Within the parameters of art being bought and sold, there exists a considerable amount clandestine behavior; buyers of art in either a private gallery or a more public auction setting most always wish to remain anonymous. The desire to stay anonymous is very understandable, as art is often seen as a high value asset and would reveal large amounts of money spent on what are, essentially, gratuitous luxury items. According to The National Law Review in a March 20 article, art and antiquities serve as an ideal and attractive vehicle for money laundering, as it is easily smuggled or hidden, and sales—often involving very high prices which are subjective and easily manipulated—are often done privately.
In recent years, the potential role of art and antiquities as a basis of money laundering schemes has begun to receive attention from both law enforcement agencies as well as the media. Additionally, there have been claims that the art market is unregulated and not transparent in many transactions. Money laundering is legally defined as the processing of criminal proceeds through legitimate channels in order to knowingly disguise the illegal ownership or origins of assets.
According to The National Law Review in a March 20 article, art and antiquities serve as an ideal and attractive vehicle for money laundering, as it is easily smuggled or hidden, and sales—often involving very high prices which are subjective and easily manipulated—are often done privately.
Most recently there has been a bill proposed in the United States’ House of Representatives by Congressman Luke Messer that would extend the Bank Security Act (BSA) to include the art and antiquities market. Initially created in 1970 to prevent money laundering in major financial institutions, the BSA requires these institutions to keep records and file reports of all cash transactions exceeding $10,000. Dealers who gross upwards of $50,000 a year would be forced to report their records to the federal government. If reports are not properly filed, there are strict penalties including very high fines. If the bill were to go through successfully, it might mean galleries and auction houses alike would be forced to comply with new regulatory protocols. It would also mean having to know their clients more intimately to ensure the funds for purchasing the art they sell are legitimate, a feat easier said than done.
Fitting for the Art Industry?
According to a March 29 article in the New York Law Journal, the biggest imposition placed on art dealers would be the overwhelming administration involved in fulfilling the requirements of the bill, which includes detailed reporting processes, establishing suspicious activity monitoring programs, and a strong possibility of reduced sales based on these new protocols. This burden would powerfully affect small and midsized galleries and auction houses who are not equipped to handle the same financial reporting responsibilities as the large financial institutions that are already being regulated. Organizations such as the Art Dealers Association of America (ADAA) rail heavily against the bill taking effect, as they are proponents of galleries, many of whom are small businesses and would be harmed by the new legislation.
While the bill has not been passed and it is too early, therefore, to tell what exactly the repercussions will be, some in the art industry are proponent for what the bill is trying to accomplish.
This burden would powerfully affect small and midsized galleries and auction houses who are not equipped to handle the same financial reporting responsibilities as the large financial institutions that are already being regulated.
As Irina Tarsis, founder and director of the Center for Art Law in Brooklyn, stated in a 2018 article by Zachary Small in Hyperallergic, “addressing money laundering in the art market and ensuring that dealers know their clients is a positive development in [a market] that is very resistant to regulations and transparency.” Similarly, Leila Amineddoleh, a lawyer who specializes in art and cultural heritage issues, stated: “An increasing number of merchants loan money to clients and lend against art, meaning that sums of money are moving under the radar. With vast amounts of money circulating on an unregulated art market, it has become the perfect place to launder money. Anonymity and secrecy in the art market also isn’t necessarily bad, but some players have exploited the opaque nature of the art world to engage in criminal activity. For this reason, federal regulations are long overdue. There is no reason for art dealers to be exempt from regulations pertaining to dealers of valuable commodities.”
While the art industry, by and large, still seems unsupportive of the bill extending into its market, larger dealers, such as Christie’s and Sotheby’s auction houses, already have anti-money laundering programs, and are able to enforce them with the aid of their formidable legal and compliance departments. However, most dealers in art are not nearly as prepared to handle such responsibilities with any real efficiency. It will be interesting to see, if and when the bill is passed, how the art market is affected over time.