Notes: US and EU Efforts to Combat International Money Laundering in the Art Market Are No Masterpiece

By Burroughs, Timothy E. | Vanderbilt Journal of Transnational Law, October 2019 | Go to article overview

Notes: US and EU Efforts to Combat International Money Laundering in the Art Market Are No Masterpiece


Burroughs, Timothy E., Vanderbilt Journal of Transnational Law


TABLE OF CONTENTS    I. INTRODUCTION                                              1062  II. MONEY LAUNDERING IN THE ART MARKET                        1065        A. The Problem of Money Laundering                      1065        B. International Money Laundering in the Art Market     1068           1. How Art is Used to Launder Money                  1069           2. Weaknesses and Susceptibilities in the Art        1070              Market: Pricing, Theft, and Anonymity           3. Scope of the Art Market                           1075        C. New EU and Proposed US Laws                          1076 III. EVALUATION OF NEW REGULATIONS AND INTERNATIONAL           1079      FINANCIAL REGULATION        A. Arguments for and against New EU and US Regulation   1080           1. Shortcomings of Regulatory Requirements           1080           2. Effect on Small and Medium-Size Dealers           1082           3. Benefits of Additional Regulation                 1084        B. Structure of Current International "Soft Law"        1085           Regulation of Money Laundering           1. Overview of International "Soft Law" Agreements   1086           2. The Role of the FATF in Anti-Money Laundering     1089              Regulation  IV. REFORM TO EFFECTIVELY DETER AND CATCH MONEY               1090      LAUNDERING IN THE ART MARKET   V. CONCLUSION                                                1096 

I. INTRODUCTION

Government corruption, shell corporations, "The Wolf of Wall Street," and a Picasso or two--no, not a new Dan Brown novel--but details from the latest case of money laundering involving the art industry. (1) An ongoing international investigation revealed in 2016 that Malaysian government officials and their co-conspirators hid more than $1 billion worth of embezzled funds in the United States in assets such as real estate and artwork. (2)

Throughout history, criminals have sought ways to "clean" illicit money acquired through illegal activities. The process of "cleaning money," commonly referred to as money laundering, is accomplished through a range of techniques that allow criminal proceeds to enter legitimate financial markets. As regulators and law enforcement tighten control over traditional methods used to launder money, art and cultural artifacts are becoming increasingly appealing tools for money laundering. (3)

The art market's tradition of secrecy and discretion relating to purchases and sales presents a challenge to regulators. Terrorist financiers, in addition to money launderers, have also identified the fine art and artifacts markets as potential avenues to fund their activities. (4) The highly publicized illegal sales of cultural artifacts from war-torn parts of the Middle East (5) and the release of the Panama Papers in 2015 (6) highlighted the misuse of the art market for illicit gain and attracted increased scrutiny over financial transactions involving art. (7) Since the art market serves a global clientele, domestic law enforcement is frequently inadequate or limited in its ability to investigate and prosecute these crimes.

International organizations, including the Basel Institute on Governance, have issued new guidelines aimed at making the art industry less susceptible to money laundering. (8) These recommendations include enacting new domestic regulations requiring art dealers, galleries, and auction houses to maintain detailed records about their clientele and requiring the reporting of suspicious financial activity within these institutions. (9) International art market players approached the Basel Institute as early as 2008 to draft rules focusing on self-regulation. (10) However, this approach failed to ease concerns or gain widespread acceptance. (11) The Financial Action Task Force (FATF), the world's leading international anti-money laundering organization, subsequently labeled the art market in some countries as "high-risk" for financial crimes. (12)

In response to these concerns, the European Union passed the Fifth Anti-Money Laundering Directive on April 19, 2018. …

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