Art part of the picture when it comes to money laundering

After 40 years in the art trade James O’Halloran has seen pretty much everything. But one thing he has not encountered lately is a customer trying to buy a work of art with a wad of banknotes, a sign that the money may be the proceeds of crime.

“It’s a long, long time since I’ve seen anybody bringing in cash of any consequence,” says O’Halloran, the managing director of Adam’s auctioneers in Dublin.

Dealers in fine art are always on guard against the theft of paintings, sculptures and antiquities. Now, however, hundreds of art traders, galleries and intermediaries have been warned to take measures against gangsters buying expensive artwork to launder money from drugs, conspiracies or terrorism.

This is the local part of an international drive to close off routes for criminals to use the private world of art dealing to shelter illicit funds.

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Sales in Irish art are estimated to be worth about €50 million per year, significant but small compared with global markets dominated by the US, UK and China. A report by Art Basel, which organises sales, and UBS bank estimates the world market was worth some $50.1 billion (€44.1bn) in 2020.

Such transactions are coming under increasing supervision as anti-money laundering rules developed for the banking system are extended to cover art trades that had little public scrutiny for generations and thrived on anonymity.

In line with an EU directive, new laws took force here last April to sharpen regulation of the high-value art market. As the regime beds down, the Department of Justice plans to intensify inspections of traders and intermediaries.

Officials in the department’s anti-money laundering unit have identified some 234 businesses trading in art. After authorised officers visited 10 dealers in the final quarter of last year, they plan twice as many inspections this year.

”In 2022 the unit will carry out a review of all art trader and art intermediary inspection findings to better understand and assess the risks in this sector,” the department said. “When these risk become more apparent ongoing compliance inspections will be carried out using a risk-based approach, with inspections focused on those entities presenting a higher money laundering and terrorist financing risk.”

Public oversight

For some in the polite world of art dealing, intrusive public oversight is already a fact a life. Auction houses, for example, cannot operate without a licence from the Property Services Regulatory Authority, a State body whose anti-money laundering powers include the right to carry out investigations and regular audits. But the new regime – stemming from the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 – covers art dealers and galleries that are not subject to PSRA supervision.

“It’s drawing more people into the net,” says O’Halloran, whose business is already overseen by the PSRA.

“The requirements are becoming more onerous.”

Art has long been used in international crime to bring illicit money into the legitimate economy via a process known as layering, which is the distancing of illegal funds from their source. Such objectives can be achieved by adding layers of transactions involving a work of art to cut links with the original crime and to thwart the audit trail.

Two factors help criminals to shelter money via art and move wealth around. First, high valuations mean individual works can fetch millions of euro. Second, the fact that the art market often operates in secret provides openings.

American criminals have dealt in work by Pierre-Auguste Renoir, Pablo Picasso and Salvador Dalí – and Russian oligarchs targeted by sanctions over the annexation of Crimea have been accused of using high-value art transactions to evade penalties.

The art market has been cast as the “largest, legal unregulated industry” by Washington politicians.

“Secrecy, anonymity, and a lack of regulation create an environment ripe for laundering money and evading sanctions,” said a report in 2020 by the US Senate permanent subcommittee on investigations. “Tracing the ownership of anonymous shell companies, including those involved in high-value art transactions, is difficult.”

Irish criminals are as violent and unscrupulous as bloodthirsty gangsters elsewhere – and four art robberies over decades from Russborough House, Co Wicklow, show that valuable paintings can be vulnerable to theft. Gardaí say, however, that art is less likely to be used in Ireland to launder money than cars, houses and jewellery.

“I’m not aware of us ever seizing that sort of asset. But look, you can be damn sure they’re doing it. But it hasn’t come on our radar,” says a senior Garda source.

Obligations

Still, Irish art dealers have been put on notice that that stringent new laws now apply and that they must take measures to ensure their business is not being used by criminals with tainted cash.

Justice officials made contact in November with businesses covered by the regime, inviting them to a December webinar in which they were told of mandatory obligations to report any suspicious transactions to the Garda financial intelligence unit and the Revenue. These include “unusually large” deals or “unusual patterns of transactions which seem to have no apparent or obvious economic or lawful purpose”.

Clodagh White, detective sergeant with the financial intelligence unit, told the webinar that drug cartels and organised crime groups use art and antiquities to finance themselves.

“We’re talking about high-value goods, high-value pieces of art which are very tangible, that can be easily sold and transported across borders,” she said on the webinar.

“This is all part of the layering process and the laundering process where they’re converting the proceeds of crime – which in some cases may be cash – into an asset which can then be sold on, and it’s all about infiltrating the legal economy and making it look as if these pieces of art were purchased with legitimate funds.”

O’Halloran said the requirements under the new regime are serious.

“Even if you were naïve and you found yourself on the wrong side of a report about something that happened in relation to [the Criminal Assets Bureau] discovering things, that’s not the kind of thing that lends a huge amount of confidence to an outfit in the outer world,” he says.

“Ultimately the legitimate business doesn’t want to have anything to do with people who are even considered suspiciously. You just don’t want to know: ‘I’m not doing time for you’.”