Is art really used to launder illegally obtained funds?

August 29, 2019
by Susan J Mumford, CEO

In short, yes.

Ease of transport: Art is relatively easy to move. Buy a piece, transfer it across a border and sell it for a lot more than that for which it was acquired.

Price flexibility is normal: Sudden changes in the price of art can be justified by fad and personal taste, thereby resulting in unexpected price escalations being unsuspecting. Without a regulatory body to oversee the value of works of art, such variance is anticipated to continue.

Lack of information about customers: Whereas it’s normal to know the history of owners of a home, this isn’t the case for a work of art, in which the culture is confidentiality. This makes it easy for a work of art to change hands a number of times without authorities noticing.

What’s a real-life story?
Brazilian financier Edemar Cid Ferreira owned Jean Michel Basquiat’s Hannibal (1981) painting. He’s the founder and former president of Banco Santos and was convicted in 2006 of crimes against the Brazilian national financial system as well as money laundering. As part of the case, a Sao Paolo judge ordered the search, seizure and confiscation of assets that Ferreira had acquired with illegally obtained funds from Banco Santos including this piece, however it was nowhere to be found. The country’s government cooperated with Interpol, which resulted in US authorities discovering that the painting had been shipped from the Netherlands to a secure storage facility in New York in the Autumn of 2007. The associated shipping invoice did not identify the piece and valued the work at $100, though it was worth much more (as of 2015, it’s said to have been estimated at $8 million USD). In essence, the financier was attempting to move money via a work of art under the radar.
(Source: Southern District of New York, Manhattan U.S. Attorney Announces Return To Brazil Of Two Masterpieces Linked To Bank Fraud, 18th June 2015.)

What’s the bigger picture?
Governments have determined that art is being used to launder money, however criminals have been getting away with it. By introducing anti-money laundering legislation, the intention is to catch said criminals. The associated EU Directive, AMLD5, makes a move towards transparency in art market transactions to identify and/or prevent the purchase of art to launder illegally obtained funds . A key challenge for the industry is continuing to transact without collectors being put off or overly burdened by the conducting of required AML checks. Helping dealers to comply while continuing to thrive in business was the very motivation for Artaml. Find out more about our solution here and get in touch.

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