The Art World & Money Laundering
Everybody knows today that the value of art transactions at the very centers of the art market is usually enormously high. Those who are not in the loop often roll their eyes or are just outraged when they hear that some piece of art was sold for several millions of US dollars. Let us just recall the record for the highest-grossing auction at Christie’s in May 2014, when the evening contemporary sale hit the $745 million mark. Or just a reminder that the works by Francis Bacon or Andy Warhol were sold for dozens of millions of US dollars. Anyway, since the beginning of 1990s, big amounts of money have entered the art market, creating a specific art business, with dominant buyers, sellers and intermediaries, and with some unwritten norms that run the spectacular show of the art market. Basically, as it is the case with any other market. Yet, in recent years, many voices were raised against the rules and practices dominating the market, targeting not the way the prices are being created, but the serious and reasonable charges of money laundering in the art world.
Dirty Cash in Art
You don’t need to be an expert in finance to understand that the art market, at this moment, is very alluring for money laundering. All pre-conditions for these illegal actions exist for years. First, as we mentioned above, there is a huge amount of money that circulates in the art market. Second, the lack of transparency and regulation allows anyone who can afford to buy whatever he or she wants in galleries or on auctions. It means that the market’s actor who sells cannot trace the financial source from which the money for the purchase came. And why would they do that? Its only interest is to sell the product (the piece of art) for the highest price possible. Third, globalization spread the art market across the globe, thus increasing the number of potential buyers (consequently, the potential frauds). Billionaires from Latin America, East Asia, and Eastern Europe are more and more active in the art market, predominantly acting as buyers. All the pre-conditions for money laundering exist. Yet, there is one more fact that has to be mentioned. The art sales that make the art market so active are characterized by extremely high prices. Therefore, it’s not quite true that just anybody can enter a gallery and buy a famous artist’s work. Only rich and wealthy people can do that, we wouldn’t be wrong in saying that the richest people give the necessary impulse for the active art market. Since those rich people are usually not from the art world, and they have different backgrounds, a legitimate question may be posed: Do they buy the millions worth of art works just because they like art? Or are they trying to avoid paying taxes for their regular businesses? In the last few years, several cases connected with the money laundering in the art work were detected.
Rich People love Art
In April 2013, federal charges against the New York dealer Helly Nahmad shook the world of auction houses, and entire network of art market related actors. The charges included attempt launder tens of millions of dollars on behalf of an illegal gambling business. As a number of comments made by scholars and law prosecutors related to the question of money laundering in art drastically increased over the last few years, many dealers, brokers and buyers discussed the problem. Everybody agrees that there is indeed a problem. But just because many artworks are extremely expensive, or just because many rich people buy these artworks, it doesn’t mean that the art world as whole is a target of money laundering operations. The stigmatization of the art market as an area of fraud-paradise should be avoided. There are so many celebrities, for example, who are art lovers. Would anyone dare to accuse Leonardo DiCaprio, a proved art lover, of money laundering? Such allegations shouldn’t be based merely on the fact that a person is rich and likes buying expensive art.
Art Market as An Isolated Island
Although many believe the art market is completely isolated from the rest of the financial and economic world, that is just not the case. The art market is fundamentally connected with the global financial market. It has suffered a lot during the global financial crisis, and it reacts to the trends on the global market. Sometimes art and art world are perceived as marginalized components of the global market, just like many believe that art cannot influence social or political developments. Many misused this notion of the art and art world, and began investing large sums of money into art business. That problem has now been detected. Some regulations will probably have to be introduced, yet the monopolist position of the main dealers who influence the most the prices in the art market will remain the same. It is a product of the dominant rules in the global financial system. Therefore, the money laundering in the art world cannot be solved without tackling that same problem in other branches as well. Some solutions will probably be found soon, but until then, the art world and art market should not be labeled as a world of frauds and despoilment. The same accusations should be put on all the other financial markets as well. But until the solution of this problem is found, the art should be continue to be valued as it has always been – by the eyes of the viewers, however poor or rich they are.
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Featured Image: Sotheby’s (For Illustrative Purposes)
All images for illustrative purposes only!