Think Tank Confronts Hong Kong’s Role as a Haven for Art Criminals

New Antiquities Coalition Policy Brief Explores How Hong Kong Can Protect Consumers and Markets from Cultural Racketeering

The Antiquities Coalition today released a policy brief analyzing how Hong Kong’s laws and regulations can be improved to prevent trafficking of art and antiquities.

China’s burgeoning economy and newly wealthy class is leading to a growing commercial demand for one of history’s oldest status symbols: art. Hong Kong, already a leading seller of modern masterpieces and ancient treasures, as well as a convenient and much used transit hub for cultural goods, is meeting this need. “Unfortunately, insatiable demand drives both the strong legitimate market for Asian antiquities and a robust illicit market,” says Steven Gallagher, Associate Professor of Practice in Law and Associate Dean of Academic Affairs of the Faculty of Law at the Chinese University of Hong Kong. “Where there is demand and lack of supply, opportunities arise for those willing to turn a blind eye.” This thriving business comes at great cost both to the city’s reputation as a legitimate marketplace, and to Asia’s cultural heritage, which is increasingly falling victim to looting, theft, and trafficking.

In the Antiquities Coalition policy brief, Gallagher explains some of the problems Asia faces with regard to looting of art and antiquities, and how Hong Kong’s legal and regulatory framework does little to prevent the jurisdiction from being used as a market and transit state for trafficked cultural patrimony.

Renowned as one of the world’s leading financial and commercial centers, Hong Kong is trusted because of rigorous regulation of its efficient financial and banking services, and confidence in its common law system. Its Asian art and antiquities market is equally celebrated. However, in a perplexing break from this otherwise estimable reputation, Hong Kong’s retention of a single medieval-era English law—often described as a “thieves’ charter”—has allowed a thriving illicit art and antiquities market to grow within its borders.

Gallagher recommends a number of practical solutions to curb the illicit trade and bolster the legitimate market in Hong Kong, including abolishment of the so-called “thieves’ charter,” standardization of import and export laws between Hong Kong and China, strengthened law enforcement of antiquity-related crimes, and inclusion of the art market in anti-money laundering and counter-terrorist financing provisions. “By adopting these changes,” says Gallagher, “the statement ‘purchased in Hong Kong’ may yet become a sign of good practice, rather than an indication that those who are unconcerned with provenance may buy with impunity.”

Find a summary and link to the complete policy brief, “How to Successfully Fight the Illicit Trade in Stolen Art and Antiquities in Asia? Remove an Antiquated English Law from Hong Kong’s Legal System,” here.

The Antiquities Coalition unites a diverse group of experts in the international campaign against cultural racketeering, the illicit trade in art and antiquities. This plunder for profit funds crime, armed conflict, and violent extremist organizations around the world. By championing better law and policy, fostering diplomatic cooperation, and advancing proven solutions with public and private partners worldwide, the Antiquities Coalition empowers communities and countries in crisis to safeguard cultural heritage for future generations.

Launched in 2016, the Antiquities Coalition Think Tank joins forces with international experts, including leaders in the fields of preservation, business, law, security, and technology, to bring high-quality, results-oriented research to the world’s decision-makers, especially those in the government and private sectors. Policy briefs strive to strengthen policy-makers’ understanding of the challenges facing collective human heritage, and to help them develop better solutions to protect it.

US anti-money-laundering bill could reappear early next year

Critics say the proposed law, which stalled following the US mid-term elections, would place an unnecessary burden on dealers


Brazil's secretary of justice with a painting believed to have been smuggled into the US by Edemar Cid Ferreira

Brazil’s secretary of justice with a painting believed to have been smuggled into the US by Edemar Cid Ferreira©Stan Honda/Getty Images

The Illicit Art and Antiquities Trafficking Prevention Act (HR 5886), proposed in the US Congress in May, is now in limbo after the November mid-term elections. However, it could be reintroduced to the new Congress in January 2019, amid a recent rise in anti-money-laundering initiatives worldwide.

In the last month alone, German police raided Deutsche Bank’s headquarters in Frankfurt as part of an investigation into the lender’s association with criminals laundering money through offshore tax havens, stemming from information in the Panama Papers and Offshore Leaks documents. Last week, the UK parliament suddenly suspended the tier 1 (investor) visa category for new applications due to corruption fears, effective immediately. Known as the “golden visa”, the scheme provided fast-tracked settlement for people willing to invest millions in the UK but was criticised for providing the super-rich with an easy way to launder stolen wealth. New rules to be announced in 2019 will require applicants to provide comprehensive audits of their financial interests.

