By: Jack Dorsey

Imagine a criminal syndicate heavily involved in the drug trade, seeking to launder the vast sums of illicit revenue they’ve generated. What better way to cleanse the tainted money than to invest in something both valuable and difficult to trace? For these criminals, the world of art dealing provides the perfect opportunity. Art has long been a haven for the wealthy, an arena where mystery, exclusivity, and high-stakes transactions reign supreme. When works like Leonardo da Vinci’s Salvator Mundi can fetch a staggering $450.3 million, it’s no wonder that anonymity and discretion is often preferred by buyers. Yet, the limited transparency creates opportunities for those seeking to exploit the art world for illicit purposes. Money laundering, a process through which ‘dirty money’ is made to appear legitimate, is one such crime that thrives in these shadows.

The Stages of Money Laundering

Illicit funds need to be cleaned in order to throw off authorities and subvert any audit systems in place. Money laundering typically occurs in three stages: placement, layering, and integration. Placement involves placing ‘dirty money’ into a legitimate financial system or using that money to purchase high value assets like art, jewelry, or real estate. The next phase, layering, requires that the money launderer facilitate a series of transactions to obscure and create a complex web of transactions. The final stage is integration where the obscured money is then re-introduced into some legitimate business venture.

Anti-Money Laundering Laws

In the United States, Anti-money laundering laws (AMLs) are regulations that aim to prevent money laundering and primarily apply to financial institutions like banks and brokerage firms, as well as insurance companies. The Bank Secrecy Act (BSA), passed in 1970, is an AML which requires financial institutes to: keep records of cash purchases for things like promissory notes, file reports for cash transactions exceeding $10,000 daily, and report suspicious activity that might signify money laundering. More recently, Congress passed the Anti-Money Laundering Act of 2020, which sought to strengthen, modernize, and streamline the existing AML regime through regulatory reform, and improve financial industry engagement. These reporting requirements could possibly extend to an art dealer engaging in suspicious transactions who is a client of the bank. However, the nature of art dealing provides numerous opportunities to conceal sales, creating the potential for money laundering schemes.

Reporting Requirements of Art Dealers

According to the International Monetary Fund, auction houses and art sellers typically do not have an obligation to report large cash transactions to governing authorities. Unlike real estate or jewelry, where value is more easily assessed through tangible metrics (such as square footage, weight, or quality), art’s value is highly subjective. The price of artwork is largely driven by the buyer’s desires, thus making it difficult to discern legitimate transactions from illicit ones. When analyzed in the money laundering stages, placement and integration are straightforward given the subjectivity, private auctions, and high value transactions typical in the art world. Moreover, there is often no need for layering, as a high price for a piece of art may appear completely legitimate due to the subjective nature. Simply put, a criminal can anonymously purchase a high-value piece of art, hold it for a time, and then resell it for a large sum, making the transaction appear legitimate due to this subjectivity.

Modern Legislative Efforts

The Illicit Art and Antiquities Trafficking Prevention Act was introduced in the House in 2018 with the goal to extend the BSA to art dealers. However, the Act has gained little traction since then. As a result, the scrutiny placed on art dealings remains limited. Experts place the prevalence of money laundering in the three billion dollar range, making clear that this is a significant problem.  The existence of digital art like NFTs, digital assets created using blockchain technology, complicates this issue further given the decentralized nature of blockchain tokens. 

Conclusion

The intersection of art dealing and money laundering presents a complex problem. Without strong regulations, criminals have a clear path to launder illicit money. While efforts like the Illicit Art and Antiquities Trafficking Prevention Act offer some hope, they remain largely conceptual and do not fully address the scale of the issue.