Historically, the art and antiquities markets have been characterised by robust discretion but limited regulation, features that have long made them a potential target for financial crime.
But this is now changing, with the EU, UK and US introducing regulation to prevent these sectors from being used for money laundering, sanctions evasion, fraud, and the illicit transfer of goods and wealth. The reality for advisers dealing with clients who invest in or collect art and antiquities is that more regulation is in the pipeline that they need to be aware of.
Financial crime risks
Recent headlines have made clear that the risk of financial crime in the art and antiquities markets is not hypothetical. The Pandora Papers revealed offshore trusts used to shield assets accumulated by trafficking in looted Cambodian artefacts. Disgraced Malaysian financier Jho Low forfeited a Picasso, Monet and Basquiat to US authorities in 2018.
Repeated revelations of fraudulent art-based investment schemes have landed in New York courts in the past few years, and seemingly regular stories arise regarding forged artworks, money laundering through purchase and sales, art used for organised crime collateral, and antiquities trafficking tied to terrorist financing.
Perhaps most notably, Arkady and Boris Rotenberg, Russian billionaires and purported close allies of Vladimir Putin, successfully evaded financial sanctions by laundering money through the US and UK art markets, including by purchasing a $7.5mn (£5.5mn) Magritte in London and $18mn of art in the US – revelations that were the subject of a 147-page bipartisan US congressional report and a substantially increased enforcement focus.
A number of other factors make the art and antiquities markets attractive to potential criminals. The market is global, with transactions, sales, auctions and objects criss-crossing continents and traveling across national borders.
It is characterised by high-value transactions, with portable pieces frequently selling for tens of millions of dollars. And it is also enormous. After a pandemic downturn in 2020 to a mere $50bn, the major auction houses Sotheby’s, Christie’s, and Phillips all recorded record-high turnover last year of $7.3bn, $7.1bn, and $1.2bn respectively.
The potential liquidity of high-value works also makes them appealing. A piece by Hockney is almost guaranteed to be snapped up at auction. New technologies also play a role, with cryptocurrency payments now representing a viable purchasing mechanism after both Christie’s and Sotheby’s began accepting them for certain auctions last year.
In addition, non-fungible tokens (NFTs) have become the breakout stars of the art market, with a digital collage by Beeple selling for $69.3mn, making it one of the most expensive pieces ever sold by a living artist. The overall NFT market hit $22bn. In sum, tens of billions of dollars of art and antiquities change hands every year, with little scrutiny, in what many have called the world's largest unregulated market – until now.
Increasing regulatory focus
Regulators in Europe have already taken notice: since July 2018, the EU’s fifth anti-money-laundering directive has applied to persons operating in the art market or acting as intermediaries in the trade of works of art where the transaction is worth €10,000 (£8,320) or more. The directive, which EU member states were required to implement by January 10 2020, went further than its predecessor, which only targeted similar transactions in cash.
