Money Laundering in the Art World

Introduction to Money Laundering in the Art Industry

Money laundering is present in every industry across the globe, including in the Art world. However, it is particularly devious in the art world because the nature of art is that it is subjective, and so is the price. Once a work of art is purchased, it can disappear for years. 

The art industry is attractive for criminals because it is not regulated by national, local, nor global regulators. This article will discuss the recent policies put in place to change this, and to mitigate the risk of money laundering within the industry. 

Key Features of 6AMLD

Anti-Money Laundering in the art market is driven through the directives (AMLD), put in place by the European Union. The most recent development, the sixth directive (6AMLD) was introduced at the end of 2020. It created the deadline of June 2021 for the implementation by financial institutions. This development builds from the previous directive (5AMLD), by expanding the scope of existing legislation, clarifying certain regulatory details and increasing criminal penalties.  

This directive affects any financial institution operating within the EU. It ensures the responsibility it put on these institutions to comply with anti-money laundering practices. As per the directive, if the transaction value or any linking transactions equal €10,000 or more must be verified. The new regulation list recognises 22 offences relating to money laundering and provides clear definitions for each specific crime. It also aims to harmonise the definition of money laundering across the EU and so closing any loopholes criminals were utilising.  

6AMLD states that any person involved in the crime of money laundering, whether they are benefitting from the crime or not, can be prosecuted. This has also changed the minimum prison sentence from one year to four years for money laundering offences and any sentence may be supplemented with fines up to €5 million. Moreover, the 6AMLD has emphasised the importance of AML and CDD checks for all the sellers in the art market. 

Common Red Flags

Criminals use the art world as a platform for turning illicit funds into clean money through the buying, selling and storing of art. The Responsible Art Market published “practical guidance on establishing and implementing responsible practices to address those risks”. They give insights about the risks of money laundering in the art world, and how to properly identify it. Some common red flags of criminal activity in the art world are: 

• Anonymity, such as agents working for undisclosed buyers or sellers  
• Clients involved that known to be associated with previous criminal activity  
• The work of art is accompanied by limited or no proper documentation  
• New Clients who live, operate or bank with higher risk jurisdictions 
• Clients who insist on paying with large amounts of cash, or anonymous credit cards  

How is Art used to Launder Money?

The art market can act as a host for turning illicit funds into clean money. The art world is particularly vulnerable to exploitation by money launderers due to its secrecy, subjective prices, large transaction sizes, and cash friendliness. Most transactions in the art market are, however, likely to be occasional, on the basis that there is no obligation or commitment on the customer to use services or buy goods again. Transactions in the art world can be done through anonymous persons, shell companies or using large cash amounts. 

Some ways to launder money in the art world include: 

• With the use of intermediaries or proxies for transactions 
• Through foreign or offshore companies and accounts 
• With anonymous buyers or with brokers 
• Buying an artwork, artefact or antiquity legitimises cash or funds and converts them into an asset that gains value and can be sold later.
  

According to The Art Market 2021 report, the art market is the biggest business attracting both legal and illegal money. Unlike real estate, the artwork can be bought and sold with minimal paperwork, and most importantly, these purchases can be made anonymously. Those who launder money for all these reasons and conveniences see the art world as an attractive target. 

Ongoing Compliance

It is important to follow current guidelines to mitigate the risk of money laundering in the art world. Businesses working in the art world maintain accurate customer records, as well as to carefully assess and documents risks, controls and procedures to address these. Transaction monitoring and customer due diligence practices are the basis for AML practices. Read more about how DX Compliance can improve your Transaction Monitoring here.