Dealing with Laundering in the Swiss Art Market: New Legislation and Its Threats to Honest Traders

By Steiner, Katie L. | Case Western Reserve Journal of International Law, Spring 2017 | Go to article overview

Dealing with Laundering in the Swiss Art Market: New Legislation and Its Threats to Honest Traders


Steiner, Katie L., Case Western Reserve Journal of International Law


On January 1, 2016, new regulations took effect in Switzerland that impact the country's art market. The laws aim to close channels for laundering money and illicit antiquities within the art trade. Because the art market's opacity provides attractive conditions for launderers, Switzerland's new regulations introduce greater transparency in transactions for high-value works of art and in duty-free art-storage facilities, such as the Geneva freeport. The Geneva warehouse serves an international clientele of art collectors, who have traditionally stored works of art in the facility anonymously and indefinitely, without adverse tax consequences. The freeport provides essential services for honest collectors who wish to protect their holdings secretly and securely. In addition, the freeports offer an ideal climate for an emerging class of art investors, who buy and store works until they appreciate in value. By requiring greater transparency within the Swiss art market in an effort to curb illicit activity, the new regulations threaten to undermine the conditions that support the interests of legitimate art traders. Because Switzerland introduced its regulations unilaterally, Swiss art traders should advocate for self-regulation within the international art market in order to level the competitive playing field and preserve the conditions of confidentiality that honest traders depend on.

CONTENTS
I.   INTRODUCTION
II.  THE VALUE OF THE SWISS ART MARKET: TWO KEY FEATURES
       A. Contemporary Art Sales
       B. Art Storage
     1. Freeport Mechanics
     2. Benefits of the Freeports for Legitimate Art-Market Actors
III. LAUNDERING OPPORTUNITIES MADE POSSIBLE BY SWISS ART
     Market Opacity
       A. Laundering Illicit Antiquities
       B. Money Laundering
IV.  SWITZERLAND'S NEW ART MARKET REGULATIONS AND POSSIBLE
     CONSEQUENCES FOR HONEST TRADERS
       A. Reporting Requirements on Art Purchases Could Chill
          Legitimate Sales
       B. Customs Requirements and Time Limits Also Inhibit the
          Legitimate Art Market While Failing to Eliminate Laundering
          Opportunities
          1. Background
          2. The Rule
       C. Two Additional Problems: Punishing the Innocent and Racing
          to the Bottom
V.   POTENTIAL SOLUTION: ART MARKET SELF-REGULATION
VI.  CONCLUSION

I. INTRODUCTION

Switzerland is home to one of the world's most robust art markets. (2) It serves an international clientele of collectors and collecting institutions by offering a broad range of amenities, including auction houses, important sale venues, and secure art storage. The Swiss art market, like the art market as a whole, has traditionally enjoyed little governmental regulation. (3) Recently, however, Switzerland has introduced new measures to combat laundering opportunities in the art trade. These efforts reflect broader international attempts to close avenues for terrorist financing, as well as the trade in illicit cultural property. (4) Yet Switzerland's new regulations, in effect as of January 1, (2016), may give rise to a number of unintended consequences. (5) Specifically, the measures threaten to undermine the valuable services and favorable legal and economic conditions that allow the country's legitimate art market to thrive. In addition, Switzerland's regulations could drive art collectors--including innocent ones--to similar but less controlled markets in other countries, thereby driving valuable business away, while doing little to stem laundering practices in the art market globally. (6)

This paper analyzes the delicate balance between curbing criminal activity and protecting the interests of honest buyers, sellers, and dealers in one of the world's most important art markets. It examines key aspects of the Swiss art trade, especially the role that secure, confidential, and duty-free storage facilities play in maintaining the market's vibrancy. It argues that Switzerland's new regulations, which aim to combat laundering by requiring greater transparency in cash transactions and storage warehouses, threaten to eliminate the conditions of secrecy and confidentiality that are vital to legitimate art- market actors. …

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