rules /10

& the law becomes effective after those rules are approved. Considerable discretion is given to the Sect’y of Treasury in rulemaking; we’ll see if the rules are include things identity collection, and how broadly the law is interpreted and implemented. It's an open question. /11

Section 6110(c) of the AML Act also calls for an “Art Study” which will examine money laundering & terrorism financing through the trade in works of art, which markets should be subject to regulations & the degree to which the regulations should focus on high-value trade /12

in works of art, & on the need to identify the actual purchasers of such works, in addition to other persons engaged in the art trade. The report is due to be presented to Congress in January 2022. /13

Yes this suggests that art & antiquities are thought of as separate (Which may be helpful) but we are not clear exactly how separate or where the dividing line falls. We'll find out when the regs come out. /14

This is not a new and innovative policy being experimented with by the US; this type of regulation already exists in the EU (the EU Fifth Money Laundering Directive) which went into effect last year. /15

This is good for 2 reasons: larger international players are probably already prepared for what’s likely to come their way, and there is or will be data avaialble that can enable parties to study the impact of this regulation on the industry. Worth keeping an eye on. /16

What does this mean for the #NFT and #crypto art world? If you’re a regulated financial institution facilitating transactions in #NFT art, you should be collecting data and reporting. If you’re a new entrant facilitating the sale and purchase of art & antiquities, /17

you should conduct a risk assessment and consider adopting risk -based procedures and policies that call for the collection of data about transactions. If you want a voice in the process, pay close attention to Treasury and to the regs that will issue. /18