Colorado's Museums, Art Galleries, and Artists
|
HR 5886, the Illicit Art & Trafficking Prevention Act may be reintroduced to Congress
Critics say the proposed law, which stalled following the U.S. mid-term elections, would place an unnecessary burden on art dealers.
Image: Parthenon Frieze
The Illicit Art and Antiquities Trafficking Prevention Act (HR 5886,) proposed in the U.S. Congress last year, is now in limbo after last November’s mid-term elections. However, it could be reintroduced to the new Congress sometime this year, amid a recent rise in anti-money-laundering initiatives worldwide.
German police raided Deutsche Bank's headquarters in Frankfurt as part of an investigation into the lender's association with criminals laundering money through offshore tax havens, stemming from information in the Panama Papers and Offshore Leaks documents. The UK parliament suddenly suspended new applications of the tier 1 visas for investors due to corruption fears. Known as the “golden visa,” the scheme provided fast-tracked settlement for people willing to invest millions in the UK but was criticized for providing the super-rich with an easy way to launder stolen wealth. New rules to be announced this year will require applicants to provide comprehensive audits of their financial interests.
The initial introduction of HR 5886 in the U.S. came on the heels of the European Parliament’s fifth Anti-Money-Laundering directive which applies to all businesses selling works of art with transactions of $10,000 or more, irrespective of the payment method. Similarly, HR 5886 would apply the Bank Secrecy Act (BSA) to the art and antiquities market in order to curb money laundering. Dealers would be required to report transactions exceeding $10,000.
The bill would also force those who sell at least $50,000 worth of goods in a year to submit their financial records to the US government. But whether money laundering is prevalent enough within the industry to justify the regulatory burden it could place on dealers has become a point of contention, with some in the trade questioning who the legislation ultimately benefits.
There’s an incredible challenge in respect to regulating the art business, says Andrew Schoelkopf, the president of the Art Dealers Association of America (ADAA) is that, “those who seek to regulate it have a poor understanding of how the business actually functions.” He argues that money laundering is simply not something that’s pervasive in the art market.
Image: Poseidon Sculpture
The United Nations Office on Drugs and Crime (UNODC) estimates laundered funds to account for $800 billion to $2 trillion of the global GDP annually, but there is no clear data illustrating the scope of money laundering within the art market. Like many high-value assets, art can ostensibly be used to “wash” dirty money, that is, profits gained illegally, often via the sale of drugs or weapons but also through such activities as embezzlement, insider trading, and illegal gambling. These assets can then be traded or used as collateral, effectively removing the criminal stain from the dirty money.
The art industry is an attractive marketplace for such activity for two main reasons. First, it is growing at a rapid rate; the U.S. is the world’s largest art market, valued at $26.6 billion and accounting for 42% of the global total of $63.7 billion in 2018. A study recently conducted by Deloitte predicts that art and collectible wealth held by ultra-high-net-worth individuals will grow from an estimated $1.62 trillion in 2016 to $2.7 trillion in 2026.
Second, the art market is notoriously inscrutable, the price of a work of art is more subjective and therefore more volatile than that of many other commodities. James McAndrew, a former specialist at U.S. Customs and the Department of Homeland Security (DHS) and a forensic specialist in international art trade, says, “it is for that same reason that money laundering is less of an issue in reality than it is in theory. Art is highly illiquid and difficult to sell. When it comes to high-priced works of art, especially those sold through legitimate dealers and auction houses, it is even harder to fudge the funds. It’s like buying a house. You want a clear title.”