The US treasury department has published a study on the facilitation of money laundering and the financing of terrorism through the trade in works of high-value art.
The study found that banks that regularly transmit payments for the art market have developed tailored policies, procedures and operate subject to legal anti-money laundering and counter financing of terrorism (AML/CFT) regulations.
But businesses that offer financial services, such as art-collateralised loans, are not subject to such comprehensive AML/CFT obligations and are amongst the participants most vulnerable to money laundering in the art market.
Several boutique art financing firms, as well as auction houses and galleries, provide personal loans to clients that are collateralised based on the assessed value of specific pieces of artwork provided as collateral.
These firms have no legal obligation to collect any information on the ultimate owner of the art or the source of funds originally used to acquire the work, which can allow illicit actors to unlock the value of high-value artwork purchased through illicit funds without being subject to due diligence collection and scrutiny regarding the source of their funds.
Unlike regulated financial institutions, boutique art finance firms are under no obligation to establish and implement AML/CFT programmes, report suspicious activity, and verify a customer’s identity.
This creates an uneven playing field for art-related loans and other financial services ripe for regulatory arbitrage, where illicit actors may target these firms to avoid providing information that more traditional lenders require as part of their comprehensive AML/CFT programmes.
The study recommends applying AML/CFT requirements such as suspicious activity reporting and know your customer procedures to a broader range of art market participants and/or obliging them to create and maintain AML/CFT records.
It also recommends greater private sector information-sharing among art market participants and updated guidance and training for enforcement and asset recovery agencies.
The US treasury’s Financial Crimes Enforcement Network (FinCEN) meanwhile could be more active in supporting information collection and enhanced due diligence the study concludes.
The US treasury department’s Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art can be found here.
Categories: Trade Based Financial crimes News