Art, antiquities and the Financial Action Task Force

Angelika Hellweger assesses FATF’s report on money laundering and terrorist financing in the art and antiquities market

The Financial Action Task Force’s (FATF’s) first report examining money laundering in the art and antiquities market is a logical response to a billion-dollar industry that is increasing in both its size and its appeal to those looking to launder their proceeds of crime and fund illegal activities.

There are many countries that have not introduced measures to tackle the money laundering (ML) and terrorist financing (TF) risks associated with a market involving vast amounts of money, as well as many middlemen, shell companies and other opaque corporate structures. The FATF report may, therefore, be of value in helping many jurisdictions – and those in business – understand those risks.

Threats and Methods

The FATF report outlines money laundering threats and methods in the world of art and antiquities. These include hiding or transferring illicit proceeds by concealing the identity of the genuine buyer, the over or under-pricing of items, and the use of fake sales or false auctions, as well as forgery, fraud, theft and illegal trafficking.

It highlights the access that certain terrorist groups, such as ISIS, have to heritage sites and how they directly benefit from the excavation, looting and trafficking of cultural objects, including the selling of them to third parties. ISIS has also taxed others for the excavation, looting and smuggling of cultural objects on territory under its control. It set up a special division and collected a 20% tax on the sales of antiquities excavated or looted by non-ISIS members in its areas. As ISIS once controlled 5000 archaeological sites in Iraq and Syria, it is likely to have generated substantial funds from such activities.

Findings

The report’s main findings are:

• The secondary art market is at more risk of ML/ TF than the primary market. The secondary market places less emphasis on finding the most appropriate buyer.
• The market for cultural objects has a history of privacy and discretion, which enables criminals to buy high-value items with illicit proceeds.
• Some cultural objects, particularly small items such as antique coins or memory sticks containing digital art, can be easily hidden and moved from country to country.
• Free trade zone storage facilities used to discreetly store high-value cultural objects present ML and TF risks; although some jurisdictions have introduced measures to address this.
• Online markets create extra problems when it comes to identifying buyers, sellers and the sources of funds.
• Traffickers of cultural objects, including those that have been looted, often use online auctions, flea markets and private sales sites to expand their customer base.
• Social media platforms and online marketplaces need to do more to address and prevent sales of looted antiquities.
• The sale of digital works of art, especially NFTs, has massively increased since 2020. But the lack of regulation and supervision of such items makes it hard to determine how much illicit financial activity they are attracting.
• The unique nature of cultural objects means the pricing of them can be subjective and volatile – making them an effective vehicle for transferring or hiding illicit proceeds.
• The use of cash, especially large denomination banknotes, is a favoured technique when buying cultural objects to launder money; even though many jurisdictions have cash payment limits.
• Intermediaries - including individuals, shell companies and trusts - and detailed arrangements are often used to disguise the beneficiary of the transaction, source of funds, true identity of a buyer or seller or the transfer of high-value art.

Challenges and Good Practices

The report uses case studies to illustrate how ML and TF is conducted in such markets. It also includes a list of risk indicators that can help identify such activity.

While the report lays out in detail the various aspects of the ML and TF problems facing the art and antiquities sector, it also pinpoints the challenges associated with detecting and addressing them.

These are:

• Problems relating to tracing the origins of cultural objects, as well as their ownership and authenticity.
• The shortage of genuine identification information regarding the ultimate seller and buyer.
• A lack of due diligence carried out by auction houses, dealers and galleries regarding the sources of funds - and their shortage of appropriate compliance programmes and staff training.
• The emphasis on privacy and discretion when dealing with high net worth clients.
• The need for countries to assess the size of their art, antiquities and cultural objects markets, the risks within them and the best approach to regulation and supervision to combat those risks.
• The low number of suspicious transaction reports filed with financial intelligence units.
• The limited number of cultural object market experts in financial institutions who can conduct and monitor risk assessments.
• Law enforcement agencies viewing investigations into the trade of cultural objects as a low priority, as well as their lack of expertise and cooperation with international counterparts regarding such items.

Conclusion

The report is likely to go some way towards boosting awareness of the ML and TF risks that exist in the art and antiquities market. It identifies common risk factors that will help lawyers who advise participants in the market, financial institutions, those involved in related enforcement proceedings and those working with law enforcement authorities on such matters.

It should be noted that while not all jurisdictions have implemented specific rules when it comes to ML / TF in this market, both the European Union and UK do have such regulations.

In the UK, His Majesty’s Revenue and Customs (HMRC) works with the British Art Market Federation to publish anti-money laundering guidance that helps art market participants meet their obligations. From April 2023, all regulated entities (including art market participants) will need to verify corporate information on the register at Companies House and inform the Registrar of Companies of any material discrepancies on the public register discovered through conducting customer due diligence.