The initial introduction of HR 5886 in the US came on the heels of the European Parliament’s fifth Anti-Money-Laundering directive, adopted earlier this year, which applies to all businesses selling works of art with transactions of €10,000 or more, irrespective of the payment method. Similarly, HR 5886 would apply the Bank Secrecy Act (BSA) to the art and antiquities market in order to quash money laundering. Dealers would be required to report transactions exceeding $10,000.

The bill would also force those who sell at least $50,000 worth of goods in a year to submit their financial records to the US government. But whether money laundering is prevalent enough within the industry to justify the regulatory burden it could place on dealers has become a point of contention, with some in the trade questioning who the legislation ultimately benefits.

The challenge with regulating the art business, says Andrew Schoelkopf, the president of the Art Dealers Association of America (ADAA), is that “those who seek to regulate it have a poor understanding of how the business actually functions”. He argues that money laundering is “simply not something that’s pervasive” in the art market.

The United Nations Office on Drugs and Crime (UNODC) estimates laundered funds to account for 2%-5% of the global GDP ($800bn-$2tr) annually, but there is no clear data illustrating the scope of money laundering within the art market. Like many high-value assets, art can ostensibly be used to “wash” dirty money—that is, profits gained illegally, often via the sale of drugs or weapons but also through such activities as embezzlement, insider trading and illegal gambling. These assets can then be traded or used as collateral, effectively scrubbing the criminal stain from the ill-gotten cash.

The art industry is an attractive marketplace for such activity for two main reasons. First, it is growing at a rapid rate; the US is the world’s largest art market, valued at $26.6bn and accounting for 42% of the global total of $63.7bn in 2017. A study recently conducted by Deloitte predicts that art and collectible wealth held by ultra-high-net-worth individuals will grow from an estimated $1.62tr in 2016 to $2.7tr in 2026.

Second, the art market is notoriously inscrutable—the price of a work of art is more subjective, and therefore volatile, than that of many other commodities. James McAndrew, a former specialist at US Customs and the Department of Homeland Security (DHS) and a forensic specialist in international art trade at the New York-based law firm GDLSK, says it is for that same reason that money laundering is less of an issue in reality than it is in theory—art is highly illiquid and difficult to sell. When it comes to high-priced works of art, especially those sold through legitimate dealers and auction houses, it is even harder to fudge the funds. “It’s like buying a house. You want a clear title,” McAndrew says.

Picasso's Personnages (1965) was caught up in an alleged money-laundering plan

Picasso’s Personnages (1965) was caught up in an alleged money-laundering plan © Succession Picasso

Within the last decade or more, there have only been a few instances in which works of art were used as an accessory to money laundering, including the high-profile case of Brazilian banker Edemar Cid Ferreira in 2005, who smuggled works of art out of the country to hide illegal profits. In March, as part of an FBI sting operation to bust a $50m international securities fraud and money laundering scheme, the London-based dealer Matthew Green was charged with being part of a plot to “clean-up” £6.7m through the sale of a Picasso. He is yet to plead.

The common trait of both cases is that money laundering through art was just a small part of a bigger criminal operation—there have been no convictions to date for pure money laundering in the art trade. “Increased AML [anti-money laundering] legislation for the art world just seems like an opportunistic measure for prosecutors in order to force guilty pleas for unrelated corruption-and-fraud type crimes,” says Peter Tompa, the director of the Global Heritage Alliance and of counsel at the Washington, DC-based law firm Bailey and Ehrenberg.

Yet when Congressman Luke Messer, a Republican from Indiana, introduced HR 5886 in the US House of Representatives in May, his chief stated aim was to counteract terrorist financing “and crack down on terrorist organisations like ISIS”. It represented the evolution of a bill that had died on the Senate floor in 2016—the Terrorism Art and Antiquity Revenue Prevention Act, which was specific to the sale of looted antiquities from countries such as Iraq and Syria.

“Money laundering is a very different issue for antiquities than it is for art at large,” Tompa says, adding that he agrees such legislation could help promote the repatriation of looted antiquities, though a recent US State Department-funded study found that the Islamic State (IS) probably made little more than $1m from the sale of such objects—a far cry from the previously stated estimate of anywhere from $4m to $7bn. There is little to no numeric evidence connecting US art sales with IS or other terrorist activities.

That has not dissuaded proponents of the bill. “It’s challenging to put a number to a trade that by its very nature is secretive,” says Deborah Lehr, the chairman and co-founder of the Antiquities Coalition, a private archaeological advocacy group with ties to Unesco, based in Washington, DC. For that reason alone, “this area clearly merits a closer evaluation by authorities”, she says. But opponents say it could put the art trade in a regulatory straitjacket; the ADAA’s Schoelkopf says: “Art dealers are unduly being swept up into the same ball of wax with a handful of sophisticated financial industry fraudsters who don’t abide by regulations like these anyway.”

