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Red tideLiverpool and the conquest of America— JANAN GANESH, PAGE 17
P
anic. Absolute bloody panic.”
A senior gallerist is describing
the first reaction of fellow
members of the Society of
London Art Dealers to new
regulations to combat money launder-
ing in the art market. I’m hardly sur-
prised: even after 15 years of covering
the art world as a journalist, I’m often
amazed by its peculiar codes and cus-
toms, still substantially based on rela-
tionships, private agreements and trust.
But this old-school way of doing things,
which provides a climate ripe for exploi-
tation by the unscrupulous, is under
challenge from the modern world.
There has long been concern over the
ease with which suspect funds can be
laundered through the buying and sell-
ing of art. Now, at last, we are seeing a
concerted attempt to get to grips with
the issue, which — even if welcomed by
most — has sparked resentment and
wariness. This almost unregulated sec-
tor doesn’t take easily or kindly to
attempts to legislate it. What we do not
know is whether the EU initiative — the
Fifth Anti-Money Laundering Directive,
which spread the net to include luxury
goods, property and the art market, and
which became law in the UK in January
— will prove equal to a problem some
have considered intractable.The art trade seems almost ridicu-
lously tailor-made for money launder-
ing — because of the value of some
pieces, because they are usually easily
portable, and most of all because of the
cult of secrecy that holds sway in the
sector. There’s nothing inherently$450m price tag, which appears to have
gone Awol. Since the market relies
heavily on advisers, agents and interme-
diaries, including foreign and offshore
companies, questions of ownership
become even more opaque.
What is not in doubt is the scale of the
problem. It’s almost impossible to find
reliable figures about shady money-
laundering activities, and few cases
actually make it to court. But Daniel
Bruce, chief executive of the anti-
corruption watchdog Transparency
International, last year described the
UK as a “safe haven” for money laun-
derers, especially in the “luxury” sec-
tors of art, property and other expen-
sive goods. British offshore tax havens
— Jersey, the British Virgin Islands and
other territories — allow extra secrecy
and opacity.
Transparency International esti-
mates that murky
transactions in
the UK art world
amount to many
billions. Scale that
up over the multi-
p l e n a t i o n s
i n v o l v e d i n
today’s art mar-
ket — many of
them far more
loosely regulated
than the western
countries — and
yo u w i l l h ave
some idea of the
size of the issue.
Two years ago,
the EU, stung intoaction by the Panama Papers revelations
of 2016, formulated the regulations that
sent shockwaves through the art world.
They mean that from now on, in the UK
and across the EU — and in some other
areas, such as Switzerland, that have vol-
untarily signed up — in any art transac-
tion worth more than €10,000 the pur-
chaser’s identity, address and other per-
sonal information have to be registered
by the seller: passport details and the lot,
just as if you were opening a bank
account. It even applies to existing cli-
ents of galleries. If the sale is to a com-
pany or other body, very full details are
needed — including the identity of the
ultimate beneficial owner.
In many sectors this might seem like
the kind of basic compliance that has
been conducted for years, and with the
same pretty fierce penalties for default-
ers. But in the secretive art world it has
landed like a bomb. Although the big
auction houses have been conducting
this sort of search for some time, Freya
Simms — chief executive of trade organ-
isation Lapada and a board member of
the Responsible Art Market Initiative
(Ram) — remembers her own auction
house days of the late 1990s, when eager
buyers might wheel in suitcases full of
cash. As that came under increasing
scrutiny, Francis Outred, a former sen-
ior director at Christie’s, recalls some
clients refusing to comply with requests
to disclose information — alarmed, per-
haps, by the repercussions of such dis-
closures, even behind the famously tight
secrecy wall of the auction houses.The big question is what effect the
newregulations will have on the mar-
ket, prices, artists and their work? The
art market has been almost indecently
buoyant at the top end. In the past few
years breathless auction rooms have
seen a Picasso sold for $179.4m, a Jeff
Koons “Rabbit” for $91.1m and a paint-
ing by Banksy that went for five times
its estimate. But how many of the top
players have been stoking these flames
with dirty money? And how many of
them will fade away, in the face of
increased regulation?
So far, most dealers seem worried
only about souring relationships with
their existing clients or discouraging
new ones. At Ram, Simms says the
emphasis is on preparation: lettingpotential buyers know what’s going to
be asked of them. Alistair Hicks, an
experienced dealer and curator, says:
“It’s the smaller galleries in the middle
that’ll be most affected. For bigger gal-
leries this is nothing new — interna-
tional dealers know the drill.” Besides,
as one gallerist put it at last month’s
London Art Fair — the first fair since the
regulations took hold — “The big galler-
ies always have ways of getting round
this sort of thing if they want to. That’s
one reason why they have established
offshoots in so many places.”
And of course that is quite right. An
art deal can be done anywhere: the pic-
ture or object in question doesn’t need
to be on the same continent, let alone in
the same room. Do your handshake inSingapore or Moscow. No problem. Or
shift your location. The creation of
“freeports” — tax-haven storage units
where art can be kept indefinitely, and
can be bought and sold without even
leaving the secure facility — makes the
layers of secrecy even more impenetra-
ble. Deals can be nigh-impossible to
track, and funds that derive from illegal
activities can be passed through a chain
of opaque transactions involving art to
launder the dirty money from such
operations. Since tighter regulations
were applied to Le Freeport in Luxem-
bourg, some clients, according to staff,
have taken their business away to free-
ports in Hong Kong or Shanghai.
Mark Stephens, a partner at law firm
Howard Kennedy and chairman of art-
ists’ rights body DACS, believes more
business may now take place outside the
EU as a result of tighter controls. “I can
see a boom in sales in freeports around
the world and jurisdictions that proba-
bly hold the money already and are not
going to impose the same obligations.”
That international dimension is what
makes legislating the art market so
hard. Even companies that specialise in
shipping art can be used as smoke-
screens. A young staffer at an artContinued on page 2Art in a spin
Cannew legislation drive money launderers from a sector that has thrived on
secrecy and doesn’t take kindly to attempts at controlling it?Jan Dalleyreports
Illustration by
Michelle Thompsonwrong with secretiveness; there can be
valid and innocent reasons for it. But
there’s clearly room for subterfuge. At
least 50 per cent of all art transactions
are entirely private and handshake
deals are still common; even in the auc-
tion houses, which appear to be so pub-
lic-facing, the price may be disclosed
but the identities of both buyer and
seller are often guarded to the grave.
Perhaps most significantly of all, there
is no registration of ownership of art-
works, as there is with shares or prop-
erty — we don’t know for certain where
even some of the most famous pictures
are held, or who in fact owns them. Take
Van Gogh’s “Sunflowers”, one version of
which sold in 1987 for a then spectacular
$39.9m to a Japanese buyer (or possibly
his company): does anyone know where
it is now? And the now infamous “Salv-
ator Mundi”, with its record-breakingAt least 50 per cent of all
art transactions are entirely
private and handshakedeals are still common
Paulo Abrão Pires Júnior, Brazil’s then justice secretary
in 2014, with a painting returned from the US— Getty ImagesFEBRUARY 22 2020 Section:Weekend Time: 20/2/2020 - 18: 42 User: paul.gould Page Name: WKD1, Part,Page,Edition: WKD, 1 , 1