It is a well-known and not widely celebrated fact that the international art market has grown beyond the scope of reasonable pricing in recent decades. In 2021, fine art sales exceeded $64 billion globally. 42% of that market share was attributable to the United States, and the UK and China counted for 20% each. Some critics bemoan such immense growth for turning some of the world’s most historically and culturally significant objects into investment commodities, and whilst this is a true shame, in reality a more sinister problem lies within the market’s hyperinflation; the risk of financial crimes like money laundering and tax evasion.
Not only are the exorbitant prices of artworks alluring for criminal activity, but many characteristics of the luxury market make it vulnerable to the laundering of ill-made profits. The art market in particular is notoriously opaque, historically based on notions of genteel privacy, but still giving dealers the ability to keep the names of buyers and sellers anonymous. There are also no uniform bookkeeping standards nor legal requirements to report suspicious activity within the sector, lax anti-money laundering laws, and the fact that artworks are often easily transportable, reasonably liquid, and of course, extremely expensive. And whilst other luxury sectors such as property and precious metals and stones are explicitly included in the scope and recommendations of the international Financial Action Task Force, mentions of the fine arts sector are left strangely ambiguous, an incomprehensible lack of international oversight for an industry where it is clearly needed.
The art sector is also heavily invested in the use of large storage spaces called freeports, located in transit zones between territorial jurisdictions. These freeports – highly secure, confidential, and without custom duties or sale tax regulations – have created spaces where artwork transactions potentially worth hundreds of millions, can be carried out in complete secrecy without the work having to ever leave the premises. Suspicion of criminal activity notwithstanding, it should not sit so easily with those in the fine arts industry that people toss so much money at a masterpiece of oil on canvas, just to leave it sitting in a dark storage unit in Geneva, Luxemburg or Singapore.
Current laws and regulations governing sales, due diligence and anti-money laundering within the fine arts sector are inconsistent and haphazardly enforced. Still, in the United States, a 2018 House Financial Services Committee Bill sought to amend the Bank Secrecy Act of 1970 such that its agenda was expanded to “dealers in art or antiquities,” as well as making changes to anti-money laundering and combatting the financing of terrorism laws. European Union regulations have also been made more stringent. In 2020, its member states fully adopted the Fifth Anti-Money Laundering Directive which required art dealers to make transparent transactions worth more than €10,000.
In the interest of reputation, art dealers should welcome the increased oversight of an industry vulnerable to serious financial crime, however that has largely not been the case. Very few suspicious activity reports are ever filed in the fine art sector – in the UK accounting for 0.04% of the total quantity submitted between 2014 and 2015 – and many dealers do not consider laundering to be an industry wide problem. Whilst there are some reasonable concerns that forcing fine art businesses into burdensomely intensive due diligence processes could push smaller dealers out of the market, as well as hindering relations with legitimate clients who value their privacy, the risk of public opinion associating, or even implicating the art sector as a whole should be more of a worry. Ultimately, the real problem is that the sector’s obsession with convertibility to cash, rather than art’s ability to communicate meaning, imbue emotion or generate aesthetic pleasure, has driven the market to a position where it seems to be concerned with its millions more than the possibility of being involved in serious criminality.
Oliver Owens is a recent graduate from the Australian National University where he studied a Bachelor of Politics, Philosophy and Economics, and a Bachelor of Visual Arts with a major in ceramics. Oliver is an intern with the Australian Institute of International Affairs NSW.