I was pleased to attend last week in Geneva “Building an Art Market for the Future—Guidelines for Countering Money Laundering and Terrorist Financing Threats” hosted by the Fondation pour le Droit d’Art (Art Law Foundation) and the Art Law Centre of the University of Geneva. The conference was the official launch of the Responsible Art Market initiative, and offered valuable, market-focused discussion about the risks of money laundering and terrorist financing in the art market. Refreshingly, the day’s panel discussions focused on best practices and goals, rather than the oft-heard lamentations about problems with the art market. The implicit point that came through was a powerful one: as both private sellers and law enforcement speakers explained, art dealers are not engaged in large-scale shadowy financial dealings. But art dealers and buyers are at serious risk of being used by criminals engaged in money laundering, which can have serious consequences. Because willful blindness is no defense, the conference and the initiative provided valuable practical advice.After opening remarks by Pierre Gabus, the day began with an overview of the new initiative by its drafters, Sandrine Giroud, Anne Laure Bandle, and Mathilde Heaton. They explained the goals of the initiative. With a more globalized than ever market, there are operational and reputational threats. The RAM initiative seeks to raise awareness amongst art businesses of risks faced by art industry in Switzerland and abroad, and to provide practical guidance and a platform for sharing of best practices to address those risks. The RAM Group consists of academics, auction houses, specialists, art logistics providers, and other experts.
As the conference announced, the initiative came up with nine guidelines. These adopt a risk-based, rather than rules-based, approach. They are targeted at art business and aim to facilitate art transactions, not hinder them.
The full guidelines are available on the initiative’s website, http://responsibleartmarket.org. Summarized, they are:
1) Know and understand risks. The art market is exposed to money laundering & terrorist financing. This creates legal, reputational and financial risks.
2) Establish a business profile. Establish a profile, take a risk based approach:
- Art business profile
- Client due diligence
- Artwork due diligence
- Transaction due diligence
3) Risk based approach that identifies red flags;
4) Client check. Establish the client’s risk profile. Ask yourself: who is your client? Client red flags—like politically exposed persons—require enhanced due diligence;
5) Artwork checks—Ownership and provenance red flags create enhanced due diligence here as well;
6) Transaction checks—If a counterparty is knowingly willing to sell at artificially high or low price, that is a concern. Clients who ask detailed questions about reporting;
7) Keep records;
8) Train and monitor staff; and
9) Know how to act.
Behind all this is the “plus one” guideline: know the anti-money-launder (AML) law. The initiative has developed country profiles for Switzerland and Luxembourg, with more to follow. Each answers same set of questions:
- What is applicable AML legislation?
- Which institutions/persons must carry out AML measures?
- What due diligence requirements apply?
- What record keeping requirements exist?
- What reporting requirements control?
- Where can I report suspicious activity?
- Which aspects of AML regime are particularly relevant for art business?
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The first panel of the day addressed the question: “What is the Responsible Art Market Initiative?” Marc-Andre Rénold moderated. He asked: is self-regulation useful? As Ursula Cassani, Professor, University of Geneva, noted, guidelines are not a panacea. There is no such thing in criminal policy. Anti-money-laundering has two components: criminal offenses, and set of preventative regulations through prudential obligations. Neither makes self-regulation superfluous, however. The offense of money laundering consists of disseminating or even accepting proceedings from crimes. It applies to anyone. In Switzerland, intent is required, though negligence sufficient in some jurisdictions. But the definition of “intent” is low. It is not the intent to launder money, it is a knowing perception of a red flag that is intentionally ignored. As a result, identifying those red flags is critical. Most art market actors are not subjected to a preventative regime. Recognition of the common interest is essential, to create a culture of money laundering vigilance.
Sylvia Furrer Hoffmann, Managing Director of Swiss Art Market Association, spoke next. She has experience in public and private law, and at the Stiftung Kunsthalle in Bern. She used a creative medical analogy: who is the patient? Is the patient complaining? Why is he suffering? What is cause? Are there remedies? Who benefits from prescription of medication?
In Furrer Hoffmann’s analogy, the patient is the Swiss art market. It consists of very few big players and many small (one to three person shops). The average prices is 4,000 Swiss franc (CHF). Is there suffering, she asked? Yes, but she argued it is from prejudice of those saying that the market is rife with money laundering and looting. Where does it come from? Furrer Hoffmann argued that public opinion created by media and so-called experts who say that art market is where criminals turn to must be confronted. She went so far as to claim that the art market is one of the most transparent, and that it is not a hub for money laundering or looted art. What of the remedy? More regulation hurts proper art market and does not affect illicit market, she suggested. She argued that the only beneficiaries are the consulting, compliance and audit business, and that the art market can accept guidelines only by voluntary basis. The legitimate market is victim of criminal clients and stigmatization, she concluded.
