Art world likes it out of frame
• Laws against money laundering like a paint bomb in secretive sector
Panic. Absolute bloody panic. A senior gallerist is describing the first reaction of fellow members of the Society of London Art Dealers to new UK regulations to combat money laundering in the art market.
I’m hardly surprised: even after 15 years of covering the art world as a journalist, I’m often amazed by its peculiar codes and customs, still substantially based on relationships, private agreements and trust. But this old-school way, which provides a climate ripe for exploitation, 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 selling of art. Now, at last, we are seeing a concerted attempt to get to grips with the issue, that — even if welcomed by most — has sparked resentment and wariness. This almost unregulated sector does not 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 ridiculously tailor-made for money laundering 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. At least 50% of all art transactions are entirely private and handshake deals are still common; even in the auction houses, which appear to be so public-facing, the price may be disclosed but the identities of both buyer and seller are often guarded to the grave.
Perhaps most importantly of all, there is no registration of ownership of artworks, as there is with shares or property. We don’t know for certain where even some of the most famous pictures are held or who 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 Salvator Mundi, with its recordbreaking $450m price tag, appears to have gone AWOL. Since the market relies heavily on advisers, agents and intermediaries, including foreign and offshore companies, questions of ownership become even more opaque.
Two years ago, the EU formulated the regulations that sent shock waves 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 voluntarily signed up — in any art transaction worth more than €10,000 the purchaser’s identity, address and other personal information have to be registered by the seller: passport details and the lot, just as if you were opening a bank account.
The big question is what effect the new regulations will have on the market, prices, artists and their work. So far, most dealers seem worried only about souring relationships with existing clients or discouraging new ones. Alistair Hicks, an experienced dealer and curator, says: “It’s the smaller galleries in the middle that’ll be most affected. For bigger galleries this is nothing new — international dealers know the drill.”
Besides, as one gallerist put it at the London Art Fair in January: “The big galleries 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.”
Of course, that is right. An art deal can be done anywhere: the picture or object in question does not need to be on the same continent, let alone in the same room. Do your handshake in Singapore or Moscow. No problem. Or shift your location. The creation of “free ports ”— 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 impenetrable.
The international dimension is what makes legislating the art market so hard. Even a company that specialise in shipping art can be used as a smokescreen. A young staffer at an art shipper talks of sending valuable works “on a world tour ”— meaning that after their acquisition, often at auction, the works might be dispatched on a long, slow voyage through different tax dispensations, across changing destinations and jurisdictions, to end up — where? Follow it if you can, Mr Taxman.
Some schemes are not even particularly complicated. Most simply, you can buy a painting or valuable artefact with dodgy funds — perhaps at an inflated price for no questions asked, or perhaps in a geographical region with less beady eyes — and resell it anonymously, or even openly and respectably, for “clean” money.
In the art market, “provenance” (that is, a documented chain of respectable ownership) is important in the valuation of a work offered for sale, especially for pictures, but much less so for precious antique objects. If you offer a fabulous Chinese jade for sale, a blue-chip piece that experts will certify, when you are questioned about provenance, the response could be: “I found it in my granny’s attic — and she lived in Kazakhstan.”
Other ways of money laundering include using artworks bought with dubious money as collateral against “clean” loans, from any one of the reputable finance companies who offer to lend against art.
Clever evasion tactics will probably only last so long, and more forward-looking players have immediately spotted business opportunities. Simms says there is already “a number of art entrepreneurial businesses sparked by this”. If a collector buys from several different galleries and auction houses, for instance, why should each one have to undertake laborious checks? How about a centralised information bank, which each seller can access to check up on a prospective client?
Well, yes ... but how do the clients feel about the idea of such a cache of information? Not at all happy, it seems. So much stored data — passport details, bank details — sends out warning signals to even the law-abiding art buyers. As for the all-important question of the effect on prices, opinions also vary. Spokespeople from the auction houses say they do not foresee any important changes — a response only to be expected — and Hicks’s view is that the effect will be minimal. But other objective art-market experts foresee a different logical outcome. The FT’s Melanie Gerlis suggests that it is “highly likely to affect prices considerably, especially at the top end — that’s why there’s such resistance!”
Resistance or not, there is no doubt that the art market would be a less exciting place without its aura of risk and naughty glamour. Putting fabulous sums of money together with the intangible lure of art and beauty is an explosive combination. Whether it does anything to deter the criminals remains to be seen, but I doubt a mere EU directive can dim the lustre. /©