Criminals, organised crime groups, and even terrorists have been drawn to the market of art, antiquities, and other cultural objects as a means to launder their illicit proceeds and finance their operations.
Illicit funds laundered through the market for cultural objects can be derived from various crimes, including corruption, embezzlement, drug trafficking, tax fraud, and other offences associated with the activities of organised criminal groups.
A recent report by the Financial Action Task Force (FATF) outlines the money laundering vulnerabilities and typologies associated with cultural objects.
Money laundering vulnerabilities associated with cultural objects and the market
The report examines money laundering vulnerabilities associated with various types of cultural objects and with different participants in the market for selling, buying, and storing cultural objects.
A “cultural object” refers to an object of importance for, or with the characteristics of, prehistory, history, literature, and art of science. This covers a wide range of items such as objects of ethnological interest or other relatively high value pieces that have similar characteristics as art and antiquities and are sold in similar manners.
Vulnerabilities linked to the market
Cultural objects may not be sold directly by the creator, but by a third party. This seller may lack an incentive to scrutinise the buyer’s intentions for the work, their identities, and the source of funds. Vulnerabilities to various types of crimes including money laundering may therefore be introduced.
The market for cultural objects also has a history of privacy and discretion to protect buyers and sellers. This may create vulnerabilities in terms of countering the risk of money laundering, for example where cultural objects are able to be purchased anonymously in cash.
Vulnerabilities linked to cultural objects
High-value cultural objects can be more vulnerable to money laundering, mainly because they can serve as substitutes for a large amount of value that can be used to transfer or hide criminal proceeds while evading or obscuring detection.
In several cases, corrupt officials have received high-value art as a bribe, rather than receiving payment directly through the financial system.
Vulnerabilities linked to market participants
Vulnerabilities can be linked to a range of market participants, including:
- Dealers in cultural objects, such as galleries and antiquity stores. For example, dealers commonly use art fairs to display and sell art, however art fair organisers may place less or no importance on the provenance of cultural objects for sale, or the identity of the buyers and the source of their funds, as they are not obliged to adhere to such requirements.
- Auction houses, who make a profit by taking a commission on each sale. Therefore, they have a financial incentive to sell objects at a higher price. This incentive could reduce the amount of due diligence conducted on transaction counterparts.
- Storage facilities, which are often used to store high-value cultural objects due to the special conditions required to prevent damage or for security reasons. These storage facilities can be located in free trade zones, which can lead to buyers and sellers conducting transactions anonymously, or property being kept out of reach of law enforcement authorities.
Vulnerabilities are linked to a range of other market participants including art advisors and other types of intermediaries, and art finance service providers. Vulnerabilities are also linked to specific types of markets including online markets and markets for digital art and NFTs.
Money laundering typologies associated with cultural objects
The report discusses common money laundering typologies including using cultural objects as a vehicle to transfer or hide illicit proceeds, the use of cash, the role of intermediaries and legal persons, under or over-pricing, and fictitious sales and false auctions.
Using cultural objects as a vehicle to transfer or hide illicit proceeds
High-value cultural objects can be used as a vehicle to transfer or hide illicit proceeds. For example, valuable artworks may be bought with illicit proceeds, without the use of formal financial instruments like bank transfers which are regulated and supervised for AML/CFT requirements.
Use of cash in transactions
The use of cash in purchasing cultural objects is a favoured money laundering technique. This method provides anonymity to cultural object transactions, making it more difficult to identify the buyer and the seller, and to trace the source of funds.
Misuse of intermediaries, legal persons or arrangements
Intermediaries, which may include natural and legal persons or arrangements, as well as shell companies or non-profit organisations, may be used to conceal the beneficiary of the transaction. They are used to hide the identity of the buyer or seller, to obscure the transfer of high-value art or the source of funds, or both.
Use of under or over-pricing
Over and under-pricing can be used to conceal value or to legitimise illicit proceeds. The uniqueness of many cultural objects may make it difficult for non-experts to understand whether sales (and values) are legitimate or not.
Use of fictitious sales or fake auctions
Fictitious sales and fake auctions may be used to provide legitimacy to funds that are subsequently sent through a financial institution or a non-financial businesses or profession in the laundering process.
Key takeaways
The market for art, antiquities, and other cultural objects has become an attractive target for criminals seeking to launder their illicit proceeds. The Financial Action Task Force’s recent report highlights the vulnerabilities and typologies associated with this market. The report identifies vulnerabilities linked to the market, cultural objects, and market participants including dealers, auction houses, and storage facilities. The report also discusses common money laundering typologies including the use of cultural objects as a vehicle to transfer or hide illicit proceeds, the use of cash, the misuse of intermediaries, the use of under or over-pricing, and the use of fictitious sales or fake auctions.
