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Saturday, February 22, 2020

The Artistic Mind of a Criminal

I used to have a client who is a professor when it comes to art, paintings and antiques. He paints one portrait and makes millions out of it and that really fascinated me so much that I started doing some research into the Art, paintings and antiques industry. I discovered that the painting industry in Ghana is very small and young but elsewhere in the world, it is a huge industry which contributes significantly to the economy of these countries. The USA economy in 2014 and 2015 benefited US$730 billion and US$763.6 billion respectively from the Art, Paintings and Antiques sector(1). US$12 billion (£9.2 billion) was contributed to the UK GDP in 2016 from the Art and Painting sector(2) with Singapore’s Art and Painting contributing S$2.13 billion to the GDP in 2013(3).


The traditional vehicles for laundering dirty money have now become less attractive, forcing criminals who want to launder large sum of money to move into the art and painting industry. Further, because there are increased regulations in the other industries, the art industry has provided an attractive avenue to wash the dirty money of criminals.

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Arts and paintings are attractive vehicle, being used to launder money, as they can be hidden or smuggled. Artwork, painting and/ or antique generates high equity based on its own intrinsic dynamics which is subjective based on multiple factors such as fashions, trends, culture, expectations of increased valuation, limited editions, and supply and demand. Transactions involving arts and paintings are often private, and prices can be subjective and manipulated as well as extremely high.


The secretive nature of the transactions involving arts and paintings makes the industry very vulnerable to money laundering and terrorist financing. Once purchased, the art and/ or paintings can disappear from view for years, even decades. A lot of the art bought at auctions goes to Freeports, ultra-secure warehouses for the collections of millionaires and billionaires, ranging from Picassos and gold to vintage Ferraris and fine wine. The Freeports, which exist in Switzerland, Luxembourg and Singapore, offer a variety of tax advantages because the goods stored in them are technically in transit. The Economist magazine reported that the Freeport near the Geneva airport alone is thought to hold $100 billion (U.S.) of art. The art and/ or paintings stored at the Freeport can be sold privately and anonymously to other buyers. The art and/ or paintings sold need not leave the warehouse after the private sale is completed. Information on beneficial ownership is not captured, even though custom officials of countries have access to the list of inventories at the Freeport, making its vulnerability to be high.

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Criminals are shifting attention to the art industry as a means of washing dirty money as the logistics of transporting the art, paintings and/or antiques across borders is easy. The criminal buys the art from an art gallery with the dirty money and transport it to another country to be sold for clean money.


As the sayings goes, the value of an artwork, paintings and/ or antique is in the eyes of the beholder and this makes the industry vulnerable to money laundering and terrorist financing. There is no universal standard for measuring the value of art or paintings which causes people to wonder, “What determines the value of art?” This leaves room for manipulation and fraud.

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Dealers in the art, paintings and antique industry should be extra diligent to identify the following red flags and report any suspicious transaction and/ or behavior to the appropriate authorities (financial Intelligence Units/ Centers):

  • The customer is evasive or reluctant to provide adequate information relating to their identity and/or property or provides information which appears to be false;
  • When the customer insists on paying in cash or anonymous credit, prepaid or debit cards;
  • Customer is interested in the procedures for reporting suspicious activity and/ or financial matters to tax authorities;
  • Customers knowingly wishes to sell at an artificially low or inflated price;
  • The individual lives, operates or banks in a higher risk jurisdiction such as countries where drug trafficking, terrorism and/ or corruption are prevalent or where tax and money laundering regulations are less stringent.
  • The individual is Politically Exposed Person (PEP) or a close associate of a PEP;
  • Complicated structures for achieving a purchase or sale;
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Of course, certain countries already impose AML regulations on the art, paintings and antique world as a way of fighting money laundering and terrorist financing in the industry. Government(s) must implement the 5th Anti-Money Laundering directive, even though it is meant for EU member states, which in part expands its coverage of “obliged entities” to persons trading in art, acting as intermediaries in the trade of art, or storing art in freeports, if the value of the transaction or a group of linked transactions is more than a certain limit.


Another way to ensure that criminals don’t use the art world to wash their dirty money is to institute Know Your Customer (KYC) principles. That is, customer due diligent need to be done on all art, paintings and antique items and personal details of both the seller and buyer recorded, not forgetting intermediaries such as art advisors or brokers. This means establishing a client’s risk profile which will require an art, painting and/ or antique business to obtain information on the client; understand the purpose and intended nature of the transaction; and understand the client’s source of wealth and how the art, paintings and/ or antique collections were obtained. Also the revised Bank of Ghana (BoG) and Financial Intelligence Centre (FIC) guidelines on Anti- Money Laundering and Terrorist financing stresses the need to identify beneficial ownership, even if the contracting client raises confidentiality concerns.


To make the art world safe of money laundering and terrorist financing activities, there is the need to establish an artwork’s provenance history and authenticity where catalogue or sale documents of artwork are published. Also artworks need to be checked against major databases of stolen and looted art. The following documents, invoices, receipts, dated photographs, insurance records, valuations, official records, exhibition catalogues, invoices for restoration work, diaries, dated newspaper articles, original signed and dated letters, will be helpful in establishing ownership and provenance must be available and verified.

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Training, education and/ or awareness creation about how the arts, painting and antique industry could be used as a conduit for washing ill-gotten money, will go a long way in the fight against money laundering in this industry. The government and the media should make cautious efforts to educate the public on the menace of money laundering and terrorist financing. Companies should include anti money laundering/ combating terrorist financing in their annual training budget.

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For the fight against money laundering and terrorist financing in the arts industry to be won, players in the industry must maintain adequate records of their due diligence efforts. All documents issued in connection with the art and/or antique transaction (such as valuations, sale and purchase agreements, invoices, shipping documents, import/ export declarations) should be true and accurate and represent the honestly held professional opinions of the Art Industry. On the other hand, dealers and brokers should refuse all requests from clients to alter, back date, falsify or otherwise provide incomplete or misleading documentation or information relating to a transaction. If there are legitimate reasons for altering the document, the circumstances and justification should be fully documented and retained on file for future reference and audit.


Trying to regulate the art industry will be a very difficult thing to do but by implementing the above recommendation will go a long way to fight criminals from using the industry to wash their dirty money.


Would you mind doing me a favor? Share this article with someone so that the awareness of money laundering and terrorist financing could be spread to avoid being use as a conduit by criminals.


By Richieson Gyeni-Boateng, CAMS

If you require further information on this article, please contact Richieson @richieson.gyeniboateng@gmail.com



(3) https://www.todayonline.com/singapore/building-singapores-creative-industry

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