- Art and Antiquities
- 5th AMLD
- German Bundestag Document 19/13827
- German GwG
- BMF First National Risk Assessment 2018/2019
- German FIU
Art and Antiquities
The art and antiquities market, a realm where culture and commerce intertwine, has increasingly become a focal point for regulatory scrutiny due to its vulnerability to money laundering and terrorist financing.
With the implementation of the 5th Anti-Money Laundering Directive (AMLD) by the European Union and the stringent regulations set forth by the German Government, the spotlight is on ensuring transparency and due diligence within this sector.
These regulations mandate the identification of beneficial owners and extend anti-money laundering obligations to art brokers, auction houses, and storage providers, particularly for transactions exceeding €10,000.
The German Federal Ministry of Finance’s „First National Risk Assessment 2018/2019“ further underscores the necessity for vigilance, highlighting red flags such as suspicious payment methods, inconsistent pricing, and unclear provenance of artworks. The involvement of third parties without clear justification and the storage of art collections in free zones or bonded warehouses are also areas of concern.
For stakeholders in the art market, from galleries and auction houses to collectors and investors, understanding and complying with these regulations is paramount. Recognizing the red flags can not only prevent legal repercussions but also safeguard the integrity of the art and cultural heritage being traded.
This comprehensive approach to mitigating money laundering risks in the art and antiquities market reflects a growing awareness of the sector’s unique challenges. By fostering a culture of compliance and transparency, the art world can continue to thrive while ensuring it is not misused for illicit purposes.
The FATF report on money laundering and terrorist financing in the art and antiquities market identifies the sector’s vulnerabilities, including the use of high-value and easily transportable cultural objects to hide or transfer illicit funds. It highlights the challenges in tracing object origins, the sector’s privacy culture, and the use of intermediaries that can obscure transactions. The report suggests mitigating these risks through regulatory actions, specialized units, and improved cross-border cooperation, emphasizing the importance of understanding specific risks and implementing best practices for rapid identification and tracing of involved cultural objects.
The FATF report lists risk indicators in the art and antiquities market, such as using intermediaries like art dealers or shell companies for transactions, cash payments, especially with large banknotes, and sales involving unusually high profits or prices beyond the item’s expected value. Other indicators include lack of interest in an item’s provenance, reluctance to provide ID for loans, and transactions involving known traffickers or politically exposed persons. These indicators help in identifying potential money laundering or terrorist financing activities.
- Use of shell companies, trusts, or third-party intermediaries, including art dealers, brokers, advisers, or interior designers, to purchase, hold, or sell cultural objects.
- Cash transactions, in particular using large bulks of cash.
- Use of large-denomination banknotes (e.g., the EUR 500 banknote in the EU).
- Unusually high profit margins on the sale of an item of art, antiquity or other cultural objects.
- Sales or purchases of items involving sellers who are not concerned with recouping their initial investments.
- Sales or purchases of art vastly or routinely exceeding the expected sales value of the work.
- Sales or purchases of art involving purchasers who do not appear to be concerned with paying a substantially higher price than the notional value of the work.
- Sales or purchases of art where a client is not familiar with, or interested in, the provenance, history, style, genre, or artist of an object.
- Unwillingness of a customer to provide identification information to receive an art-collateralized loan, or early repayment or use of cash to pay such a loan.
- Imported or exported items not declared to the relevant customs administration(s).
- Purchase or termination of insurance policies to protect the market value or provide cash payments for the loss, theft, or destruction of privately held or donated high-value art in circumstances where other information has suggested the art has a low value.
- Presence of natural or legal persons known to be involved in, or suspected of, trafficking in cultural objects.
- Use of social media or financial intermediaries to advertise cultural objects that have been looted.
- Unique archaeological pieces allegedly related to existing collections but previously unstudied.
- Newly ‘discovered’ art attributed to a prominent artist.
- Purchases of items by third party intermediaries on behalf of an ultimate seller or purchaser.
- Transactions involving market participants without expertise in concluding high-value purchases or sales.
