The world’s top body to fight money laundering and financial crime on Monday warned that the international high value art and antiquities market has become vulnerable to money laundering and the financing of terrorism. It called on art dealers and governments to up their efforts to fight illicit funding in these markets.
While financial institutions in recent years have come to face increasingly stringent requirements, surging compliance costs and major fines, in some cases amounting to hundreds of millions of euros, the art and antiques business has done little to prevent itself from being exploited by criminals.
A 60-page report published on Monday by the Financial Action Task Force, or FATF, said the market for art, antiquities and other cultural objects is attracting criminals, organised crime groups and terrorists that seek to launder proceeds of crime and fund their activities.
‘History of privacy’
“Criminals seek to exploit the sector’s history of privacy and the use of third-party intermediaries while terrorist groups can use cultural objects from areas where they are active to finance their operations,” the FATF said.
While the vast majority of market participants do not have a connection to illicit activities, the FATF warned “there are risks associated with these markets and many jurisdictions do not have sufficient awareness and understanding of them”.
Art market professionals have taken “inadequate measures, or none at all” to identify and verify their customers and ”a low number of suspicious transaction reports” are being filed with financial intelligence units. Illicit funds laundered through these markets are generated from crimes that cause significant harm to society, including corruption, drug trafficking and financial crimes, FATF said.
The trade in art, antiquities and other cultural objects is a billion dollar industry, FATF said. “It is one where individual objects can attract high prices and where there is a culture of privacy and discretion regarding the identity of buyers and sellers,” it said.
Global art sales surged in 2021
A 2022 report on the global art market by UBS Wealth Management said sales reached some 65.1 billion dollars in 2021, up almost by 30 percent after a Covid-19 inspired contraction a year earlier. While sales were strong at many levels during the year, some of the biggest increases in value were at the high end of the market, with spending by high net worth collectors helping to drive the market’s recovery.
The International Monetary Fund, in a 2019 report, had estimated the value of the legitimate international art market at about 67 billion dollars. The United Nations Office on Drugs and Crime, in 2019 estimated that the underground art market, which includes thefts, fakes, illegal imports, and organised looting, may bring in as much as six billion dollars annually. The portion attributed to money laundering and other financial crimes is in the three billion dollar range.
FATF also said that this market lacks investigative resources and expertise, and encounters difficulties with pursuing cross-border investigations. Belgium, the Netherlands and Luxembourg are among the dozens of countries specifically mentioned in the report.
The FATF, created in 1989 as an initiative of the seven biggest industrialised countries, researches how money is laundered and terrorism is funded, promotes global standards to mitigate the risks, and assesses whether countries are taking effective action.
Good practices
Underlining the need for governments to prioritise the role of art markets in money laundering, FATF said that “some countries” have taken regulatory action to mitigate risks identified. Establishing specialised units and investigative training programs focused on the art, antiquities or cultural objects markets, developing relevant databases and promoting cooperation with experts and archaeologists to help trace, identify, investigate and repatriate cultural objects are also seen as good practices.
“It is vital for jurisdictions and businesses to correctly identify and understand the specific risks associated with different cultural objects and market participants,” FATF said, while noting that art dealers, advisors, auction houses and storage facilities all face a variety of risks.
Art dealers both in the US and the EU in recent years have found themselves increasingly in the scope of the AML legal framework. Since January 2021 US art dealers are subject to the Bank Secrecy Act, while the EU’s 5th AML directive extended KYC requirements also to ‘art market participants’.
Benelux art market not immune
Belgium, the Netherlands and Luxembourg are repeatedly mentioned among the 40 case studies involving art and money laundering described in the FATF report. Belgium also is among the 27 jurisdictions and international bodies represented in the FATF project team that compiled the study.
Belgian bank account
A Belgian case relates to the financial activities of Mr. X, a foreign businessman residing in Belgium. Mr. X was already known to the national law enforcement authorities for money laundering activities in the past as well as links with organised crime groups. Research into Mr. X showed that he was the chairman and alleged sponsor of a non-profit organisation. The Belgian bank account of this organisation received transfers from accounts held in offshore centres and from a company owned by Mr. X and based in an Eastern European jurisdiction. The funds received were primarily used to purchase works of art through different offshore companies and natural persons. Allegedly, all or part of Mr. X’s investments in works of art were proceeds of illegal activities related to organised crime.
Forged documents
Another Belgian case involved an antiquities dealer in Belgium who listed an Italian antiquity for sale that had been stolen from a private individual in Rome in 2011. The investigation, conducted by the General Directorate of Economic Inspection under the direction of the public prosecutor’s office in Brussels, revealed that an Italian national using a false name had deposited the object in question with the antiquities dealer along with three other objects, including two forged items and a piece that had been looted from the Puglia region of Italy. Each object was accompanied by forged provenance documents. The dealer also offered eight other objects looted in Italy for sale, including Greco-Roman krater vases and Sicilian sculptures. It can be argued that the antiquity dealer acted as a recipient for illicit objects due to his negligence in verifying the provenance of the objects sold.
Drug traffickers trading art
Authorities in Italy, Spain and the Netherlands, supported by Eurojust, conducted an operation against a major drug trafficking network that allegedly used the art trade in the Netherlands in order to launder the profits of its illegal business. During the action, a total of 47 locations were searched, including an art gallery located in Amsterdam. The case is ongoing.
Luxembourg accounts
A case reported by France concerns Mr. X, an art collector who is the director of several companies in France. The case concerns the transfer of funds between legal persons and accounts located in several jurisdictions (France, Luxembourg, Switzerland) and the ultimate acquisition of works of art that appear to be destined for Mr X. Further purchases of similar nature have been made with a questionable link between the purchases and the corporate nature of the companies involved. The case highlights how unusual cross-border flows of funds raise the question for the possible commission of the offences of misuse of corporate assets, tax fraud and the laundering of the proceeds of these offences.
