Share this article
Money laundering in the art world poses a significant challenge, prompting regulators to take action. This comprehensive guide explores the intersection of anti-money laundering (AML) regulations and the art market, shedding light on recent high-value art sales and the actions taken by regulators.
What is AML?
In simple words, AML refers to the laws and regulations enforced to prevent criminals from concealing the identity of their illegally obtained funds and disguising it as legitimate income.
Governments and banks around the world are closely monitoring all financial transactions and determining the source of funds in order to comply with AML requirements.
How to raise money for your startup: 6 startup funding options
Now, what is the connection between AML and the art world?
The connection between AML and the art world
In the art world, affluent individuals invest in expensive paintings and art pieces from auctions and art galleries.
The AML angle comes into play when these wealthy art collectors seek confidentiality and secrecy, often unwilling to disclose their identity or the sources of their wealth.
This is where the dealings in the art world start crossing the paths of AML inspections.
High-value art sales
Let us take a look at some of the expensive paintings that have been sold across the world, to get an idea about the values we are talking about.
For instance, a Botticelli painting auctioned by Sotheby’s in 2021 fetched $92 million, with the buyer’s identity remaining anonymous. Who was the purchaser? It was “assumed” that the buyer was a Russian oligarch since the bidding was done by a person who is an adviser to wealthy Russians!
This secrecy, while appealing to art collectors, has also been exploited by criminals for money laundering.
In fact, in order to ensure they remain anonymous, many wealthy art collectors use the telephone bidding process where their nationality remains concealed or unknown, thereby protecting their identity.
While this secrecy helps auction houses make their big sales to ultra-rich clients who look forward to such steps to conceal their privacy, there have been many instances of fugitives using high-value paintings to launder their ill-gotten funds.
Disgraced Brazilian financier Edemar Cid Ferreira bought an $8 million Jean-Michel Basquiat painting and shipped it to a New York storage with a $100 label!
Malaysian fugitive Jho Low, who was looted from the country’s 1MDB sovereign wealth fund, spent $137 million on paintings!
Actions taken by regulators
Recognising the potential misuse of high-value art investments through money laundering, regulators worldwide are tightening scrutiny.
Their argument is that this culture of secrecy in the art world is actually being exploited by criminals to launder their money and make it “clean” or “white”.
In the United States, authorities have been proactive in addressing money laundering risks within the art world. New AML regulations are being implemented to require greater transparency in high-value art transactions. These regulations aim to ensure that art and antique dealers record and disclose the actual beneficiaries of their sales.
With the release of the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) bureau “Final Rule,” or Requirements for Reporting Right to Benefits Information in September 2022, individual and foreign organizations must report their true beneficiary information (BOI) to the bureau. This will offer a more stringent approach to tackle unlawful financial activities. The Final Rule will come into effect on January 1, 2024.
Parallel efforts are observed in the European Union and the United Kingdom. AML directives within these regions are being reinforced to combat potential money laundering through art dealings. Dealers are now mandated to adhere to stricter record-keeping practices, providing a clearer trail of the beneficial owners involved in significant art sales.
The EU’s 6 AML Directive (6 AMLD), which came into effect 3 December 2020 and was implemented by regulated entities by 3 June 2021, aims to strengthen anti-money laundering (AML) rules in the EU and place higher responsibility on regulated entities to fight financial crime.
In summary
Preserving your wealth from money laundering in the art world requires a vigilant approach and a thorough understanding of the risks associated with money laundering.
By staying informed about regulatory changes, adopting modern technologies, and implementing robust safeguards, you can navigate the art market with confidence, ensuring the longevity and security of your assets.
While art dealers may unintentionally facilitate AML transactions, adopting modern technologies such as blockchain could ensure privacy while maintaining a traceable log of purchases.
The evolving landscape of AML regulations in the art industry signifies a potential culture shift, shaping the future of art sales.
