Money laundering and the art market

   |  2 March 2012  |  AMA  |  Tweet  |  LinkedIn

Paris, 1 March 2012, Art Media Agency (AMA).

The French National Union of Antique dealers (Fr. Syndicat national des antiquaires) held a conference on 29 February 2012 entitled “Tracfin and antique dealing – the legal risks of operating on the antique market: laundering operations and similar situations” (Tracfin & antiquaire -
Le risque pénal pesant sur les antiquaires :
opérations de blanchiment et situations comparables). Lead by the director of the Paris Insitut de criminologie, Philippe Conte, and the head of the department of analysis, intelligence, and information at Tracfin, Bruno Nicoulaud, the conference quickly became the stage for a virulent debate about the fact that the art market is not spared from problems of money laundering, something which worries both dealers and buys.

The problem is not peculiar to France. On an international level, the Financial Action Task Force (FAFT) – an organisation which brings together the governments of forty countries – fights against money laundering and the financing of terrorism. There are two varieties of laundering. The first is defined as the act of facilitating, by any means, the false authentication of the origin of goods or of revenues directly or indirectly through criminal activity. There must be evidence of intent in order that an individual may be found guilty of such an act, proving that an auctioneer or dealer was in fully aware of the consequences of their actions. It is often difficult to find proof of intent, so judges make use of several indicators related to a suspect’s professional obligations.

One of the obligations of those working in the European art market relates to methods of payment. Art market professionals should refuse all cash payments in excess of €3,000 from a citizen of the European Union and of €7,500 for others.

In the majority of legal systems, antique dealers, art dealers, gallery owners and auctioneers are required to report any suspicions of laundering that they may have to the national organism which investigates such crimes (in the case of France, Tracfin). According to Philippe Conte, judges should follow the philosophy that if a professional has nothing to hide, they should not hesitate in reporting their suspicions to the authorities.

Discretion is one of the golden rules of the art market, making this obligation to report suspicions a heavy one for art market professionals. It does, however, have its advantages. In France, the process is entirely anonymous, and exempts the professional in question from any legal proceedings, as the authorities cannot then accuse him of being a guilty party. This mechanism of exemption lead Bruno Nicoulaud to advise antique dealers to report even the slightest of suspicions.

The major concern of antique dealers was how to express their doubts or suspicions in the form of a declaration. Tracfin responded that any suspicion should be based on a number of acts by the person in question. For example, refusing to give their identity or other information, that a purchase for re-sale has been carried out over a very short period of time, that there are discrepancies in the price of a sale and the price it would be expected to sell for on the open market, that the origins of funds is suspect, or that a buyer insists on paying substantial amounts in cash. In general, doubts should be reported if a client is behaving in an irrational or unusual way. This “obligation de déclaration” (obligation to declare) naturally leads to a different kind of obligation: to be vigilant. This involves verifying certain things about a client and other people art professionals have dealings with. For example, their identity should be verified and they should be asked about any unusual activity occurring over the time that a purchase or sale is being conducted. Art market professionals should also determine, as far as possible, the origins of funds and the profession of a client.

No antique dealer has made a declaration to Tracfin since 2006, despite the fact that a simple form enabling dealers to report suspicions is available on the agency’s website. The art market can count on only a few declarations made by auction houses, and even that is only because the legislation regarding such institutions is much more stringent and auctioneers have their own regulatory body, the Conseil de ventes volontaires. Antique dealers, gallery and art traders in general have no such regulatory body.

Bruno Nicoulaud told AMA one day after the conference that the black market economy represents around 10% of French GDP, and that the art market is no exception. Operating on the black market is not the same as laundering, but rather it is the exchange of goods and services without paying the relative taxes owing to the illegal nature of said goods and services. The percentage of the economy which escapes the state’s checks and measures varies from country to country. Mr Nicoulaud suggested that the figure may be higher in a country such as Italy, closer to 30%.

The OECD – Organisation for Economic Development and Cooperation – published a list classifying countries by measure of their Laundering activities in 2000. The states the least affected by the phenomenon are Switzerland, Austria, the US, followed by Japan, the UK, the Netherlands, Australia, Poland, France, Canada, Germany, Ireland, Denmark, Norway, Sweden, Belgium, Spain, Italy, Hungary, Greece etc.. The IMF estimates that around 1,200 and 2,900 billion dollars were laundered worldwide in 2009 alone.

Money laundering techniques on the art market can be very simple or highly sophisticated. Lawyer Philippe Conte gives the example of a professional who made out a false invoice to a client, Eric Vernier, in his book Techniques de blanchiment et moyens de lutte (Laundering techniques and how to combat them). In this work, he also gives an account of how certain groups organise fake auctions  in order to launder money. The simple process involves a launderer putting a work up for auction which will be bought by an accomplice in cash using dirty money. The seller then receives a cheque from the auctioneer, and the money has thus been successfully laundered. The same technique can be used to the benefit of a broker, a dealer or an agent.

Another problem is that the art market is an ’’irrational” market, in which the prices which works sell for are not always explicable. 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 simply be that one was bought with dirty money, while the other was not.

The art market has other advantages for launderers apart from the difficulty in accurately discerning a work’s worth, and that is of the highly mobile and informal nature of exchanges. Art works are often highly valuable and readily transported, and may be privately sold without respecting the correct formalities.

The majority of countries prosecute money launderers. In France, the punishment may include up to 5 years imprisonment and a fine of €375,000. Switzerland has a similar penalty of up to 5 years and a substantial fine. In the United States, the penalty is up to 20 years imprisonment, with a fine proportional to the sum laundered, and the United Kingdom laundering may be punished with a custodial sentence of up to 14 years.

These heavy penalties have had an impact on the number of declarations over the past decade. In 2000, 2,529 suspected cases of laundering were reported to Tracfin, growing to 20,252 in 2010. When it comes to art, such progress cannot be reported, which could be due to a number of factors, ranging from the possibility that the art world is more prepared to turn a blind eye, to that the art market is simply not as affected by laundering as other sectors.

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