Blockchain: Know Your Client and Know Your Provenance

Can Blockchain Help with Growing Anti-Money Laundering Regulations?

By Andrea Canzano.

The continued growth of New Media Art, including Non-Fungible Tokens (“NFTs”), online exhibitions, and online sales of physical works has shifted the art market into new territories. Similarly, the growing suspicion of money laundering in the market and the regulatory response have added further implications as Art Market Participants (“AMPs”) vie to remain relevant on an international scale. With the acceptance of NFTs as art and cryptocurrencies as payment, the new technology may offer an opportunity to consolidate compliance required while transacting in art.

As of 2021, the European Union and the United Kingdom require AMPs to register and conduct Anti-Money Laundering Customer Due Diligence audits while maintaining Know Your Client recordings. In the United States, as of January 1, 2021, only antiquities dealers are subject to Anti-Money Laundering (“AML”) regulations; however, it is likely that works of fine art will soon also fall under the purview Anti-Money Laundering Act of 2020.^[1] There are platforms currently available to assist AMP with auditing customers and tracking transactions for AML purposes. The secondary layer of AML compliance is to establish the artwork’s provenance yet authentication and establishing a continuous chain of title remains a challenge.