The fascination surrounding art theft and forgery has long been the subject of much exploration. Only more recently, however, has the art market come under increased scrutiny regarding its connection to money laundering and corruption. It’s not just that stolen artworks often end up in the hands of criminals: even the market for non-stolen art is especially vulnerable to money laundering and corruption. With more banks cracking down on illicit activities, art has become an “efficient instrument for hiding cash.” As an article in the New York Times observed, no business seems “more custom-made for money laundering, with million-dollar sales conducted in secrecy and with virtually no oversight.”
Considering the attention paid by anticorruption and anti-money laundering activists to the role of the real estate market and the market for other luxury goods to facilitate money laundering and bribery, it is perhaps a bit surprising that there hasn’t been more attention to the art market—which is perhaps even more deserving of scrutiny.
Recent high-profile incidents have revealed ways that art has been used to launder money. Take, for example, Yves Bouvier, the owner of an art shipping company who allegedly laundered money by fraudulently inflating invoices for certain artwork he dealt to another while secretly withholding part of the sale price. Brazilian embezzler Edemar Cid Ferreira’s case is also telling. He laundered about $1 billion he stole from Banco Santos. Disguising a valuable $8 million Basquiat into the United States as an unnamed painting worth $100, he used the painting to hide some of his illicit profits and illegally transfer assets.
In addition to its role in money laundering, art can also facilitate bribery of public officials. In China, this practice is sufficiently widespread that it has its own name, “elegant bribery.” An official might “receive a work of art with instructions to put it up for auction; a businessman will use it as the currency for a bribe, purchasing the art at an inflated price and giving the official a tidy profit.” (Variations on this same theme include situations in which a corrupt official sells a painting to a rigged gallery, and the briber buys the painting at an agreed-upon price, or where a bribe-giver sells an expensive piece of art to the official at a great bargain.) The fact that the value of a work of art is hard to verify helps facilitate this sort of bribery. Moreover, at least in the Chinese context, the authenticity of the piece is often irrelevant: the buyer uses it as the bribe’s medium, and “were the scheme to be discovered, the minimal value of a fake could mean a lesser punishment.” That is, “[f]ake or genuine, an artwork presents an opportunity to ‘wash’ a bribe,” and leaves less evidence linking a favor with cash.
While the precise mechanisms for money laundering or corruption may differ across different art markets, the lack of regulation and opacity seem to be the consistent underlying sources of the problem. More specifically, four features of the art market stand out as major risk factors for money laundering and corruption:
- First, due to the inherently subjective nature of aesthetic valuation, fine arts and antiques are “notoriously tough to price.” As a result, it’s difficult for reviewers to ascertain whether purchasers are over-paying (which would be a red flag for a potentially illicit transaction). Experts note that, “[i]n the art world, the irrational and emotional are often intertwined, with the result that the price often bears little relation to the true value of the work.” From the perspective of a would-be bribe-payer or money launderer, a benefit is that one can always say that the piece’s value rose astronomically since its purchase, making it difficult for authorities to subsequently argue with the price without other evidence.
- Second, although the last 20 years have seen an increase in accessible online information regarding sale records and more scientifically rigorous art market data analysis, over half of the market is facilitated by private art dealers, and in these transactions prices remain private, and sellers owe no legal obligations to reveal the price paid or financial interests in the piece.
- Third, a substantial part of the art business is (or can be) dominated by cash or in-kind exchanges, leaving behind minimal paper trails. Art can function as an anonymous, moveable asset that is not subjected to a registration system to anchor it down. While real estate transactions are is accompanied by paperwork, and the Financial Crimes Enforcement Network monitors suspicious financial activity from mortgage brokers, art is left largely unregulated. Some jurisdictions, like Switzerland, have begun to crack down on the cash aspect of the art business, capping cash transactions at 100,000 Swiss francs and requiring payments above that amount to be made with a record, but such regulations have limited value given the aforementioned subjectivity and opacity of art valuation.
- Fourth, existing regulations do not do much to tackle the difficulty in tracing ownership: unlike luxury real estate, art may not be tied to a deed, leaving officials without even a shell company to begin to trace. Often, the only available chain of title is provenance, which is a “potted history full of blanks, anomalies, and guesswork” and at least in the antiquities trade, “where artifacts come from and even the identities of buyers and sellers are jealously guarded secrets.” Upwards of 70% to 90% of auction catalogs listings for antiquities list no provenance, and even where previous owners are included, those are easily falsified and often unverifiable. According to Sharon Cohen Levin, asset forfeiture chief in the Manhattan United States attorney’s office, in practical terms, this means that “you can have a transaction where the seller is listed as ‘private collection’ and the buyer is listed as ‘private collection,” a transaction that “in any other business, no one would be able to get away with.”
These reasons underscore that entities—government and civil society—concerned with industries vulnerable to money laundering and corruption should vigilantly monitor the art market along with its efforts to track illicit flows in other luxury goods and real estate. Indeed, the art market practically cries out for greater regulation. Such regulation would likely be resisted—not only for self-interested economic reasons, but also because of the art market’s culture, in which the market’s secrecy and subjectivity, the very factors that make it so prone to money laundering and corruption, create a “mystique” that is treated as a virtue. That is, “people don’t want the art market to be regulated, because then all the fun would be taken out of it.” And perhaps there are legitimate concerns about possible chilling effects on legitimate purchases and trade, or the legitimate privacy interests of buyers and sellers, particularly in locales where citizens are less likely to trust their government. Yet while these legitimate concerns may justify a carefully tailored approach, failing to address the larger problems in the art market at all is unlikely to be sustainable, allowing criminals to treat the sublime as a slush fund.
Reblogged this on Matthews' Blog.
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