The U.S. Treasury Department has released a new report on findings related to the illicit activity in the high-end art market. The department found that while the $50 billion industry is vulnerable to various financial abuses such as money laundering, other regulatory issues are higher priority. The study concluded that further government regulations are not immediately necessary.
The sector of the market most vulnerable to illicit art-related dealings is businesses offering financial services, which are not legally bound to any anti-laundering or countering terrorism standards, the report said. Meanwhile, art collateral lending “can be used to disguise the original source of funds and provide liquidity to criminals,” according to the report. The Treasury also found that smaller galleries and museums, which transact at a lower price point and volume, were less vulnerable to illegal activities than larger vendors like auction houses.
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Terror financing, an illegal trade by which funds are channeled to terrorists groups, is “an area of lower lower risk” in the art market, perhaps because of the vast geographical distance between global art market hubs and regions where terrorism is most active. There have been a few cases of such financing identified in countries like Lebanon and the Democratic Republic of Congo, but there was “limited evidence” of connections between terrorists and the uppermost echelons of the art market.
The Treasury made note of several documented instances where art was used by international actors such as Russian oligarchs to Nigerian state officials to launder money and evade government sanctions. Describing art as a “highly mobile” asset class, the study said these cases have demonstrated ways that valuable art works can act as vehicles for international transactions to go undetected between countries.
A senior Treasury official who oversaw the study, Scott Rembrandt, said in a statement that “larger underlying issues at play” within the art market’s network—such as financial services providers being complicit in clients’ illegal activities and the abuse of shell companies to obscure transactions from oversight—are of more immediate concern for the U.S. government. Policies elsewhere in the world have placed an emphasis on vetting individual activity in the trade as well. A new law in the U.K. instated in 2020 requires dealers and auction houses to identify their buyers and sellers, whose sources of wealth now must be vetted in advance of transactions.
The U.S. agency recommended that in order to mitigate financial abuse in the art market in the future, a system for financial firms and art vendors to share information on suspect clients could be potential remedy. The study proposed a database among businesses that links unusual user activity to art transactions. According to Rembrandt, while some bad actors have abused areas of the high-end art market, the study found these risks “may not rise to a critical national-security-level threat or vulnerability.”
Source: artnews.com