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How does art money laundering work?

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Due to price flexibility and purchase anonymity, the art and antiquities market can provide an attractive environment for racketeers to launder money through. According to the latest available estimates from The United Nations Office on Drugs and Crime (UNODC), billions of dollars are laundered through the global art market annually, with further billions estimated to pass through the underground art market (including illegal imports, thefts, and fakes) each year. 

With anti-money laundering (AML) regulations continuously being updated and tightened, traditional money laundering vehicles such as real estate are becoming less attractive to criminals. Art money laundering, however, continues to be an attractive avenue as the industry’s price fluidity and traditional use of free ports can be used by criminals to anonymously abuse the system for nefarious activities. 

How does art money laundering work?

In an effort to turn “dirty money” into “clean money”, art money laundering involves the buying and selling of high-valued artwork to further disguise the origins of illegally obtained funds – a process called layering

Due to a lack of authorized regulatory oversight regarding the process of art valuation, the pricing of art is a highly subjective practice that can allow criminals to launder huge sums of money, particularly through art auctions. Buyer anonymity is another advantage at this stage as it is not uncommon for art market operators to refuse to disclose their clients’ identities in order to protect the integrity of the transaction.

Ultra-secure freeport warehouses are commonly used to store purchased artwork. In these locations, merchandise is classed as “in transit” and is exempt from customs duty, making it a tax haven for legitimate buyers as well as oligarchs and drug kingpins with money laundering intentions. Artwork stored in freeports can also technically change ownership multiple times through selling and reselling, putting further distance between the latest transaction and the origin of the illicit funds in play. 

Art & Antiquities AML Regulations

Read our full guide to Anti-Money Laundering in the art and antiquities markets around the world.

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How is anti-money laundering in art regulated?

Regulators across the globe are aware that art money laundering activities are ongoing and are working to set forth new regulations to curtail illegal activities within the art and antiquities market. 

Art money laundering in the US

The Anti-Money Laundering Act of 2020 (AMLA 2020) brought antiquities dealers under the same AML regulatory framework that previously applied to US financial institutions under the Bank Secrecy Act (BSA). Becoming law in January 2021, AMLA 2020 requires antiquities businesses to identify beneficial owners; train staff on appropriate record keeping; keep provenance and transaction records; adopt appropriate compliance policies; report obligations, and audit their recordkeeping and compliance measures.

Since AMLA 2020, the US Treasury published a report in February 2022 on the facilitation of money laundering and the financing of terrorism through trading high-value artwork. The study found that while the art market is vulnerable to money laundering, further regulations are not required until “we’ve tackled more systemic issues, like creating a beneficial ownership registry to crack down on shell companies”, says Scott Rembrandt, Deputy Assistant Secretary for Strategic Policy in the Office of Terrorist Financing and Financial Crimes.

Art money laundering in Canada

The Financial Action Task Force’s (FATF) 2016 Mutual Evaluation Report of Canada identified the luxury goods sector as an area with increased money laundering and/or terrorist financing risks, including luxury automobiles, art, and antiques. A subsequent report issued by the Standing Committee on Finance of Canada’s House of Commons in 2018 reiterated this, recommending that “the Government of Canada require companies selling luxury items to be subject to reporting requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and report large cash transactions to FINTRAC if those transactions are not already reported through other means.”

In June 2019, an amendment to the Criminal Code of Canada came into effect, which broadened the possibility of financial intermediaries being prosecuted for money laundering offenses if they are “reckless as to the source of those funds”. If the recommendations in the FATF and finance committee reports are implemented, each high-value sector dealer will need to implement a rigorous risk-based AML program to avoid such prosecution. This includes conducting due diligence for clients, conducting enhanced due diligence for clients in high-risk jurisdictions, and monitoring and reporting suspicious activity.

Art money laundering in the EU

The European Union’s Fifth Anti-Money Laundering Directive (5AMLD) came into effect on January 10th, 2020. Expanding the scope of previous legislation, 5AMLD requires art businesses within EU member states – including agents, dealers, galleries, auction houses, warehouses, and any other individual or firm involved in the buying, selling, or storing of art – to implement risk-based AML/CFT programs. 

The Sixth Anti-Money Laundering Directive (6AMLD) followed a year later and is regarded as the EU’s toughest set of measures to deter money laundering to date. 6AMLD essentially made Anti-Money Laundering (AML) screening and Customer Due Diligence (CDD) compulsory for all participants in the art market and provided harsher penalties for any violations moving forward.

Laundering drug cash through art 

A prominent example of art money laundering hit the headlines back in 2015 when local Philadelphian art dealer, Nathan “Nicky” Isen, was charged with money laundering and fined $15,000 for advising an undercover cop on how to launder her “drug money”. 

Isen had been introduced to the police by Ronald Belciano, a convicted drug dealer and previous customer of Isen’s who had been caught buying artwork to launder his illicit funds. When Belciano’s house was raided in 2011, vast amounts of high-value artwork were found alongside $2.5 million that was hidden in a secret compartment under a fish tank.

While Isen denied knowing about Belciano’s money laundering scheme and was not convicted, he was charged four years later on account of his conversations with a wired undercover agent.

Art Dealers and Money Laundering: What AML Policies Are Needed?

HM Revenue & Customs in the UK published guidance on understanding money laundering risks and taking action for art market participants in June 2021. The guidance highlighted five cross-sector risks for all art market participants, including off-record sales, anonymity, face-to-face sales, unusual purchasing activity, and high-risk jurisdictions. 

Due to these risk indicators, regulators around the world will likely continue to issue new guidance relating to the buying and selling of artwork and antiquities. However, some questions remain:

  • Which markets and market participants will be subject to regulations?
  • Who in the art trade will be covered by the regulations?
  • Will the requirements apply only to high-value works of art?
  • How are “antiquities” and “art” to be defined?

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Originally published April 25, 2022, updated May 6, 2022

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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