LibraryblogWhat is art money laundering?

What is art money laundering?

Art money laundering is complex and takes different forms. However, the process is commonly linked to the ‘layering’ stage of money laundering. This stage takes place when criminals make multiple transactions in different markets and across borders in an attempt to distance the illicit funds from their origins.

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October 20, 2022
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The art market is subject to a great amount of price flexibility. It also provides purchasers with anonymity and allows for large cash deals. As a result of all of these reasons, the art market attracts criminal actors who see it as an ideal vehicle for money laundering.  

In fact, the scale of money laundering in the art market is vast. According to estimates from The United Nations Office on Drugs and Crime (UNODC), billions of dollars are laundered through the global art market every single year. On top of this, it’s thought that at least the same amount passes through the underground art market annually. 

How is art used to launder money?

Art money laundering is complex and takes different forms. However, the process is commonly linked to the ‘layering’ stage of money laundering. This stage takes place when criminals make multiple transactions in different markets and across borders in an attempt to distance the illicit funds from their origins. 

In the art market, launderers achieve this by buying and selling valuable art. In doing so, they’re able to disguise the origins of illegally obtained funds and take ‘clean money’ out of the system. If a criminal actor is found guilty of conducting this process in an attempt to launder money, then they face strict penalties. These include incarceration for up to 20 years and a fine of up to $500,000, or twice the value of the proceeds involved in the violation.

In the art market, the process of valuing pieces of art is not regulated. Due to this, the pricing of art is highly subjective. This makes the marketplace particularly attractive for criminals who can launder large sums of money through art auctions. Once a criminal has purchased a piece of artwork in one of these auctions, they can use anonymity to hide their identity.

When the buyer receives their piece of art, they then usually store it in a secure freeport warehouse. In these locations, merchandise is classed as “in transit” and is exempt from customs duty. This means that these warehouses act as tax havens for legitimate buyers as well as people with money laundering intentions.

While the artwork is located in one of these warehouses, it can also technically change ownership multiple times. This process puts further distance between the latest transaction and the origin of the illicit funds.

Let’s take a look at how this process works practically. For example, if a launderer has $10m in cash available as a result of their illicit activities, then they can purchase a genuine Picasso anonymously. Following this, they can ask for the painting to be shipped to a freeport warehouse. Here, it can be sold anonymously. Following this, the new buyer will retrieve the painting, or leave it in the freeport warehouse. At this stage, the initial buyer (now the seller) has money from what is considered to be a legitimate business transaction.

However, on occasion, the art money laundering process can be more complex than this. For example, stolen artworks can be smuggled into countries with false shipping invoices, where they are then sold. Alternatively, some terrorist groups also purchase artwork at a discounted price and then sell it to independent middlemen who smuggle the artwork out of the country and into a neighboring country. Eventually, these pieces of artwork find their way into warehouses in Europe, where they await western buyers. 

What are the signs of money laundering in the art industry?

Art money laundering is difficult to detect. But, because the process is growing in prominence, art market participants (AMPs) must be aware of common signs and indicators. This way, they can prevent the crime from taking place. Common signs of art money laundering include:

  • A potential sale or purchase of art does not appear to be normal business practice
  • A potential sale or purchase of art does not appear to have a valid commercial reason or makes no economic sense
  • Payment is coming from high-risk jurisdictions and countries
  • A buyer or seller insists on conducting sales remotely
  • A buyer or seller insists on anonymity 
  • The customer asks for the art to be delivered in an unusual manner or to an address that is not their own
  • A business wants to conduct a sale or purchase of art in cash for an “off the record sale”
  • Someone who is making a substantial purchase has little or no trading history or trade references

Of course, it’s important to remember that although these factors may arouse suspicions of money laundering, the transaction may still be legitimate. By putting the correct anti-money laundering measures in place, AMPs can ensure they’re making balanced and accurate decisions about whether a transaction requires further investigation or needs to be reported. 

How is art money laundering regulated in the US?

In the past few years, money laundering regulations have expanded to include the world of art and antiques. For example, the Anti-Money Laundering Act of 2020 (AMLA) brought antiquities dealers and art dealers under the same AML regulatory framework that previously applied to US financial institutions. Becoming law in January 2021, AMLA requires art professionals to:

  • Identify customers and beneficial owners
  • Train staff about the importance of appropriate record keeping
  • Keep provenance and transaction records
  • Adopt and implement appropriate compliance policies
  • Report suspicious transactions
  • Regularly audit their recordkeeping and compliance measures

Due to this, art dealers must employ comprehensive customer due diligence (CDD) processes. Those involved in the art industry must also be able to demonstrate that they’ve put proper record-keeping practices in place. They must also adopt measures to report suspicious transactions and support staff in dealing with high-value transactions.

How to prevent art money laundering with Veriff

The regulatory landscape relating to AML policies is changing. If you’re involved in the art space, you need to actively keep up with ever-expanding regulations and ensure you know exactly who your customers are.

Thankfully, with the help of our AML and KYC compliance solution, you’ll find it simple to fight financial crime and show regulators that you take compliance seriously.

With the help of our solution you can verify the identity of all of your customers. Plus, the solution can also check them against PEP and sanctions watchlists, screen for adverse media, and provide ongoing monitoring. If anything changes with any of your current or previously onboarded customers, you’ll be notified automatically.

Speak with the money laundering prevention experts at Veriff

To discover more about how our AML and KYC compliance solution can help you meet your compliance requirements, book a demo with our team today. Simply provide us with a few basic details and we’ll give you a personalized demo that shows exactly how we can help you.