Keeping art safe from crime

It was yet another record: In October 2021, a good three years after being partially destroyed, the half-shredded Banksy artwork “Love is in the Bin” sold for 16 million pounds at Sotheby’s in London – the highest sum the artist’s work has ever fetched at auction. And yet this is only a fraction of the amount that Leonardo da Vinci’s “Salvator Mundi” changed hands for at Christie’s in 2017: Its selling price at the time was over 450 million U.S. dollars. The international art market is booming, with global sales of paintings, sculptures and other artwork totaling around 64.1 billion euros in 2019. But in contrast to the financial market, the art market remained largely unregulated for many years, making it susceptible to money laundering. Hardly anyone asked where the money for the artwork came from, and there was a tendency to keep quiet about the identities of buyers and sellers.

The global art market is dominated by three countries: China, the USA and the United Kingdom. At least in the latter, things have now changed. In January 2020, the UK – along with all member states of the European Union – enacted amended legislation based on the fifth EU Money Laundering Directive concerning the tracing of profits from serious crimes. This new anti-money laundering legislation now also places increased obligations on art dealers, gallery owners, auction houses and art warehouse owners to play their part in combating money laundering and terrorist financing.

Art dealers and brokers are required to implement comprehensive risk management procedures. Not only do they have to develop procedural guidelines and internal policies to prevent money laundering, they must also provide regular compliance training and conduct background checks on their employees. And it doesn’t end there. If mandated by the relevant regulatory authority, they must also appoint an anti-money laundering officer. Moreover, they are required to assess customer, product and transaction risk in their day-to-day business. This risk analysis must be documented and regularly reviewed. Suspected cases of money laundering have to be reported to the relevant customs and tax authorities – as must any transaction whose value exceeds 10,000 euros, no matter whether the money is paid in one go or in installments, in cash or digitally. In addition, there is an obligation to identify business partners. What this means in practice is that identification data must be recorded and kept on file for a period of five years. In the case of transactions with companies, the beneficial owner must be identified via the commercial register or the transparency register.

Knowing who you are doing business with means you have already fulfilled much of the due diligence required by the Money Laundering Act. The KYC and AML solutions available from Pythagoras are a convenient and reliable way to meet all regulatory requirements. Art dealers and brokers thus have their minds free to take care of their core business.