GLOBAL FINANCIAL CRIME REVIEW
The art market ’ s exposure to financial crime
According to the U . S . Department of the Treasury report issued on February 2 , 2022 , 14 the global nature of the art market — with its myriad intermediaries and dealers , as well as its reputation for discretion and opacity — has made it an attractive target for individuals looking to launder illicit funds or circumvent sanctions . Criminals are also drawn to the art market ’ s high-value assets , which can be easily moved and sold across borders , and kept in free ports . 15 How can art market participants protect themselves against being used as a conduit for money laundering or against dealing with a sanctioned individual , if they do not know with whom exactly they are dealing ?
According to the United Nations Office on Drugs and Crime ( UNODC ), “ Money laundering is the processing of criminal proceeds to disguise their illegal origin .” 16 In the context of the art market , possible money laundering methods include concealing the identity of the true owner , manipulating prices and reporting fictitious transactions . Over- and under-invoicing exemplifies money laundering because it aims to conceal illicit funds being transferred across national borders .
In 2006 , Brazilian financier Edemar Cid Ferreira , founder and former president of Banco Santos , was convicted of embezzling funds from his bank and then using the money to purchase art . 17 He bought valuable artwork from artists , such as Basquiat , Roy Lichtenstein , Joaquin Torres Garcia and Serge Poliakoff , for a total estimated value of $ 20 million to $ 30 million . 18 Ferreira attempted to hide his wealth by smuggling art out of Brazil with false documentation , inaccurate valuations and fictitious titles . In one instance , he tried to smuggle a 1981 painting by Basquiat , Hannibal , to New York , valuing it at just $ 100 in customs claims , when it is currently estimated at $ 8 million . 19
The state of due diligence in today ’ s art market
For the last three decades , the art market has demonstrated a gradual shift toward embracing greater transparency and diligence . Some of its players , especially major auction houses and art fairs , have been relying on a system of self-regulation to mitigate reputational risks and maintain the trust of the public , with many adhering to strict guidelines . As a result , buyers and sellers must rely on the expertise and reputation of dealers , auction houses and other art market professionals to ensure that their transactions are fair and legal .
For the last three decades , the art market has demonstrated a gradual shift toward embracing greater transparency and diligence
However , art market participants mainly focus on the question of the object ’ s authenticity or provenance while disregarding or overlooking the identity of the purported collector or intermediary in the name of sacrosanct discretion . Numerous instances of fraud and forgery in the art market show the importance of thoroughly examining not only the provenance and the background of the artwork but also the individuals connected to the proposed transaction and the conditions of the transaction to ensure its integrity . Consider , for example , the scandals surrounding forgeries sold by the Knoedler Gallery , traded through intermediaries based in Long Island , New York , and Fortuna Fine Arts ’ looted antiquities , where a dealership was established by an individual previously implicated in the illicit trade of antiquities and the plundering of cultural heritage . 20
Pursuant to the EU directive and specific domestic regulations , art market participants have legal and business obligations to prevent money laundering and avoid violation of sanctions regimes . In the U . K ., the obligation to conduct know your customer screening applies to all types of art businesses , including galleries , auction houses , dealers and collectors . 21 This is particularly important in the art world , where transactions can involve large sums of money and frequently cross international borders . Failure to do so can result in significant legal and financial consequences , including civil and criminal penalties . 22 Individuals and entities may also face reputational damage and other consequences such as being added to government watchlists , restrictions on their ability to conduct business and loss of licenses or permits .
Furthermore , in most countries , anyone , regardless of the industry , is obligated to ensure that they are not unwittingly handling “ dirty money ” or facilitating , aiding and abetting money laundering activities . 23 In the U . S ., it is unlawful for “ An individual to violate , attempt to violate , conspire to violate , or cause a violation [ of ]” imposed sanctions ; an individual who is involved in said transactions can be held criminally liable . 24 Knowledge can be based on willful blindness or deliberate indifference ; this manifests itself in the failure to investigate when faced with red flags of illegal activity . 25
128 acamstoday . org