- Transactions involving politically explosed persons (PEPs) or their family members or close associates.
The 5th AMLD (Directive (EU) 2018/843) extends anti-money laundering obligations to entities in the art sector, specifically to those trading or acting as intermediaries in art transactions exceeding EUR 10,000, including art galleries and auction houses. It also applies to activities within free ports under similar conditions. This aims to enhance transparency and prevent money laundering through high-value art transactions.
German Bundestag Document 19/13827
The German Bundestag Document 19/13827 extends anti-money laundering obligations to art brokers and art storage keepers, differentiating them from general goods dealers. This regulation is triggered for transactions involving art objects, as defined in the VAT Act, exceeding €10,000. It emphasizes a distinction in the art market, setting specific thresholds for regulatory compliance and oversight by designated authorities, particularly for storage in free zones like Bremerhaven and Cuxhaven.
The German GwG defines „intermediaries in the trade of works of art“ as those who, in a commercial capacity, facilitate the purchase of art, including auctioneers and gallery owners. It also covers those who provide commercial storage for artworks. The act specifies that these obligations apply irrespective of whose behalf the activities are conducted on. Additionally, the GwG obliges entities involved in the trade or storage of art, especially within free ports, highlighting the regulatory focus on high-value transactions and storage locations that may pose risks for money laundering activities.
BMF First National Risk Assessment 2018/2019
The „First National Risk Assessment 2018/2019“ by the German Federal Ministry of Finance evaluates the trade in high-value goods, including art and antiques, as vulnerable to money laundering. It highlights that transactions, especially in cash and involving offshore companies, can facilitate anonymity and illicit fund flows. The assessment stresses the importance of incorporating knowledge from both the financial and DNFBP sectors to detect anomalies and implement effective anti-money laundering measures in the trade of such goods.
Red Flags in connection with the people involved
- The identification of the contracting party or the beneficial owner will be delayed or the transaction will be cancelled as soon as identification is requested or extended.
- The contracting party presents documents that are clearly forged or copies of poor quality for identification purposes.
- The contracting party presents conspicuously new, recently issued documents or expired documents.
- The contracting party frequently changes his/her contact details or it appears that the contracting party has frequently changed his/her contact details in the past.
- The contracting party or the beneficial owner lives, works or has a bank account in an offshore area, in a country known as a “tax haven” or in a high-risk country with regard to money laundering and terrorist financing (see FATF high-risk countries)
- The contracting party does not disclose the existence of a beneficial owner.
- The identity of the beneficial owner cannot be determined or can only be determined with considerable effort.
- The contracting party or the beneficial owner is a politically exposed person (PEP), a family member or another person close to him/her within the meaning of Section 1 Paragraphs 12 – 14 of the Money Laundering Act (GwG).
- The purchase/sale of works of art or antiques (hereinafter referred to as “objects”) is carried out by a small or medium-sized company, although this is not part of its business purpose.
- The purchase/sale of the objects is carried out by a small company that was only recently founded and in which the people involved have no clear experience in the art and antiques trade.
Behaviour / Other characteristics
- There is information from the media or other sources that the contracting party or the beneficial owner is or has been investigated for possible involvement in a criminal offense or that the person has already been convicted of one.
- The contracting party responds evasively to inquiries or shows no willingness to provide the information required to execute the contract or to fulfil legal obligations.
- Information provided by the contracting party appears to be obviously incorrect or differs from previous information.
- The contracting party only provides vague or difficult to verify information.
- When faced with questions, an interested party breaks off the negotiations.
- The contracting party only has superficial knowledge of art that does not stand up to questions and contradicts the claimed professionalism (for example, does not know the origin, history, style, genre or artist of the object or shows unusually little interest in the details of the object being traded).
- The contracting party has little or no experience in concluding high-value purchases/sales.
- The contracting party builds up a large collection in an unusually short time, without any traceable background of assets or knowledge.
- The construction of a collection appears to be done randomly or without any apparent concentration on a style, era or group of artists.
- The purchased objects or their purchase prices are not in line with the income or profession of the contracting party or the beneficial owner.
