How art gets generated.

How Prevalent is Money Laundering in the Art World?


Hillel Nahmad

Hillel Nahmad

Federal raid on the Helly Nahmad Gallery in New York and a new book by a Brazilian judge point to a “big problem”
On 16 April, agents from the Federal Bureau of Investigation (FBI) raided the Helly Nahmad Gallery in New York and named its owner, Hillel “Helly” Nahmad  as one of 34 defendants in a case against members and associates of two related Russian-American organised-crime businesses that the FBI says “catered to millionaires and billionaires in the US, Russia and Ukraine”. Photo: AP Photo/Louis Lanzano

April’s federal charges against the New York dealer Helly Nahmad included that he worked “to launder tens of millions of dollars on behalf of the illegal gambling business.” While Nahmad has pleaded not guilty to all the charges in the indictment, the accusation raises the questions of whether (and if so why) art would be used in this way.

“Money laundering in the art world should be considered a big problem,” says Judge Fausto Martin De Sanctis, a federal judge who is releasing a book on the subject this month. In Money Laundering through Art: a Criminal Justice Perspective, he argues that international justice systems, regulatory bodies and police forces are inadequately equipped to detect and investigate such criminal activity. “Proceeds from various crimes can be easily laundered through the purchase of works of art thanks to a big loophole—a lack of awareness and regulation,” he says.

Art lends itself to money laundering because the market’s lack of transparency means art can become what De Sanctis calls an “invisible asset”. Values can be manipulated, and complex ownership schemes, with an emphasis on secrecy, are commonplace. “Art has the advantage of being portable and easy to store anonymously, and it can be bought and sold relatively anonymously in different parts of the world. Therefore, the art market has been, and continues to be, a target for money launderers,” says Pierre Valentin, a partner at the law firm Constantine Cannon.

The issue is clearly a sensitive one: most of the people we contacted did not want to comment. Many respected dealers say that this crime simply does not happen in their market. “I’ve honestly never heard of using art for money laundering,” says the New York-based Old Master dealer Richard Feigen. Thomas Gibson, a London dealer, says: “Personally, we have never been approached to launder money.” Mary Sabbatino, the managing director of New York’s Galerie Lelong, says: “When I read [about the Nahmad case in] the New York Times, I thought I must really work in a different art world”. James Roundell, a UK-based Old Master dealer and the chairman of the Society of London Art Dealers, says: “From what I’ve read, the Nahmad situation seems to be more of a gambling problem than a money-laundering one.”

A sense of perspective is in order, says the former federal agent Robert Wittman, who now runs a private consultancy. “Is art used to launder money? Sure it is. But the foundations of the art world are based on real collectors buying real art. Money laundering is part of the criminal underworld—it’s on the fringes.” Robert Storr, the dean of the Yale University School of Art, agrees. He says that, although there is opportunity, “not everybody becomes a crook. Suspecting the entire art world of massive fraud and larceny, as politicians are prone to do, is like suspecting every waiter at a five-star restaurant of stealing champagne and caviar or hogging tips.”

Others say that, although laundering money through art has been a problem in the past, it has largely been stamped out in mature markets. “We are much more aware of the issue now than we were 20 to 30 years ago,” Roundell says. “Around 20 years ago, people used to turn up with cash in suitcases to buy Old Masters and no one really cared,” says Philip Hoffman, the founder of the Fine Art Fund. There has since been “a big backlash”, he says, not least in the more institutionalised art fund business, where such practices are “99.9% avoided”.

Hoffman points to the practice of producing “Know Your Client” reports (known as KYCs), for which copies of passports and utility bills, and records of an investor’s source of money, need to be submitted. A spokesman for Christie’s says: “We have strict policies and procedures in place with regards [to] payments, including a global anti-money laundering programme.” According to its catalogues, Christie’s has a $7,500 limit on cash payments (Sotheby’s limit is $10,000 or the local currency equivalent). Although individual dealers do not need to undertake the same level of scrutiny, one New York dealer says: “The trade does enormous due diligence, and so do the banks when processing large transactions.” Despite this, says Sergey Skaterschikov, the founder of Skate’s Art Market Research, money laundering could still be an issue in developing art markets, such as those in China and Russia.

Others say that tax evasion, particularly using offshore accounts, could be more of an issue. This is “a consequential step for those who have decided to launder money”, Judge De Sanctis says. Pierre Valentin says: “One of the difficulties arising from the use of the phrase ‘money laundering’ is that it is used equally to characterise organised crime at an international level and a one-off tax offence committed by an individual. Most businesses will resist involvement in the former, but do they really care if a client pays taxes in his own country?” In most cases, however, “the issue is not just tax evasion but lack of understanding about taxes”, the cultural consultant András Szántó says.

Whether regulation could even monitor, let alone eradicate, illegal activity is debatable. Todd Levin, the director of Levin Art Group, an art advisory firm, says: “I don’t know how one would effectively regulate the art market. Financial markets supposedly had a regulatory framework in place to prevent systemic risk, and yet massive leveraging still caused one of the worst financial crises in more than 75 years.” Robert Wittman agrees. “The US Congress can’t even pass a background check for assault weapons—do you really think they’re going to be able to legislate the art industry?” he asks.

By Charlotte Burns and Melanie Gerlis. The News, Issue 246, May 2013, 13 May 2013

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