The financial institutions and banking systems have become too volatile for criminals to manipulate them for their illicit financial flow. This is why they are turning to a market that does not bring much attention. The art and artwork industry is one such marketing that is being exploited by criminals to cleanse their illicit funds. The global financial regulators are becoming increasingly concerned over the misuse of this creative industry and are talking about anti-money laundering regulations. Let’s take a deep dive into money laundering in the art industry and the requirement of anti-money laundering checks.
The Art Industry
Investing in artwork ensures a higher return over time. The more antique the art is, the more valuable it becomes. According to a report, the art industry is becoming a hotbed for businesses to invest in. All sorts of wealth are being attracted to its legal and illegal money. COVID-19 has fuelled the trends in the art industry investments and along with ut, FinCrimes also increased.
Unfortunately, the industry has been a source of money laundering and terrorism funding for quite some time. As the regulators are more focused on strictly regulating the other businesses, criminals are turning towards the art industry for their criminal endeavours. The regulators have tried to impose the laws on the art industry but these laws are not loophole-free and criminals have found ways to exploit the industry for their personal gains.
The anonymity factor of the buyer and seller of the art is something that sets the art industry apart from other businesses. Now, most businesses are required to identify their clients. The art industry also allows private transactions and oversees accounts can be used for the transactions. Authenticating the buyer or seller is a concern but it is something that is avoided rather than addressed to. What makes the fraudulent activity easier is that the high-value of the art and yet the limited supply. Then there is limited control on the transactions and the parties involved can opt to have their information remain confidential. Another thing that enables criminals to exploit the industry is the use of proxies or intermediaries for transaction purposes.
How does Money Laundering Occur in the Art Industry?
Since the anonymity factor allow the art buyers to remain hidden and the art industry is not required to keep a record of all the art dealings, criminals can invest their illicit funds into buying art. Their income will not be questioned this way and art is valuable so a large sum is transferred into buying it. Once that is done, criminals transport the art piece to any freeport or a warehouse with high-security. The artwork is then stored there for some time without any risks. The most commonly known freeports are Singapore, Luxembourg and Switzerland as they do not interfere much in such activities. Another reason to keep the artwork in the warehouse is to avoid paying taxes.
After a few years, the criminals can resell the art and the money gotten from it are white money that can be deposited into the banks without any odd attention brought to it. Sometimes, criminals use it as collateral and take loans from the bank to invest in opportunities, as the money is now legal to be used in the financial system.
Many regulatory bodies are working towards applying anti-money laundering regulations in the art industry. Let us take a look at the anti-money laundering regulations.
Anti-Money Laundering to Secure Art dealings
In order to secure the art industry from criminal interference, it is important to have due diligence measures and anti-money laundering monitoring. The risk-based approach will allow the law enforcement authorities to track down the illicit funds back to their source. There are now AI-powered AML checks that can ensure safer art dealing within a few seconds. It helps to enable transparency measures by verifying the identity of the buyer of the art against the sanction lists and PEPs to ensure that they have no back-ground in any illicit activities. The anti-money laundering solution based on AI is robust and efficient that helps the industry to ensure safe dealings and authorities to eliminate the crime from the market altogether.