Art has been a part of human history for thousands of years. From the first cave paintings to NFTs, as technology advances, so does the art and art market. Social media and online galleries have become a fantastic solution for artists to promote and sell their works. The online art world has become a place to familiarize people with pieces and artists they would never be able to know if it was not for the power of the Internet. However, this recognition can also be problematic—the greater the artist’s success, the greater chances that their works will be stolen or copied. There is also another problem- money laundering. The artworld is full of shell companies and middlemen who shield the identity of buyers and sellers. Is identity verification the answer to the growing money laundering problem in the art world?
Recent lockdowns have forced art dealers and artists to look for alternative ways of selling art. They turned toward the digital world and implemented virtual viewing rooms. Some websites started with a simple online registration process, requiring basic information like name, surname, and email address. However, providing such data does not prove that a given artist is the original creator. That allows art thieves to sell stolen or copied works or can be an easy way to launder money. This issue continues to exist, and artists continuously report cases of art theft. The artist Tuesday Bassen discovered that Zara was using her designs in their clothes. Tuesday had to engage in a battle that, for an independent artist, is extremely difficult and costly to win. Less-known artists are more prone to become victims of art theft – they do not have a vast audience capable of uncovering theft.
The same principle applies to digital art. A thief may create an account with false information and disappear after being discovered – leaving no trace. Furthermore, digital works are easier to modify and copy than a traditional form of art. Brianna Garcia experienced digital art theft through photoshop manipulation. The thief used Brianna’s posted works and photoshopped them into his photographs. As a result, the thief made stolen works look like his own.
Big galleries, which are more prone to money laundering, can hold online auctions or work through agents. However, when it comes to performing KYC steps, the galleries rely on the agents’ integrity and the checks they perform. The agents with long-term cooperation with certain clients are concerned about the cost of complying with the AML regulations. Their relationship has already been established, and they can argue that they already know their customers well enough to know they are not involved in any criminal activities.
The money laundering process is very simple; the fraudster with a certain amount of money buys a piece of art and has it moved to storage at a freeport- a special economic zone or a storage space near the airport. The work could be stored there for years to avoid tax or sold, and the money for that transaction is now clean and legitimate. The artwork could also be used as collateral to loan some amount from the bank, thus becoming a legitimate business transaction.
Considering how much money goes through the art industry, it is a perfect place for money laundering. The global art market was valued at $50 billion in 2020. The art industry is known for keeping the identity of buyers and sellers private, which makes using middlemen much easier. When Crown Prince Mohammed bin Salman of Saudi Arabia bought Leonardo da Vinci’s “Salvator Mundi” he did it by using his friend, who concealed the buyer’s true identity. The fact that in many countries, the art market is still an unregulated branch makes it perfect for money laundering.
US Senate investigation revealed a huge money laundering problem in the art world. According to the report, Russian oligarchs with ties to Vladimir Putin allegedly seized on the secrecy of the art industry to evade sanctions by making more than $18 million in high-value art purchases.
Another example of art sales in the criminal world is the case of a drug dealer- Ronald Belciano. He had almost 50 paintings, including Renoir, Picasso, and Salvador Dalí. He used the art to launder some of his drug money. In 2015, he was sentenced to more than five years for dealing drugs and money laundering.
The EU’s money laundering directive was introduced to help prevent money laundering and terrorist financing; in 2020 it was also extended to include the art market. The regulation requires parties involved in the transactions above €10,000 to go through the identity verification process, imposes an obligation on the selling party to perform customer due diligence, keep records and report suspicious activity. The art market also has to comply with the KYC rules. The safest way to implement them is to use a risk-based approach. This can help to check whether a potential buyer is on a sanction list or is a politically exposed person.
Proper identity verification of either artists or the buyers can assure mutual trust and provenance of the piece. However, there are costs involved in complying with the KYC procedures, including staff training, managing, and administrating the system or even upgrades and updates. The costs are not only monetary but also require a time investment. If the seller does not have the expertise to verify an ID document confidently, outsourcing might be the best solution. The safest option is to trust someone who deals specifically with identity verification and complies with the strictest rules. Video identity verification with a trained specialist that Fully-Verified offers is the safest and the most convenient option. The users go through an identity verification process that involves providing identity documents, security features check, and face verification.
Fully-Verified offers two identity verification solutions, both backed by artificial intelligence and qualified specialists. Additional checks like sanction list monitoring and PEP check can be performed to further ensure the identity of the buyer or the seller. Fully-Verified’s identity verification services are cost-effective, reliable, and compliant with the strict rules of KYC.
In order for the art market to stop being a haven for money laundering, to make it transparent, and to reduce its appeal to money launderers and fraudsters, strict regulations must be introduced. Furthermore, KYC procedures like CDD and AML checks must be implemented to verify the legitimacy of the involved parties.
Fully-Verified was created as answer to its founders collectively losing over $150 000 to various types of fraud in their eCommerce businesses.