Red Flags in connection with the integration of third parties
- A third party (e.g. companies/people in the area of financial intermediary, brokering, consulting, interior design) is involved in the transaction (e.g. different invoice recipients, the contracting party appears accompanied by another person without a plausible reason) .
- A person involved in the legal transaction acts on behalf of or as a messenger for an unknown third party (possible straw man transaction).
- The contracting party stores his/her art collection for a longer term in a customs warehouse, a free zone or a bonded warehouse (depending on the jurisdiction); a sale should be possible take place within this.
- The same object is purchased or sold at an unusually high or low purchase price compared to previous auctions.
- An object is acquired or sold at an unusually high or low purchase price compared to similar objects.
Red Flags in connection with the purchase price payment
- One of the contracting parties asks unusually detailed questions about the transaction process or connections to (tax) authorities.
- One of the contracting partners would like cash payment for large sums, especially in currencies that are not common on the art market (other than US dollars, Chinese renminbi, English pounds, Swiss francs or euros).
- The purchase price is paid in cash and using banknotes with a particularly high denomination.
- The purchase price is paid in several amounts, each of which is less than 10,000 euros.
- The purchase price is paid in cash and using banknotes with a particularly low denomination and/or e.g. B. transported in a plastic bag or in your pocket.
- When asked, the buyer cannot or does not want to give a reason for the origin of the cash; he answers evasively or in very generalized terms.
- The buyer pays with a credit card that does not reflect the name of the cardholder.
- One of the contracting parties proposes an unusually complicated transaction structure.
- The purchase price is transferred from a country that is known as an offshore financial center or tax haven or is considered a high-risk country with regard to money laundering or other crimes.
- As part of the transaction, the item remains in the bonded warehouse, free zone or bonded warehouse (depending on the jurisdiction) and only changes ownership.
Red Flags in connection with the object of purchase
- The seller offers one or more objects with unclear or incomplete provenance.
- The seller is unable or unwilling to provide evidence of ownership or provenance.
- When asked, no or only slightly plausible documents can be presented.
- Customs documents cannot be presented for imported/exported objects.
- The export documents give rise to doubts about their authenticity or do not match the object on offer.
- Insurance (to protect the market value or to provide reimbursement in the event of loss, theft or destruction of high-value objects owned privately or by foundations) is taken out or cancelled.
- There are indications that an object could come from a crisis area or that an object from a crisis area was taken illegally.
- The object on offer is listed in a database for lost or stolen works of art.
- With regard to the object on offer, there is an export ban in the country of origin and the object was removed from the country of origin after the relevant deadline. Documents that would prove the legality of the import into Germany are not available or should be submitted later.
- Concealing the provenance of an object without providing a plausible explanation.
- The object does not appear to have been professionally prepared or the quality of the preparation does not correspond to the usual professional standards.
- A unique archaeological object is said to belong to a collection, but this object has not been examined to date.
- Social media is used or included in an unusual way to promote the property.
- A “newly” discovered work is attributed to a well-known artist.
- An object is resold remarkably often or after a very short period of time.
- FATF Money Laundering and Terrorist Financing in the Art and Antiquities Market https://www.fatf-gafi.org/en/publications/Methodsandtrends/Money-Laundering-Terrorist-Financing-Art-Antiquities-Market.html
- Directive (EU) 2018/843 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32018L0843
- German Anti-Money Laundering Act (Geldwäschegesetz – GwG) https://www.bafin.de/SharedDocs/Downloads/EN/Aufsichtsrecht/dl_gwg_en.html
- German Federal Ministry of Finance „First National Risk Assessment 2018/2019“ https://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Press_Room/Publications/Brochures/2020-02-13-first-national-risk-assessment_2018-2019.html
- German FIU „Anti-Money Laundering in the Non-financial Sector“ https://www.zoll.de/DE/FIU/Fachliche-Informationen/Geldwaeschepraevention-Nichtfinanzunternehmen/geldwaeschepraevention-nichtfinanzsektor_node.html