The art and antiquities market is tremendously growing. However, it is becoming an attraction for money launderers due to its flexible and anonymous buying/selling process. Another reason is that the art industry uses traditional methods to export paintings, antiquities, and other objects. Furthermore, this provides money launderers with an opening to shift their black money.
As per the estimate, the global art market sales skyrocketed to over $65.1 billion. On the contrary, criminals are exploiting this industry to move billions across countries. This calls for effective anti-money laundering mechanisms to secure the sale and purchase of art pieces. The industry can employ digital AML solutions to verify buyers and sellers. The blog covers major countries currently facing art money laundering with the respective regulations to combat it.
A Brief Insight into the Art Money Laundering Process
Criminals are making efforts to convert their dirty money into white. In this process, art money laundering is becoming their favorite as they can easily hide their funds by selling or buying high-value art pieces. This is commonly known as layering. As per Shufti Pro News, criminals easily abuse the AML system as the art industry lacks regulatory oversight. Due to inadequate anti-money laundering measures, subjective pricing of artworks, and anonymity, criminals easily launder their ill-gotten funds.
Moving on, sellers use freeport warehouses to hold the artworks which are exempted from customs duty. This way it becomes a tax haven for legit purchasers. However, it also provides room for criminals, drug kingpins, and oligarchs to commit money laundering. Furthermore, inefficient AML solutions also help to create a distance between the origin of illegal transfers and recent transactions. Therefore, the art industry should employ effective AML security systems that will help them mitigate the chances of money laundering.
AML Monitoring Regulations for the Art Industry
Considering the increasing cases of money laundering in the art industry, global anti-money laundering regulators are putting forth strict regulations to curtail this malicious activity. Also, anonymity is providing enough space for criminals to move their funds across countries.
Whereas, regulatory authorities are enforcing strict identity verification to ensure the buyer is using legit money for making the purchase. Therefore, countries like the US, Canada, and others are readily adopting AML solutions to prevent money laundering and hefty penalties. Further details regarding the AML screening regulations for the art industry are in the next section.
EU’s AML Measure to Combat Art Money Laundering
The European Union (EU) was well aware of money laundering happening in the art market. For its prevention, it came up with a specific set of requirements in its Fifth Anti-Money Laundering Directive (5AMLD). The directive was put into force in January 2020 with certain restrictions for the art industry as well. As per these, the art markets within all of the EU member states need to build effective AML verification mechanisms.
Moving on, the EU enforced the Sixth Anti-Money Laundering Directive (6AMLD) right after one year. It has the toughest requirements for industries to prevent money laundering. As per the directive’s guidelines, the art industry should perform effective AML monitoring and Customer Due Diligence (CDD). Therefore, in case of violations, the authority will impose harsher fines.
Canada’s AML Measure to Combat Art Money Laundering
The Financial Action Task Force (FATF) highlights Canada’s luxury goods sector as providing space for criminals. It is also facing high risks of money laundering in the art and antique industry. This is why the Government of Canada, in accordance with the global anti-money laundering standards, mandates the art industry to subject buying and selling under the Proceeds of Crime Act.
To further ensure AML security in the art industry, Canada’s government made an amendment in 2019 to the Criminal Code. It mandates the art sector to employ effective risk-based AML solutions for the prevention of money laundering. As per the guidelines, the art industry needs to perform enhanced due diligence, risk assessment for high-value dealers, and report suspicious transactions.
US’s AML Measure to Combat Art money laundering
The US’s Anti-Money Laundering Act (AMLA), 2020 applies to the art industry the same way it does to the rest of financial institutions. AMLA became law in 2021 and mandates antiquities and art dealers to validate beneficial owners, keep records up-to-date, incorporate AML systems, and do audits.
After AMLA came into force in 2020, the US Treasury presented a report with the findings that the art industry facilitates money laundering. As per this report, the art industry needs to bring in effective solutions to ensure AML compliance. Furthermore, the dealers, buyers, auction houses, and other related affiliates should identify the buyer prior to confirming the purchase.
Criminals are never at rest and look for industries with lenient checks to carry out their malicious activities. After real estate, the art industry is serving as the playground for criminals to launder money. Therefore, the art industry requires robust digital onboarding solutions to ensure secure sales and purchases. Shufti Pro Funding indicates that they should establish effective AML compliance programs to prevent art money laundering.