AML CHALLENGES
U nder the Wave off Kanagawa( Kanagawa oki nami ura), also known as The Great Wave, from the series Thirty-Six Views of Mount Fuji( Fugaku sanjūrokkei) is one the most recognizable works of Japanese art in the world. This wood block print by the Japanese artist Hokusai, published between 1829 and 1833, embodies the beauty, movement and force of tidal waves on the lakes around Mount Fuji.
It seems a fitting illustration of the concepts of movement and change, which we are witnessing in 2017 when it comes to tackling financial crime.
The AML / CTF regulation tide
Concerned by the significant and evolving challenges of money laundering and terrorist financing, recent months have witnessed a series of recommendations and measures at international, European and national levels. It seems the tide of regulation is no longer confined to the financial sector with legislators extending their focus to new sectors of financial activity, including the art market.
For example, on June 26, 2017, the European Commission published a supranational risk assessment( SNRA) of money laundering and terrorist financing affecting the internal market. 1 The report identifies dealers in high-value goods and the art market as being sectors at risk due to what the report describes as their“ inherent risk exposure and weak level of controls.” It recommends member states extend their lists of obliged entities to include auction houses, art and antiques dealers and specific traders in high-value goods. On the same day, the U. K.’ s new anti-money laundering( AML) regulations came into force. 2 Art businesses accepting cash payments above 10,000 euros in a single or series of linked operations are regulated as high-value dealers and in a change to the previous legislation are now required to register to carry out their activities.
When it comes to countering terrorism, the G20 published a new action plan on July 7, 2017. Amongst other measures, it calls on heads of state, governments and the private sector to dismantle connections between terrorism and transnational organized crime, including the looting and smuggling of antiquities. Within a week, the European Commission responded by publishing a proposal for a new regulation on the import of cultural goods. 3 The proposal is designed to close loopholes and to curb illicit trafficking suspected to be linked to terrorist financing activities.
This article looks at these issues and asks if further regulation is really the answer or if there are alternative and complementary methods of tackling financial crime.
Financial crime in the art market: A reality?
In November 2015, at a conference in Geneva organized by the University of Geneva’ s Art-Law Centre and the Geneva-based Art Law Foundation, representatives from the art market, Geneva Freeport, law enforcement and customs, as well as lawyers and academics came together to debate whether financial crime in the art market was a reality.
The absence of any reliable figures makes it practically impossible to gauge the extent to which money laundering may exist in the art market. With that said, the few high profile cases— which have come to light in recent years— demonstrate that the art market, like other financial markets, is at risk of abuse. In the layering stage of money laundering, criminals seek to separate the proceeds of their criminal activity from its illegal origin. Purchasing valuable assets such as artworks, artifacts or antiquities, helps to convert such“ dirty” cash or funds into an asset that gains value and can be sold later.
Certain features of the art market( like other luxury goods such as real estate, yachts and cars), make it attractive to criminals seeking to launder the proceeds of crime or to finance illegal activities. These include:
• High-value goods
• International markets and networks
• Common use of intermediaries or proxies for transactions
• Common use of foreign / offshore structures and accounts
• Culture of discretion( the buyer and seller are often unknown to each other)
However, the art market also has features that can serve as a deterrent, including:
• Auction sales are public and highly publicized making them less attractive to criminals seeking to keep a low profile.
• Unlike cash or financial instruments, artworks tend to be unique, making them more easily identifiable and traceable.
1
“ Report from the Commission to the European Parliament and the Council on the Assessment of Risks of Money Laundering and Terrorist Financing Affecting the Internal Market and Relating to Cross-Border Activities,” European Commission,
2
The Money Laundering, Terrorist Financing and Transfer of Funds( Information on the Payer) Regulations 2017, http:// www. legislation. gov. uk / uksi / 2017 / 692 / made
3
” Security Union: Cracking Down on the Illegal Import of Cultural Goods Used to Finance Terrorism,” European Commission, July 13, 2017, http:// europa. eu / rapid / press-release _ IP-17-1932 _ en. htm
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