Riesenfeld Symposium Special: Is the art world the new Cayman Islands? A case in favor of the extension of the BSA to the arts and antiquities

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Article by Eleni Anagnostopoulou,

The art world is notorious for its secrecy. Sellers are seldom revealed to the public. “European private collector” is probably the most specific an auctioneer is going to get when describing the seller or the buyer of a piece of art worth millions of dollars. This is no accident. People of the art world have been fighting for years to maintain this much coveted privacy. Their claims are not completely irrational: fear that they will become a target for thieves -and tax authorities-, unwanted publicity and media coverage in private estates are just some of the valid concerns that slowly but steadily crafted this idiosyncratic “omerta” in the art world, a characteristic no other industry dealing with such large amounts of money could ever dream of achieving.

This is not the only element that makes the art dealings susceptible to money laundering attempts. Another very important aspect is the payment methods accepted in auctions. Most big auction houses accept payment in the form of debit or credit card, checks or bank transfers , but that is not the rule. In most auctions, a cash payment is acceptable, even preferred, since there is no room for default. This means that any anonymous buyer can use a middle man to pay very large amounts of money in cash, no questions asked. Both the United States and more recently the European Union have special provisions requiring all cash transactions over a certain amount (7,500 euros and 10,000 $ respectively) to be reported, but these reports are seldom followed-through by a detailed investigation, unless there are other suspect elements in the transaction.

Another aspect of the art market that turns it into a money laundering haven? It completely unpredictable and its products are easily transportable. Indeed, no one knows what may cause a painting’s price to sky-rocket overnight, unlike the real estate market, for example, where price alterations are fairly predictable. What’s more, art is easy to move and easy to hide. A masterpiece may very well be hiding in a completely inconspicuous basement.

The people of the art world have been constantly denying allegations that their industry presents a great opportunity for money laundering, however history has repeatedly proved them wrong. A recent example is the collapse of the Knoedler & Company Gallery in New York, which was taken down when police found out that more than 80 million dollars was turned over by collectors to purchase fake pieces, created by the art dealer’s boyfriend. In other parts of the Big Apple, the victims of the frauds of the disbarred lawyer Marc Dreier are still fighting in courts to recover over 700 million dollars embezzled or stolen by Dreier. How is this connected to the art world? Well, Dreier managed to launder hundreds of millions of dollars by purchasing artworks.

These are precisely the kind of incidents that sparked a conversation about the need for transparency and accountability in the art world. The House of Representatives came up with a proposal aiming to mitigate the damages without completely altering the current economic model of the art market: the extension of the Bank Secrecy Act to the Arts and Antiquities Market.

Should the amendment pass, it would require art sellers to keep records of cash purchases and file reports against suspicious activity and abnormally high transactions exceeding $10,000. Dealers who sell at least $50,000 of goods also have to report their records to the government.

The proposed amendment is currently under consideration by the House of Representatives, but it has been met with fierce opposition by the art world. Art experts claim that such provisions would crush their clients’ privacy, an element of vital importance to the survival of art auctions. In fact, the Art Dealers Association of America completely dismissed the idea that money laundering is actually taking place in the art world, through their spokeswoman, Lily Mitchem Pearsall. Another argument being made is that this extension basically forces even small businesses of the art world to be subjected to the BAS’s provisions, thus being forced to comply with all its requirements which could in turn result in their complete financial destruction.

The points raised by spokespeople for the art world are valid, however they don’t seem to be as pressing as the goal the extension of BSA is aiming to achieve. Yes, the lack of complete privacy might rock the art market at first, but BAS’s provisions do not require for a mass publication of art sales. They simply require that a record be kept in the relevant bureau so as to keep track of large transactions. This might be a hit to the previously completely impenetrable veil of secrecy in the art market, albeit it is a reasonable one. As far as the small business argument is concerned, it not really supported by facts. The BSA was extended to the previously unregulated jewelry and numismatic markets in the past, without causing a domino effect in the business. In fact, these markets remain quite profitable.

The extension of the BSA to the art and antiquities markets is a very reasonable measure, which could actually be an effective solution to a very big problem. It can indeed be the first step towards effectively combatting money laundering in the art world, if it manages to overcome two great obstacles: passing through the House and convincing the art world to actually enforce it.


Eleni Anagnostopoulou is a practicing lawyer and journalist from Athens, Greece. Having completed her LL.B. and LL.M. in Contract Law in the National and Kapodistrian University of Athens, she is currently enrolled in the LL.M. program of Berkeley. She specializes in Media and Technology Law and is fascinated by the interaction between art, speech, expression, creativity and the law.