Artistic endeavour

For International News Services’ client, the Money Laundering Bulletin 

Valuable and portable – art and antiques often possess two characteristics highly prized by launderers. Alan Osborn, in London, and Jens Kastner, in Taipei, canvass views from connoisseurs of the risk.

Money laundering occurs in the arts world, much of it at auctions, only the sector doesn’t like to talk about it much. But anti-money laundering (AML) experts understand the methods used. At a Paris conference held last February (2012) by the Syndicat National des Antiquaires (the French national union of antique dealers), the director of the l’Institut de Criminologie de Paris, Philippe Conte, explained how launderers put a work up for auction, to be bought by an accomplice in cash using dirty money. The seller receives a cheque from the auctioneer, and – voila! – the cash is laundered.

Subjective pricing, provenance and cash

It helps money launderers that the art market is “irrational, and the prices which works sell for are not always explicable,” said M Conte: “It can be difficult to distinguish between a Basquiat canvas sold for €500,000 and another sold for €1,000,000, although the only distinguishing feature may be that one was bought with dirty money, while the other was not.”

So there are good reasons why criminals should be interested in art as a financial asset – far less clear is the extent to which they are in practice and the sums involved. Under the EU’s Third Money Laundering Directive auctioneers are classed as “high value dealers” (HVDs) if they accept payments of €15,000 or more in cash (the US cash threshold is US$10,000) – this categorisation brings the usual responsibility for knowing customers and reporting suspicious transactions. In reality, the top auction houses seldom accept cash in amounts that would make them HVDs, which “restricts the opportunity to pump cash into the art market,” suggested Richard Ellis, an art crime investigator with The Art Management Group – it offers services around purchase, protection and recovery of art and antiques. He added: “This doesn’t mean it doesn’t go on but probably on a much smaller scale than is feared and it tends to run under the radar,” stressing that the large auction houses employed officers to detect and report suspicious payments. This was confirmed by Julian Roup, head of press and marketing at international art auctioneers Bonhams: “There are two aspects of our business which are helpful in this area: one is the provenance of any item. The history of everything we sell is hugely important – for instance, a teaspoon belonging to me is worth ‘x’ pounds but if it had belonged to Henry VIII it would be worth considerably more. That whole continuity of an object’s history is part of what we look into and, of course, if there are huge or worrying gaps that would be one of the red flags,” he said. The other point is that “when people register to bid there is a whole process of credit checking, etc that puts something of a cordon sanitaire around this issue for us. I think it’s an industry standard – everyone at the top end of the auction industry runs a number of disciplines like this,” he said.

Dealers may also fall into the ambit of AML legislation when loans and “consignment advances” are made available to clients in respect of purchases.

A reduction in the present cash threshold at which AML requirements are triggered from €15,000 to, say, €10,000 would not have much effect, thought Pierre Valentin, partner in law firm Constantine Cannon. But the European Commission proposal in the draft Fourth Money Laundering Directive is to cut the figure to €7,500, which is moving into impact territory according to Valentin. “If the threshold’s a lot lower, say €5,000, then that becomes a bit trickier because there are still people who like to pay reasonable sums in cash, especially people who travel and you don’t want the threshold to be so low as to discourage any cash payments.” But this was a commercial rather than an AML point, he said.

The convenience factor

As for the sector’s exposure to proceeds of crime, Valentin was cautious: “It’s true that there is potential, at least, to use art works as a means of maybe hiding cash that perhaps should have been paid to the taxman. If there is an area where money laundering does occur it’s probably in connection with tax avoidance or evasion more than anything else,” he said.

But Joseph Kotrie-Monson, a fraud lawyer with Mary Monson in London, noted that many art objects are convenient for laundering as they are “portable, easily transferred between jurisdictions and are high value per cubic inch.” He said there is usually a money trail left by clients at auction houses “and the auction houses have to investigate if there’s a possibility of fraud or money laundering.

At the Financial Action Task Force (FATF) in Paris, senior officials observed that auction houses are not considered financial institutions under the 40 Recommendations. “The degree of control depends on the country,” said Vincent Schmoll, FATF principal administrator. “We recommend that if countries feel the need to cover certain risks they should go ahead and consider covering them but it’s not specifically required,” he said.


One part of the world where concerns might grow is the Far East. An estimated US$472 billion was transferred illegally from China in 2011 (source: Global Financial Integrity), with Macau’s casinos the conduit of choice for corrupt officials and businessmen laundering illicit wealth. As the authorities seek to impose stricter controls on transactions with the special administrative region, there are signs that the launderers’ focus is switching to China’s US$4.79 billion (source: Artprice) art market. A foretaste could be Spain’s October (2012) arrest of Chinese art dealer Gao Ping, accused of involvement in laundering €1.2 billion – a crime that is “distorting the functioning of our economy,” said the director general of Spain’s national police corps, Ignacio Cosidó. Gao established the Gao Magee Gallery – one in Madrid, one in Beijing. He was renowned for having introduced Chinese art to Spain and Spanish art to China, but the focus was on bringing contemporary Chinese art to the West – creating the vehicle of choice for Chinese money launderers, alleged Spanish police.

A key method is to buy an artifact in China then send it via middlemen to be re-auctioned overseas. A western auction house may well rely on the last price paid to help estimate a baseline value. The proceeds of the sale will be deposited in a non-Chinese bank account. For China’s rich, this is a useful conduit for exporting cash as individuals cannot move more than US$50,000 in currency out of the country, annually.

Dr Raymond Choo, specialist on money laundering and cybercrime at the University of South Australia, said: “Art and antiquities and other high-value valuables such as precious metals and stones are an attractive option for launderers as they have a high level of liquidity internationally and perhaps due to the fact that the true value of many [pieces of] art and antiquities remains unclear.”

Professor Sunny Lo, an expert on crime in China at the Hong Kong Institute of Education, noted, “The amount of money and property laundered through arts in the [Chinese] mainland is difficult to estimate, as there is no official statistic on this particular item. But the amount should be very high. People can channel money through arts or even the exchange of art objects.”

The value of this art might be legitimate. Professor Lo said: “First, foreign auction houses assess the object’s value. If there is no problem with value and authentication, then the auctioning proceeds.” The customer in the western auction houses might even be the Chinese government, she added: “Some objects are regarded as national treasures by the mainland government. They may buy them back through state-owned enterprises.” These buy-back efforts have pushed up the price of Chinese art, he said, making western auction houses more ready to take objects offered by money launderers.

Fake appreciation

Sometimes, said Dr Choo, fraud is combined with money laundering – the launderer collaborates with a buyer in China to illicitly inflate the price of the art in the hope that western auction houses will use the China-price as a guide in their valuations. And sometimes a deal is mostly fraudulent, with only auction house commissions paid: “A money launderer sells his piece through an auction house, and an accomplice buys it with an artificially high bid; but apart from the commission paid to the auction house, no money changes hands – the deal is fake,” explained Dr Choo.

Noah Charney, founder of the USA and Italy-based Association for Research into Crimes against Art, warned that this posed risks for the art world: “There is a lot of wishful thinking in the Western art trade,” he claimed. Auction houses might overlook questionable aspects regarding a piece of art, he argued, because, to them, “objects that come on the market benefit everyone only if they are neither stolen nor fake.” But even where an object is legitimate, its export and sale can help tax evasion, he stressed. The money raised by the sale of a valuable Northern Song dynasty vase at Christie’s or Sotheby’s can be deposited into a foreign bank account in a jurisdiction with strong banking secrecy. It is then well outside the reach of China police or tax collectors, noted Prof Sunny Lo.


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