Furthermore, the majority of US art purchases are by cheque, credit card or wire transfer, all of which pass through financial institutions already subject to the US Treasury’s Financial Crimes Enforcement Network’s (FinCEN) tracking and reporting requirements. “If you make the dealers take this kind of reporting on individually, they’re all going to make their own version of it. It’s not going to be consistent and that will cause more problems,” McAndrew says.

But John Byrne, the vice chairman of AML Rightsource, a professional services firm specialising in AML and BSA compliance, says the art world’s arguments against regulation “are neither compelling nor new”. He adds that, if the bill were enacted, dealers would have “ample opportunity to comment on any regulation so they could make the case on how different they are from traditional banks, so requirements could be tailored”.

Messer lost his bid for a Senate seat this year, so HR 5886 requires a new sponsor and, as such, will lapse at the end of December. But Tompa says the bill is likely to be re-introduced to the new Congress when it is back in session since it appears to still have some support from “certain AML contractors who presumably want to expand their compliance business”.

Read the original article here.

Talking Shop: Acquiring Artifacts

“Golden Buddha in Meditation” for sale at Artisans d’Angkor
“Golden Buddha in Meditation” for sale at Artisans d’Angkor.

In today’s globalized world, the plunder of ancient art and antiquities finances crime, prolongs conflict, and erases the past for future generations. We have lost some of the world’s most treasured masterpieces and monuments to looting, war, and terrorism. Art and antiquities have even helped fund some of the last century’s worst actors, from the Nazis to the Khmer Rouge, al Qaeda to ISIS.

The Importance of  Responsible Consumption

As we work across borders and disciplines to elucidate these issues and to combat cultural racketeering,

“Aspara Fountain” for sale at Artisans d’Angkor.
“Aspara Fountain” for sale at Artisans d’Angkor.

responsible consumption is a key issue. In short, purchasing a piece of ancient art on Madison Avenue or an artifact online can be a risky investment. By acquiring an Egyptian papyrus, a Cambodian statue, or a Mayan vase, collectors may be putting money into the pockets of mafia syndicates, armed insurgents, and terrorist networks.

Instead, purchasing cultural heritage goods from artisans and established non-profits helps ensure a more transparent, prosperous, and peaceful future.

We hope that consumers will recognize that purchasing responsibly sourced cultural heritage goods:

  • Encourages a more transparent art market;
  • Bolsters local economies in some of the places that need it most;
  • Deepens appreciation for some of the world’s most iconic cultural heritage sites; and
  • Supports local artisans rather than risking putting money into the pockets of extremists.

When shopping for cultural heritage goods, several organizations are transparent, support local artisans, and bolster local economies in some of the places that need it most.

Where to Purchase Legitimate Reproductions

Kenyan “Kindred Spirits Sculpture” for sale at Ten Thousand Villages.
Kenyan “Kindred Spirits Sculpture” for sale at Ten Thousand Villages.

Below are a few of the organizations working to preserve cultural heritage while spurring economic growth throughout the Global South:

Artisans d’Angkor believes it is possible to revive ancient Cambodian arts and crafts, while improving the lives of thousands of people in rural areas. They are committed both to preserve Cambodia’s cultural legacy and empowering individuals with a better future.

Pasabahce Magazalari is a Turkish company that creates replicas of antiquities. The company’s “World Heritage on Glass” collection is intended to foster awareness of the universality of cultural heritage and draw attention to the collaboration necessary to preserve it. The organization even references the 1970 UNESCO Convention on its website.

Ten Thousand Villages is a global maker-to-movement retailer that facilitates shopping for fair trade goods from artisan workshops worldwide. Each purchase directly impacts the life and community of its maker in a developing country, with a focus on empowering women, individuals with disabilities, and others often excluded from the global economy. Many of the goods for sale are visually similar to antiquities.

The UNICEF Market directly benefits children in developing countries. This market was conceived as an online tool for people shopping for unique crafts. Its partner, NOVICA, works directly with artisans through regional offices in Asia, Africa, and Latin America, and their infrastructure ensures that purchases go from countries of origin directly to consumers.

Acquiring art and artifacts from artisans and NGOs helps safeguard the historic fabric that gives meaning to our history, informs our present-day decisions, and guides us toward a more peaceful, prosperous future.

Purchasing Actual Antiquities

Before acquiring antiquities, there are a number of steps buyers can take to ensure their purchases are legal.

Please help us #combatlooting by consuming culture responsibly. To share our #BuyerBeware video about the risks of consuming trafficked antiquities, please click here.