US art market susceptible to money laundering, Treasury claims Ipass

According to the report, other improvements are prioritized by the US Treasury above shell corporations and secrecy.

In a recent study, the Treasury Department recommends that the agency investigate measures that would require dealers get cash today to assess their customers, suspicious report activity properly, and increase transparency.

“Susceptible to exploitation by illegal financial actors” due to high-dollar transactions, frequent use of intermediaries, and a long-standing culture of secrecy, the 40-page research states.

The study highlights future improvements, some of which would move the US closer to the UK and Europe, but does not advocate particular measures. The report says to solve other “outstanding gaps” in the US anti-money laundering system, such as corporate ownership information and the real estate industry.

“While some sectors of the high-value art market are prone to money laundering, we have discovered that broader underlying concerns, including the exploitation of shell corporations or complicit experts, are frequently at play,” said Scott Rembrandt, a senior Treasury officer supervising the inquiry.

Congress commissioned the study to improve US anti-money laundering laws. Art dealers and auction houses were not included in last year’s list of professionals needed to check their clientele and report suspicious activities to authorities.

The new analysis details several of the art market’s flaws.

Artists are frequently sold via mediators, hiding the actual buyer and seller. Some transactions use a trust or a dummy business, further disguising ownership. Freeports are tax-free, ultra-secure warehouses where art is hidden from tax and law enforcement agencies. Customers borrow money using artwork as collateral.

The study included art being utilized for illegal objectives well-known to US law enforcement. In addition, fugitive Malaysian billionaire Jho Low laundered enormous quantities of unlawful money via assets, including artworks acquired from a New York auction house.

The research estimates international art and cultural property crime at $3 billion to $8 billion. “Most US art market players are not required to notice, investigate, or report fraudulent transactions or transfers,” it states.

Terrorism finance and high-value art are linked, though not proven.

The Panama Papers, FinCEN Files, and Pandora Papers investigations reveal how the very affluent are increasingly investing in art and disguising their fortunes behind complicated financial structures with the aid of experts.

The International Consortium of Investigative Journalists has discovered over 1,600 artworks by about 400 artists surreptitiously exchanged via shell corporations and offshore trusts in low-tax nations.

A London financial trader controlled a dozen Banksy pieces via a New Zealand trust. In 2012 and 2013, the broker sold three of those artworks while under investigation in Italy for possible tax cheating.

It also disclosed how a businessman linked to Sri Lanka’s royal family moved over 30 artworks to the Geneva freeport after being accused of corruption in his own country. Nirupama Rajapaksa, a former deputy minister, and her husband deny all charges.

According to the Treasury research, many bigger U.S. auction houses and galleries already have due diligence procedures to identify possible buyers and sellers.

It also admits the system’s flaws. “The processes may be discontinued or ignored at the institution’s discretion without danger of civil or criminal enforcement action,” the research added.

The Treasury highlighted potential regulatory and non-regulatory measures in the report. The art market needs to improve law enforcement and customs training and encourage information sharing among merchants and dealers.