Looting and Laundering Art, Antiquities, and Financial Crimes
November 6, 2018
The Illicit Art Trade
From plundering during the Crusades to Napoleon’s loot of Egypt, antiquities have long been symbols of worldliness and status. In today’s world, antiquities have become go-to investments for art consumers and market speculators. However, individuals with certain statuses, including those blacklisted and on sanctions and lists, can use art and antiquities to launder money and commit other financial crimes. Buyers, as well as institutions that facilitate sales and acquisitions, should beware.
Cultural racketeering, the looting and trafficking of art and antiquities, can eliminate paper trails of criminal activity and facilitate a wide range of financial crimes that even includes financing conflicts. Cases of looted and trafficked antiquities continue to make headlines across industries and around the world. Thomas Christ, a board member of the Basel Institute on Governance, told the New York Times, “The art market is an ideal playing ground for money laundering.” Let’s explore in more detail how that is the case.
Examining Art-based Money Laundering
In a joint European Commission-UNESCO study, Switzerland-based professor Marc-André Renold establishes the inherent susceptibility of art markets to money laundering:
Money laundering involves disguising the fact that assets have been derived directly or indirectly from crime. As far as cultural property is concerned, money laundering refers either to the very act of buying art objects with criminally earned money (purchasing valuable assets helps to convert such ‘dirty’ cash into an asset that gains value and can be sold later), or to cleaning the tainted money through an art deal whereby an artwork is bought by an accomplice of the seller with money provided by the seller (fictitious auction).
In an industry so easily exploited by nefarious actors, it is important to establish clearer guidelines for professionals both within the industry itself as well as within auxiliary sectors.
The U.N. Office on Drugs and Crime estimates that 3–5 percent of the global GDP is laundered each year, totaling some $2 trillion. Compounding these already worrisome statistics is that global art market grew to $63.7 billion in 2017. The U.S. remains the world’s largest art market, valued at $26.6 billion and accounting for 42 percent of the global total in 2017. The European art and antiquities market, a close second, accounts for nearly $23 billion annually. The scale of the international art market, combined with the staggering annual percentage of money laundered, is disquieting.
Most high-profile, art world money laundering cases are concentrated in modern and contemporary sales. Recent high-profile examples of financial crime in the art market include a scheme to launder $50 million in part through a Picasso painting. Another high-profile case that saw Leonardo DiCaprio return several pieces involves the Malaysian Prime Minister and his family, who purportedly embezzled $1 billion through a Basquiat and other fine art. These cases will continue to make headlines in the absence of stronger financial industry awareness and government action.
Antiquities face similar susceptibility to financial crimes as modern and contemporary art. Antiquities often fetch prices that make them desirable to wealthy criminal elites. The Guennol Lioness sold for over $57 million at Sotheby’s in 2007. That same year at Sotheby’s, Artemis and the Stag, a Roman-era statue, sold for $28.6 million. In 2010, a Qing Dynasty vase, famously found in an attic after having been neglected for decades, sold privately for $80.2 million in what was the highest-ever price for a Chinese antiquity at auction. The opacity of the vase sale again underscores the need for increased transparency, particularly within the financial transactions side of the art market.
The Market Recognizes Its Money Laundering Problem
The market itself has increasingly recognized its own vulnerability to financial crimes. Industry leaders have called for and implemented measures to enhance industry transparency. The Basel Art Trade Guidelines warn, “In comparison with other trade sectors, the art market faces a higher risk of exposure to dubious trade practices,” including antiquities trafficking, fraud and money laundering. They attribute this to “the volume of illegal or legally questionable transactions, which is noticeably higher in this sector than in other globally active markets.” Despite market cries for increased transparency and more robust best practices, government legislation has been slow to catch up.
Money Laundering via Blood Antiquities
Beyond being used as tools by which to launder money, in some cases antiquities themselves can have dubious or illegal origins, including having been looted or stolen during instability to finance and prolong conflict. As the Financial Action Task Force (FATF) has warned, art and antiquities are particularly vulnerable to money laundering and terrorist financing, which often go hand-in-hand.
Across the world, auction houses, museums, dealers and private collectors have made news for possession of such “blood antiquities”. The Green Family, who owns Hobby Lobby, have made international headlines this year following their acquisition and then repatriation of thousands of illicit antiquities looted from Iraq during recent conflicts in the region. Daesh (“ISIS”) had looted and sold the cultural objects as part of a scheme to access Western cash.
Failing to practice due diligence risks incurring government fines or having property confiscated. Hobby Lobby’s Green family was forced to forfeit $3 million, nearly double the $1.6 million they paid for clay cuneiform tablets and other items smuggled into the U.S. While the fines incurred in this case related to stolen objects, it is time to increase prosecutions for art-related financial crimes.
In terms of government recognition of the problem, terrorist financing through cultural property has received significant attention, while other financial crimes have remained comparatively under-addressed. The U.S. government, European Commission, the U.N. and UNESCO have each identified illicit art and antiquities as problems that threaten global cultural heritage, economic development, and national security.
In December 2015, then-Secretary of the Treasury Jack Lew took the unprecedented step of calling together the Ministers of Finance from U.N. Security Council members. Blood antiquities were identified as a means of funding for terrorist organizations, and the finance ministers committed to take necessary steps to prevent these goods from entering their countries. In 2017, the U.N. Security Council passed unanimous resolution 2347, calling on all member states to prohibit the cross-border trade in cultural property when the property originates from an armed conflict zone or lacks certified provenance. The international recognition of the implications of illicit cultural property trade underscore the importance of the issue but do not adequately address the role of financial institutions in facilitating money laundering in the art market.
The Illicit Art and Antiquities Trafficking Prevention Act (H.R. 5886), currently in the U.S. House of Representatives, proposes amending the Bank Secrecy Act (BSA) to address some of the opaque areas of the art trade. This legislation would end the art market’s exemption from otherwise standard regulations and mundane money laundering rules. While this bill represents progress in the U.S., American legislation on money laundering and the art trade remains less robust than elsewhere, particularly in Europe, which has adopted six related provisions in the wake of the Panama Papers.
A Transparency International report on money laundering risks in global markets notes that the Panama Papers revealed a considerable number of cases of art held in shell companies. The report also referenced a Swiss government taskforce report, available in German, which argued, “While the most important economic financial sectors have become subject to stronger anti-money laundering regulations, lawmakers have paid surprisingly little attention to the art market.”
By facilitating the acquisition of an Egyptian papyrus, a Cambodian statue or a Mayan vase on Madison Avenue, financial institutions may be putting money into the pockets of nefarious actors, including terrorist networks. Enhanced levels of transparency, increased knowledge of the problem within the financial sector, and targeted action from governments will help ensure that art and antiquities acquisitions are not undermining the very laws we have designed to make the world a more transparent, prosperous place.