Ricardo Sansoletti, head of financial crimes division at the Swiss Ministry of Finance for more than 20 years, spoke next. He said there is a great benefit in self-regulation, that historically it is a good place to start. It shows the will of private sector, he said, and a certain maturity and awareness relating to risk. A recent report was positive about the measures taken in Switzerland overall. The risks identified requires making an analysis of proven and potential risks, and look at mitigation measures in same area.
Simon Studer, a gallerist, was the last presenter. He applauded the RAM, arguing that he was doing these things already. He noted that in the art business you can try to make a living over time, or “make a coup” with one big deal. He advocates the former approach. He was strident that he was “ashamed” of what he hears, and wants to know who is disserving the industry in this way. He argued that dealing in small amounts, “bad actors” are burning the business. He was very critical of the notion that industry is immoral.
Discussion followed. Renold asked the panelists, “is self-regulation a good thing?” Studer replied yes, and became impassioned about “being put on trial.” Overall the discussion framed the need well, even if unintentionally. Studer’s and Furrer Hoffmann’s complaint’s about the reputation of the industry were understandable and impassioned, but also necessarily somewhat anecdotal.
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The second and final panel, “Countering Money Laundering and Terrorist Financing Threats” was moderated by Heaton. As Heaton noted, there is no global international law. But the market is very international. For art businesses, it is an increasingly complex environment.
Jean-Bernard Schmid, public prosecutor in Geneva, spoke first. In general terms, he noted, money laundering is as old as crime itself. He said that prosecutors do not target the art market as such. But the art market has characteristics that make it easier than in other business to introduce money generated by illicit activities into the legitimate economy, particularly the use of cash, even in small quantities. Transparency does not mean learning what your neighbor owns, Schmid said. Transparency is the ability to reconstruct what has happened. If he cannot reconstruct who the buyer is and where the money came from, he cannot do his job. Another characteristic that makes the introduction of illicit money easier: the art market is international and deals in small objects. Prices are very subjective, in contrast to objective components of the price of real estate. The bottom line, Schmid noted, is the law. Legislation is very similar in every country. Assistance between countries can be hard, though. Schmid said he looks for what seems to be willful blindness.
Ralph Wyss, forensic scientist at Deloitte, spoke next. He is the AML leader in Switzerland. He noted the tendency in regulated industry to evade that industry for the purpose of money laundering. Regarding a United Nations initiative, Wyss phrased it as “if we cannot catch all the criminals, let’s grab their money.” If bank regulations are too tight, criminals will avoid banks, he said. Twenty years ago it was more attractive to launder money in banks, now banks are scared of their customers.
Wyss made an important point: people will use you, but they will not want you to see it. Best practice is to highlight the risk in order to avoid it. Wyss saw art being used for money laundering quite often when Swiss customers were under pressure to get their money out of the bank before being reported. Self-regulation is the right approach, Wyss believes, the vast majority know when they have a customer that looks strange. His final message to art market participants was an invocation of Murphy’s law. If it can go wrong, it will. If you are prepared and everything is in place, you will be okay. If you do nothing, you’ll be terribly exposed and end up overregulated.
Rakhi Talwar, head of compliance Christie’s London, was the final speaker. She described the substantial time invested by Christie’s in developing an anti AML program. There is a global compliance team that reports to the head of legal and risk (who is the money laundering reporting officer). The baseline standard is UK AML regulations, applied to all sales sites in addition to local jurisdictional requirements. The key components are risk assessment, client identification, presale due diligence, sanctions and high risk customer profile, training, ongoing monitoring, and audit. The program is fairly conservative because it is a critical line of defense for the business and the brand.
Talwar said that Christie’s opened in 1968 in Switzerland, the first sale room outside London. She sees the RAM’s goal as to develop workable guidelines. There is, she noted, in fact a great deal of legislation, but the market needs to lead the process. Art buyers are primarily motivated by the right reasons, but it is also vulnerable to criminals.
Heaton closed the day’s discussion by asking what the threats are. Schmid said that his job is not to s scare that many people, but to create risk that criminals have to assess and/or avoid. Wyss said that when one bank does something terrible, all banks were blamed. That’s how it works. The same thing can happen in the art market.
It was a lively and engaging day, and a promising start to a well-conceived initiative.