Art Market Laundering: A Look at Money Laundering in the Art Trade and NFT Platforms, Including a Prevention Guide
In the dynamic world of art and the emerging realm of Non-Fungible Tokens (NFTs), the threat of money laundering and financial crime looms large. Here's a look at the measures being taken to combat this issue.
Traditional Art Sector
The proposed U.S. Art Market Integrity Act is set to mandate art dealers and auction houses to adhere to Anti-Money Laundering (AML) and counter-terrorism financing rules, similar to those under the Bank Secrecy Act. This includes retaining records of high-value art transactions, reporting suspicious activities, and verifying beneficial ownership.
These regulations are aimed at addressing the art market's vulnerability to money laundering due to its opaque ownership and high-value transactions. The Act aligns with stricter AML controls already in place in the EU and UK.
NFT Marketplaces
NFT marketplaces, which currently operate with limited regulation, are becoming a new vector for money laundering as criminals shift their focus. To combat this, NFT businesses should establish comprehensive AML programs, including thorough customer due diligence (CDD), ongoing transaction monitoring, and suspicious activity reporting.
Collaboration
Collaboration between regulators, law enforcement, financial institutions, and the art and NFT sectors is crucial. This cooperation allows for data sharing, joint strategy development, professional training, and keeping pace with evolving money laundering methods.
Key Elements
- The traditional art sector, under the proposed U.S. Art Market Integrity Act, would be required to have an AML/CFT program, identify beneficial owners, conduct AML employee training, keep transaction records, report suspicious transactions, and audit their record keeping and compliance measures.
- In the UK, objects more than 100 years old are considered antiques, and a wide range of items fall under the definition of art, including pictures, sculptures, tapestries, and photographs.
- Global art sales reached $65.1 billion in 2021.
- Deloitte estimates that approximately 4-6 billion dollars in art is stolen and laundered every year.
- Terrorist organisations like ISIS trade in cultural artifacts to finance their activities.
- Art dealers should verify the authenticity of artwork by examining the work itself, obtaining all documented information, running the piece against stolen art databases, and checking that the piece agrees with the seller's profile.
- The Responsible Art Market (RAM) recommends art dealers to do a risk assessment, know and comply with the laws, research the artwork, its ownership and provenance, know the background and purpose of transaction, keep records, train staff, and monitor processes and procedures.
By implementing these AML frameworks—combining legislative compliance, technological monitoring, and cross-sector collaboration—the art market and NFT marketplaces can better prevent illicit money flows and protect their industries from exploitation.
In the near future, NFT marketplaces should also implement Know Your Customer (KYC) procedures and build a strong AML-compliance program to prevent money laundering and various kinds of fraud.
- With the emergence of Non-Fungible Tokens (NFTs) in the lifestyle domain, there is a growing need for NFT businesses to establish strong Anti-Money Laundering (AML) programs, similar to those in the traditional finance and personal-finance sectors, akin to the ones mandated by the Bank Secrecy Act.
- To ensure the integrity of the entertainment genre, streaming platforms and production houses might consider adopting AML regulations and Know Your Customer (KYC) procedures, taking inspiration from the steps being taken in the art and NFT sectors.
- In the world of business and finance, tech-driven innovations like investing platforms could potentially benefit from implementing AML and Know Your Customer (KYC) regulations, providing an additional layer of security and transparency to the investing process.
- Given the increasing popularity of online casinos and gambling, regulatory bodies should consider expanding AML regulations to this sector, thus combating money laundering activities in the casino-and-gambling and entertainment industries.
- Schools and educational institutions could incorporate lessons on AML and financial crimes, such as money laundering, in their education-and-self-development curriculums, aiming to empower students with knowledge about personal-finance management and responsibility in the digital age.
