The lack of regulations around art and antiquities creates loopholes for money laundering and kleptocracies
Gottlieb 23 (Ariane Gottlieb is CIMA’s Assistant Program Officer. In this capacity, she is responsible for coordinating convenings, overseeing communications, and providing analytical and administrative support. She previously worked with NED’s International Forum for Democratic Studies, supporting the Forum’s portfolios on countering authoritarian influence and combatting transnational kleptocracy. Prior to joining NED, she completed internships with the Gilder Lehrman Institute of American History, the American Iranian Council, the office of former U.S. Representative Nita Lowey, and J Street. She also worked as a student mentor at Mount Holyoke College’s Speaking, Arguing, and Writing Center. She graduated Phi Beta Kappa and magna cum laude with a B.A. in international relations and history from Mount Holyoke College., 10/31/2023, “Kleptocracy in the Arts and Antiquities Trade,” DA: 7/26/24, https://www.ned.org/countering-kleptocracy-october-2023/)
In “Ode on a Grecian Urn,” the poet John Keats asserts “Beauty is truth, truth beauty, — that is all / Ye know on Earth, and all ye need to know.” Indeed, the enormous popularity of the arts and antiquities market speak to its ability to immortalize beauty and impart knowledge. Yet, underneath its ornate paintings and gilded treasures, the art world hides an ugly secret. Global kleptocrats have leveraged portions of the art and antiquities trade to launder money, subvert sanctions, and fund their malign activities. Transactions can be conducted amid high levels of secrecy. Due to a lack of rigorous safeguards, the true identity of buyers and sellers (i.e. beneficial ownership) is often difficult to discern, and oligarchs often rely upon shell companies or intermediaries to conduct transactions. Despite this weak link within rule-of-law frameworks, democracies can respond by closing loopholes within counter-kleptocracy safeguards, empowering law enforcement to combat this challenge, and supporting civil society to address knowledge gaps.
Despite its artistic and historical value, the arts and antiquities trade has emerged as a veritable playground for malign actors. In 2021, the market was valued at $65 billion. Its enormous potential and a lack of sufficient anti-money laundering (AML) requirements incentivize kleptocrats to launder money by purchasing, storing, or selling art and antiquities. For example, financier Jho Lo—who siphoned billions of dollars from Malaysia’s state investment fund to enrich himself and his cronies—used his ill-gotten gains to buy $200 million worth of artwork. Even transactions at prominent auction houses can be conducted via intermediaries who do not disclose beneficial ownership, enabling sanctioned individuals to access the market. Russian oligarchs Arkady and Boris Rotenberg were able to circumvent sanctions enacted in 2014 by purchasing art via a U.S. intermediary and a network of shell companies. The funds generated from such activities are often used to bolster repressive actors via elite capture, SLAPP suits, and other kleptocratic activities.
This market has emerged as a loophole within democracies’ counter-kleptocracy efforts. It has historically been excluded from policies mandating transparency within alternative sectors, allowing kleptocrats to conduct high-value transactions and launder money with impunity. Instead, AML, beneficial ownership, and other transparency requirements are often levied at the discretion of auction houses or private dealers. Although the four largest auction houses abide by AML regulations voluntarily, employees do not always discern the true identity of their buyers. Many museums have similarly failed to conduct due diligence on the origins of their collections. In one example, the art collector Douglas Latchford used secret offshore companies on the Island of Jersey in the British Isles to launder stolen Cambodian antiquities and sell them to institutions such as the Metropolitan Museum of Art.
In recent years, transatlantic policymakers have taken steps to curb illegal activity. In 2021, the U.S. Congress passed legislation to bring the arts and antiquities trade under the same AML regulations as other industries. This measure helps ensure transparent beneficial ownership, outlines clear recordkeeping and reporting obligations, imposes compliance policies, and more. The European Union also moved to close AML loopholes in 2020, aiming to mitigate the threat of money laundering.
Despite these steps, democracy practitioners can do more to encourage AML and rule-of-law safeguards. Loopholes in sanctions enforcement can be closed by imposing similar measures on the family members of targeted individuals. The ownership threshold for blocking companies linked to sanctioned individuals can be reduced or eliminated, so that oligarchs cannot derive profit from entities of which they hold minority ownership. Law enforcement must be equipped with specialized knowledge and resources to combat illegal transactions. Support for civil society and independent media—whether through providing funding and resources or by giving a platform to leading experts—will also help address knowledge gaps that persist across borders. Kleptocrats’ exploitation of this industry proves that there is more to art than meets the eye. The international community must shore up this critical vulnerability to help stem opportunities for kleptocrats to launder their wealth and evade counter-kleptocracy strategies.