Countries with weak AML regulation and opacity in the market always attract criminals to commit money laundering and financial crimes. Among these businesses, the Art Market has been a growing concern for regulatory bodies because criminals use it to evade sanctions and move money from one jurisdiction to another.
Though regulatory bodies, local governments, and international organizations have already implemented tough measures and are still making efforts to make the screening process stricter, the nature of this business makes it quite difficult for them to mitigate money laundering activities in the art market.
Despite the strict rules and regulations, how do the criminals make it easy to use that billion-dollar market for their illicit activities? The subjective nature of the art market ambiguity in the product valuation and the intensive use of cash transactions in this industry makes it quite difficult for institutions to detect the criminal activities behind it.
This blog will discuss the regulations being implemented worldwide and the art market’s future, including the challenges and opportunities.
Understanding money laundering in the art market
Ambiguity in the valuation of art products and heavy cash involvement in art transactions make the art market prone to money laundering and other financial crimes. Art and NFTs also work with different regulations and rules, making it challenging for agencies to navigate the real threats due to different laws in different jurisdictions.
The art market structure does not compete with regulation, which makes it easy for criminals to launder money.
Using shell companies for art purchases and transactions is the main tactic to commit money laundering crimes without detection.
Key International AML Regulations Targeting the Art Market
The art market is valued at approximately 50 billion dollars. This huge amount also poses the growing risks of money laundering and tax evasion in this market. Therefore, various governments and international organizations have introduced a series of AML regulations to combat the involvement of illegal activities in the art market.
- The Financial Action Task Force (FATF) Recommendations
The Financial Action Task Force (FATF) is a global watchdog that closely monitors countries and businesses more prone to money laundering.
The art market is one of them. Thus, FATF, in their investigations, has identified that the art market is a higher-risk business to fall into money laundering activities.
So, FATF provides detailed recommendations to encourage countries and firms to strictly apply those AML regulations owing to their vulnerability to money laundering, including the scrutiny of dealers, buyers, and auction houses.
- The United State’s Bank Secrecy Act (BSA)
All businesses in the USA jurisdiction must follow the stringent AML protocols the Bank Secrecy Act sets. Before 2021, the Art market was not included in the BSA’s scope but in 2021, the Corporate Transparency Act bill was passed, now all the art market businesses are required to follow greater transparency in the ownership of businesses.
The act is not limited here. The BSA legislators are also considering further measures that could bring art dealers under more direct AML scrutiny.
- The European Union Directives
The EU has introduced a series of directives to combat money laundering and other financial organizations. However, the 5th AML Directive included art dealers and auction houses under its scope. Under the 5th AML Directive, companies and auction houses must implement strict know-your-customer practices on every transaction exceeding the 10,000 threshold.
The body did not stop here; their latest 6th Anti-Money Laundering Directive (AMLD6) further strengthened the scope of the art market, which is required to perform the art market screening to follow the comprehensive compliance of the art market.
- The United Kingdom
The United Kingdom was part of the EU until 2019, so even after Brexit, the British government still followed EU regulations for AML compliance. The UK has one of the largest art markets in the world, so it must adhere to strict Know Your Customer practices as part of AMLD5.
The Proceeds of Crime Act is another addition to such regulation that plays a key role, focusing on recovering the proceeds of illegal activities, including those laundered through art.
- Other Global Efforts
There are many other regulations related to the art market, and countries like Switzerland, which is also a hub for free ports where valuable art is stored, and Singapore, which is the next big thing in the art market, are also making sure they are following the strict AML regulations.
