The Art of Money Laundering
06 Sep 2019

Matthew Green was raised in the heady world of fine arts, surrounded from boyhood by the works of Old Masters and Impressionists. His father, Richard, the owner of two of London’s most illustrious galleries, dealt in legendary names like Picasso, Constable, Chagall, and Brueghel. Matthew Green, 51, was preparing to take over the family business so his father could pursue new passions.

But in late 2017, US prosecutors say, Green fell in with the owners of a Mauritius-based investment company, Beaufort Securities, that engaged in fraud, stock manipulation, and money laundering. For Beaufort’s owners, duping investors into buying worthless securities was the easy part. The hard part was making the ill-gotten profit appear legitimate to regulators. Beaufort had done so in the past by depositing money under false names in offshore banks, then slipping it into the global banking system little by little. The company had also used the time-tested trick of buying real estate and quickly selling it off, often at a loss, to convert illegal proceeds into assets that could be accounted for as the fruit of a property deal.

Now, money launderers like Beaufort were searching for less obvious ways to scrub their cash, and Matthew Green knew how to trade in multimillion-dollar works of art. Approached in late 2017 by the Beaufort conspirators—one of whom was in fact an undercover US federal agent who had infiltrated Beaufort—Green allegedly said he would accept £6.7 million (about $9 million at the time) in what he knew to be the yield of securities fraud in exchange for a 1965 Picasso, Personnages. Green would draw up phony ownership papers saying the work had been sold, all the while keeping the Picasso stored away. Down the road he would pretend to buy it back from his coconspirators at a lower price, keeping 5 to 10 percent of the laundered cash for himself.

“Art is a very attractive vehicle to launder money,” says Peter B. Hardy, a former US prosecutor who now advises corporations and industries on compliance with anti-money-laundering requirements. “It can be hidden or smuggled, transactions often are private, and prices can be subjective and manipulated—and extremely high.”

After a slew of recent cases in the United States and Europe, the momentum toward a crackdown on illicit art and antiquities deals is growing. The legitimate art market is itself enormous—estimated at $67.4 billion worldwide at the end of 2018. According to the United Nations Office on Drugs and Crime, the underground art market, which includes thefts, fakes, illegal imports, and organized looting, may bring in as much as $6 billion annually. The portion attributed to money laundering and other financial crimes is in the $3 billion range.

For Green, dabbling in the dark art of money laundering has ended poorly. He has been indicted in the United States on six counts of attempted money laundering, and his gallery in the Mayfair district of London has been declared insolvent by British regulators. Although Green has not been identified as a fugitive, court records indicate that US prosecutors have disclosed his indictment and arrest warrant to law enforcement agencies in the United Kingdom, Hungary, Saint Vincent and the Grenadines, and Mauritius. He has also been ordered to surrender the Picasso.

The tactics used by Green and the others charged in the Picasso scheme remain easy to replicate, at least for now. Green was taking advantage of a regulatory loophole that US and European legislators are working hard to close. Unlike banks, life insurance companies, casinos, currency exchangers, and even precious-metals dealers, auction houses, and art sellers have no obligation to report large cash transactions to a governing authority. In fact, dealers can keep the names of buyers and sellers anonymous. And unlike US businesses that deal in large sums of money, they do not have to file so-called suspicious activity reports with the US Treasury Department if they have doubts about the origins of the money they are being paid.

Bill in Congress

Under the Illicit Art and Antiquities Trafficking Prevention Act under consideration in Congress, the US government would require “dealers in art and antiquities” to establish anti-money-laundering programs, keep records of cash purchases, and report suspicious activity and transactions exceeding $10,000 to federal regulators. In addition, the art industry would be required to look into a client’s background and examine purchases and sales for evidence that the money might be tainted.

In the European Union, under its Fifth Anti-Money Laundering Directive, art businesses would be obliged to augment efforts to vet customers and to discern “as far as reasonably possible” the purpose of all large, unusually complex, or secretive transactions.

In the view of many art dealers, the legal changes in both the United States and the European Union would strip the vendors of a major selling point—the ability to offer anonymity to clients and preserve the opacity of the art market. In years past, when the fine arts market was seen as a more genteel pursuit, there was no real inclination by the authorities to police it as strenuously as the banking or brokerage trades. All that has changed in the past decade or so because of the enormous amounts of money pouring into art collecting and the growing focus on stymieing the clandestine trafficking in looted and smuggled artifacts from war-torn nations.

Law enforcement officials and even some art merchants now say that excessive secrecy has become a drawback because more and more money launderers have discovered that the art market can be used as an easy conduit. As noted by the FBI and Interpol, “in comparison with other trade sectors, the art market faces a higher risk of exposure to dubious financial practices” because “the volume of legally questionable transactions is noticeably higher than in other global markets.”

The indictment filed against Matthew Green and his confederates even recounts a conversation, tape-recorded by an undercover agent, in which Green allegedly crows that “the art trade is the only market that is this unregulated.” A client “could even buy the art under a false name with no repercussions,” Green is quoted as saying.

“More cases involving artwork and money laundering undoubtedly would be uncovered by law enforcement if art and antiquities dealers were added to the list of businesses legally liable for reporting suspect payments,” says Rick St. Hilaire, a former US prosecutor and an expert on art and antiquities law. “For now, it’s wide open.”

By Tom Mashberg, Finance & Development, September 2019

Read more at the International Monetary Fund

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One Response to “The Art of Money Laundering”

September 6, 2019

very interesting article

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