June 30, 2021 Andrew Tarpey



When discussing works of fine art, some of the associations that may come to mind are cultural museums displaying the great works of Van Gogh and Picasso, or perhaps wealthy individuals with private collections who are willing to shell out large sums of money to land a prized masterpiece at auction.  However, the criminal underworld has been able to infiltrate the art world and use it for its own nefarious purpose: as a tool for money laundering.  According to an analysis of art sales by The Art Basel and UBS Global Art Market Report, global sales of art exceeded $50 billion in 2020.  While its unclear how much of this total stemmed from money launderers looking to hide their ill-gotten gains in artwork, governments are examining the issue and authorities have started tightening regulations on sales of art to prevent criminals from using the art world in this way.


In 2015, Pennsylvania resident Ronald Belciano was convicted of conspiracy to distribute marijuana and conspiracy to commit money laundering in relation to a marijuana production and distribution network that he oversaw.  He was sentenced to more than five years in federal prison and four years of supervised release.  When authorities who were investigating Belciano obtained a search warrant and raided the home of Belciano and a co-conspirator, they found items that are common to many drug raids, namely large amounts of cash (over $2.5 million in U.S. currency) and drugs (68 kilograms of marijuana).  However, during their search of the property, they also uncovered items not normally associated with the drug trade – 59 paintings worth over $619,000, including pieces from Renoir and Picasso.  In a related case, Philadelphia art dealer Nathan Isen, who sold the 59 works of art to Belciano,  pled guilty to a charge of money laundering and received three years of probation and a $15,000 fine.  After Belciano cooperated with authorities and identified Isen as the dealer who supplied him with the art, federal agents began looking into Isen and his complicity in the laundering of Belciano’s drug money.  An undercover agent posing as a drug dealer entered Isen’s gallery with cash that smelled of marijuana and indicated that the money was from her drug-dealing boyfriend, who kept the money in the same place as the marijuana he sold.  Isen offered to keep her name off invoices and turned a blind eye to the fact that the money stemmed from illegal means.


A more notable case with international intrigue involves the painting Hannibal by American artist Jean Michel Basquiat.  Hannibal, a 1982 work, belonged to Edemar Cid Ferreira, the former head of Brazilian bank Banco Santos.  In 2006, Ferreira was convicted of various financial crimes including fraud, tax evasion and money laundering after the collapse and bankruptcy of Banco Santos in 2005.  He was sentenced to 21 years in prison, and as part of the case, a judge ordered that Ferreira’s assets which had been illegally obtained with funds from Banco Santos, including the Basquiat painting, should be seized.  However, Ferreira and his associates were one step ahead of the Brazilian authorities and shipped Hannibal, along with other valuable works, to a storage facility in New York with a customs form that stated the contents were worth $100.  The Brazilian government asked for the help of the United States in locating the art, and in 2007 federal agents tracked down and seized the Basquiat work.  After years of litigation, it was returned to Brazil in 2015, and was subsequently sold at a London auction for $13.1 million.


The Belciano, Isen and Ferreira cases aren’t unique, and for good reason: art is an attractive way for criminals to launder money.  There has always been a great deal of secrecy with purchases of fine art, and art transactions have always been subject to less regulation than other high value purchases, such as real estate or stocks.  This secrecy is a money launderer’s best friend, as it allows them to fly under the radar and see their illicitly derived funds become invested in assets which hide their criminal origin.  Money laundering is the process by which funds obtained through illegal means, such as drug dealing, theft or fraud, are “cleaned” by being introduced into the financial system in some way, such as a deposit to a bank or investment account, or the paying off of a loan.  The purchase of artwork, through its anonymity and mystique, traditionally hasn’t had the same paper trail as these other transactions, which makes it a great way to hide the money’s origins.  Also, art is one of those items that most people love and that transcends cultures; thus, there can be a very large market for some pieces of fine art and people will be willing to pay a great deal of money for them.


However, regulators are starting to get wise to the lure that art can have for money launderers and are taking steps to combat it.  In 2018, the European Union issued its 5th Anti-Money Laundering Directive, which is a legislative act that offered guidance to European Union member states in order to enhance and strengthen their anti-money laundering laws.  Part of this directive stated that art auction houses, galleries, dealers and certain art storage facilities are subject to anti-money laundering regulations and would need to take steps such as identifying the buyers and sellers of art when the transaction exceeds €10,000, reporting suspicious transactions to authorities, and registering with the government regulator.  Such regulations are foreign to most of the art world, which has gone largely unregulated throughout most of its existence and has always involved anonymous buyers and sellers and shoddy recordkeeping.  This European Union directive aims to bring more transparency to the sale and purchase of art and reduce the ability of criminals to use the industry to launder their illegally derived funds.  Art dealers aren’t subject to the same regulations in the United States, but that may change soon.  In January 2021, Congress enacted the Anti-Money Laundering Act of 2020 as part of a larger bill.  Part of this law states that U.S. anti-money laundering regulations shall apply to “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.”  There was no strict definition as to what defines an antiquities dealer and whether it applies to all those involved in art transactions, but the law gave the U.S. Treasury Department until December 2021 to provide specifics on who would be subject to these regulations.  Those in the U.S. art market are expecting that, sooner or later, anti-money laundering regulations will apply to them, and the concern is that this could place an undue burden on smaller, less lucrative art dealers who will have to deal with expensive, time-consuming compliance regulations.  However, until the federal government establishes definitive guidelines, how much of a burden that is remains to be seen.

If you have any questions about this article or simply wish to enquire about offshore asset protection, please contact us.

Andrew Tarpey

Andrew Tarpey is Southpac's Compliance Officer. He is responsible for ensuring AML and financial best practice is followed throughout the business.
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