November 4, 2021
Art is an increasingly attractive avenue for money launderers, and legislators have taken notice Deep in the night at a major European port, a high-end security company guard is on his shift in a warehouse watching over multi-million-dollar art pieces held in storage. Unbeknownst to him, one of the artworks has just changed hands right under his nose, without ever moving a millimeter. The transfer of ownership could be legitimate, but it could also be a money-laundering scheme and the guard watching over the art would have no inkling that a crime had been committed. Loosely regulated with business conducted under a veil of anonymity, it’s easy to understand why art is an attractive avenue for money launderers. The high value of art and ability to easily manipulate real values makes it a prime avenue for cleaning dirty money, especially as more conventional types of ML outlets, such as real estate, are increasingly regulated by Financial Action Task Force (FATF) guided regulations. The art trade industry respects the need for client secrecy, also commonly utilizing freeports around the world for storage “in transit.” Once there, normal tax and customs rules do not apply, and items can be resold without ever leaving the port. As a result, high-end art and antiquity trading are moving higher on the global radar of regulators working to combat money laundering and terrorist funding. To complicate things further, when the global art market took a hit at beginning of the COVID-19 pandemic, dropping from an annual market value of more than $65 billion to some $50 billion, the industry pivoted to adapt to a world of online commerce to compensate for the lack of in-person transactions. The number of annual global transactions is 31.4 million, according to the data. Online sales doubled in 2020 compared with 2019 reaching a record high of $12.4 billion. The figure represented a record 25% share of the market’s total value, according to a survey by the Art Basel and UBS Art Market Mid-Year Review 2021 published in September. An estimated $3 billion of the annual art trade is linked to money launderings every year, with the total crime value including thefts, fakes and illegal imports as high as $6 billion, according to a report published by the International Monetary Fund. New regulations requiring compliance As governments move to regulate the art trade, new Anti-Money-Laundering (AML) laws to combat money laundering and terrorism financing will require art dealers to establish the identity of buyers and sellers, as well as report transactions to authorities. In January 2020, the UK enacted legislation aimed to curb illegal activity in the art and antiquity trade by “art market participants”, subjecting transactions over €10,000 or more to be registered with the tax agency and dealers to identify the ultimate beneficial owner” — meaning both seller and buyer — before entering into a transaction. Furthermore, guidelines spell out that multiple sales by galleries to single customers must be accumulated and are also subject to threshold