Money Laundering and the Art World

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Despite the best efforts of governments and financial institutions around the world, money laundering still accounts for roughly 2-5% of global GDP, or $1-2 trillion dollars annually. As the market for fine art continues to grow and become more readily accepted as an asset class, it has become a popular means for criminals to launder money.

Transactions involving artwork are being used as vehicles to move money across borders and hide illicit gains. A recent New York Times article points out: “As other traditional money-laundering techniques have come under closer scrutiny, smugglers, drug traffickers, arms dealers and the like have increasingly turned to the famously opaque art market.”

The article elaborates: “It is hard to imagine a business more custom-made for money laundering, with million-dollar sales conducted in secrecy and with virtually no oversight.” What this means in practical terms, according to Sharon Cohen Levin, Chief of the Asset Forfeiture Unit of the United States Attorney’s Office in Manhattan: “you can have a transaction where the seller is listed as ‘private collection’ and the buyer is listed as ‘private collection.’ In any other business, no one would be able to get away with this.”

As terrorists groups and organized crime groups strengthen and broaden their reach around the world, I think it is time to talk seriously about making some changes to the art market. I say this with some trepidation, as government oversight may bring with it the possibility of over-regulation and over-taxation, which makes it more difficult and expensive to do business. However, there is no question that there needs to be greater transparency (and less secrecy) in the art market, making it more difficult for buyers and sellers to hide their identities.

Karon Melillo DeVega, Money Laundering. Photo: via Fine Art America.

Karon Melillo DeVega, Money Laundering. Photo: via Fine Art America.

One possible solution for collectors who wish to retain anonymity is to require them to use registered agents. These agents would have to be licensed in their respective country or territory, be educated in recognizing the signs of money laundering (among other things), and be closely monitored by an oversight board or committee.

Another possibility is to place registration numbers on artworks sold by artists, galleries, auction houses, etc., much like cars have VIN numbers. This would certainly not be an easy task and would take time, but would pay off in the long run. Regardless of the route chosen, any steps taken toward increasing transparency in the art market would not only make it harder to launder money, but also create speed bumps for those selling forgeries and fakes. This in turn would help protect art collectors and investors and impart confidence to the art market overall.

 

Valuable as Art, but Priceless as a Tool to Launder Money

By PATRICIA COHEN

Law enforcement officials in the United States and abroad say “Hannibal” is just one of thousands of valuable artworks being used by criminals to hide illicit profits and illegally transfer assets around the globe. As other traditional money-laundering techniques have come under closer scrutiny, smugglers, drug traffickers, arms dealers and the like have increasingly turned to the famously opaque art market, officials say.

It is hard to imagine a business more custom-made for money laundering, with million-dollar sales conducted in secrecy and with virtually no oversight. What this means in practical terms is that “you can have a transaction where the seller is listed as ‘private collection’ and the buyer is listed as ‘private collection,’ ” said Sharon Cohen Levin, chief of the asset forfeiture unit of the United States attorney’s office in Manhattan. “In any other business, no one would be able to get away with this.”

Full Article:

www.nytimes.com/2013/05/13/arts/design/art-proves-attractive-refuge-for-money-launderers.html?_r=0

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