Question

Critique the statement that “Art is a very attractive vehicle to launder money. It can be hidden or smuggled, transactions often are private, and prices can be subjective and manipulated – and extremely high.” (Peter B. Hardy) 20 points

Answer 1

Governments and the international community have only criminalized money laundering since the mid 1980’s.Works of art have increasingly become the means of laundering money. Theft of valuable pieces of art and counterfeiting art works is also on the increase, making it amajor money laundering predicate offence. There is a big improvement in international anti-money laundering regulation, forcing money-launderers to think ofand device new money-laundering methods, especially those that avoid the formal financial services sector. Therefore, as of necessity, regulators must be extremelyvigilant and be on the look-out for emerging trends in money-laundering typologies.Although art theft is not a secret,money laundering through works of art is a recentphenomenon dating to the close of the twentieth century. Controls enacted pursuantto recommendations by the Financial Action Task Force(FATF), aimed at cracking down on money laundering, made it inevitable for criminals to seek out newmechanisms for the laundering of ill-gotten gains. The globalization of financial markets and the rapid development of information technology have also graduallysteered the underworld economy toward new avenues for the commission of financial crimes.  

Art is an attractive industry for the practice of money laundering because of thelarge monetary transactions involved, the general unfamiliarity and confidentiality surrounding the art world, and the predicate offences endemic to it such as theft,robbery and forgery.

It’s supposed lack of correlation with other markets is not entirely convincing. The price levels for art do not reflect its fundamental characteristics, rather the fortunes ofits buyers. Many experts also agree that the data frequency to support the correlationclaim is much too short to be meaningful, given how relatively infrequently art is soldfor a known price. What may seem to be a lack of correlation may in fact just be alack of information.

The main international architecture for protecting art is provided by the following bodies-

The United Nations Educational, Scientific and Cultural Organization (UNESCO)Convention on the Means of Prohibiting and Preventing the Illicit Import, Export andTransfer of Ownership of Cultural Property which seeks to prevent the illegal traffic inartwork by requiring special export licenses and an administrative control system toenable Member States to prevent illegal importation and exploitation of artworks.

.The UN Convention on Stolen or Illegally Exported Cultural Objects (UNIDROIT)which addresses the concerns over the illegal trade in cultural objects, and requiresMember States to establish common rules for restitution or repatriation for the returnof the property illegally removed, even of articles acquired in good faith.

The Convention Concerning the Protection of the World Cultural and NaturalHeritage, which makes it incumbent upon all to protect the cultural heritage ofmankind, and it created the Fund for the Protection of the World Cultural and NaturalHeritage called “The World Heritage Fund".

Given the evidence available that works of art are used to launder money and that at the same time works of art are subject of crime(theft, robbery, forgery),thus predicate offences for money laundering, there is need to include them in the ambit of theinternational legal framework against money laundering viz the FATF and the UN Conventions and other regional and continental organizations. FATF or any of the FATF Style Regional Bodies needs to do a typology study in this area like has beendone for trade in diamonds ,real estate and other typologies, so as to advisemember countries on how to combat the same. At the very least, countries should beencouraged to carry national studies to determine the risk posed to their respective jurisdictions by the laundering of money through art, and also how prevalent artcrime is as a predicate offence for money laundering.

Buying fine art and collectibles can sometimes pay off handsomely. At the same time however, thieves and forgers have more than ever to gain, too Art and collectible buyerscan’t routinely rely on any branch of government to protect them,unlike with other properly regulated industries.Engaging a “consultant” is no guarantee either, particularly if that consultant’s compensation is tied to what onebuy’s, reducing his or her incentive to squelch suspect purchasesTraditionalauction houses perform their own due diligence, but its“unrealistic to expect them tobe able to do extensive research on each item because of the sheer volume of thework that would have to be undertaken. The auctioneers artfully limit their liability:The terms and conditions ofsale” in the back of a catalogue typically state theauction house only warrants the brief description of the item in boldface or italics, notall the other information printed. That limited warranty should cover the fact that apainting is indeed by a particular artist To enforce that warranty a buyer mustgenerally sue within four years of a purchase, and many people don’t discover they’ve bought a fake until they go to sell the item or lend it to a museum. In the USA,for fraud claims the clock starts to run only when you become, or should have become aware of the fraud.

Problem is, not everything stolen is listed. The May 20, 2012 New York auction was interrupted by an announcement from a lawyer that his client,the president of Mongolia, had gotten a temporary restraining order from a Texasstate court judge prohibiting the sale. Heritage went ahead with the auction but madethe sale contingent on resolution of the court proceedings and has cooperated withthe FBI. Lack of proper rules, monitoring, or even interest has caused many launderers to look to this market as a means of cleaning their dirty money, since prices may beestablished, manipulated and altered at any time. It is true that dirty money graduallyand on a large scale began discovering art . Increasing the flow of illegal moneyallowed organized crime to move in, followed by harmful consequences given the  increased danger of fraud, tax evasion and corruption. Art thus became a naturalchannel for the laundering of illegal money. Authorities have become aware of problems surrounding the world of art, suchas its vulnerability on a whole series of issues and threats. The large amountsof money involved and the lack of transparency in the art market requiresgreater control by the authorities. In the case of art, in the name of the transmissionof cultural values, its actors appear to have paid little attention to a number of unlawful practices including money laundering.

Laundering through artworks is accomplished byincorrectly stating prices,quantity and quality, and by overseas transportation, all in an effort to convey some legitimacy to illegal money.