Greater regulation for Australia’s art and antiquities market for AML/CTF?

Other jurisdictions: What might further regulation look like?

In 2018 the Illicit Art and Antiquities Trafficking Prevention Act was introduced into the United States Congress with the purpose of amending the Bank Secrecy Act to require art and antiquity dealers to comply with reporting, recordkeeping and other requirements under that Act.⁵

The amendments did not progress beyond being introduced into Congress as they were criticised for placing a potentially large administrative burden on small to mid-size galleries and having a chilling effect on the art market,⁶ as they would have required “dealers in art and antiquities to establish anti-money-laundering programs, keep records of cash purchases, and report suspicious activity and transactions exceeding $10,000 to federal regulators.”⁷ Art industry participants would also have been required to look into a client’s background and examine purchases and sales for evidence that the money might be tainted.⁸

More successfully, the European Union (EU) passed the Fifth Anti-Money Laundering Directive in 2018. The Directive requires art businesses to examine “as far as reasonably possible” the background and purpose of all unusually large or complex transactions, or transactions which are conducted in an “unusual pattern” or do not have “an apparent economic or lawful purpose.”⁹

In particular, entities are required to “increase the degree and nature of monitoring of the business relationship, in order to determine whether those transactions or activities appear suspicious”.¹⁰ For example from 10 January 2020 in the United Kingdom, art market participants who deal in sales, purchases and/or storage of artworks with a value, for a single transaction or a series of linked transactions, of 10,000 euros or more were required to comply with anti-money-laundering obligations.¹¹

Recent Case Studies

Singapore: ‘Bearbricks’

When Singapore police recently executed simultaneous raids on premises across the city-state as part of a money laundering investigation last month, they seized more than a billion dollars' worth of property and assets.

Alongside cash, luxury cars, designer handbags, wine, jewellery and watches, the investigators seized a collection of about 60 colourful, mostly plastic figurines in the shape of bears.¹² These limited edition runs of ‘Bearbricks’, produced by a Japanese toy company often in collaboration with well-known designers and brands, are in high demand among collectors.¹³ Among the most sought-after are a series of Coco Chanel Bearbricks designed for charity in 2006 by Karl Lagerfeld, one of which was reportedly auctioned off by Sotheby's in 2020 for approximately $60,000.¹⁴

In an article in ABC News, Dr Jamie Ferrill, Discipline Lead of Financial Crime Studies and Lecturer in the same at the Australian Graduate School of Policing and Security, Charles Sturt University, noted that the high value of luxury goods made them useful for money laundering:

"If a Bearbrick is worth, say, $100,000, the money launderer can purchase it with their dirty money with relatively little suspicion. It appears legitimate; collectors do it every day. They do this over and over with varying amounts for various items, usually from different bank accounts/shell companies/cryptocurrency.”¹⁵

Dr Ferrill added that collectibles were an unregulated good in most jurisdictions, which made it even easier:

"Auction houses and luxury goods dealers do not have to report suspicious activity under the anti-money laundering/counter-terrorism financing regime, which is one of the many reasons the industry is often targeted."¹⁶

United States: Alleged Terrorism Financing

The New York Times reported that earlier this year, a Lebanese art collector Mr Ahmad was accused of money laundering and violating terrorism-related sanctions in a federal indictment that focused its attention on a top financier of Hezbollah, a Lebanon-based group that the US Government has designated a terrorist organisation.

The indictment in April, charged Mr Ahmad with evading US sanctions imposed on him in 2019, by using a network of businesses to conceal millions of dollars in transactions involving art and diamonds. Eight others were also charged. A New York artist agreed, apparently unwittingly, to sell Mr Ahmad artwork according to the indictment. The Government said Mr Ahmad asked the artist, who was not named in the indictment, not to mention Mr Ahmad’s name to the artist’s gallery because he preferred to remain anonymous. In 2021, the gallery, also unnamed, sold six of that artist’s works to a ‘Sierra Leone-based entity’ described by investigators as a front for Mr Ahmad.¹⁷

Possible regulation in Australia

As a member state of FATF, Australia could consider under the Consultation whether it should regulate its art and antiquities market for AML/CTF, as part of the wider consideration of high-value dealers. Presently there are money laundering offences under Division 400 of the Criminal Code as well as further penalties under the Protection of Movable Cultural Heritage Act 1986 (Cth).¹⁸ However, these are reactive and limited in terms of how they can proactively prevent money laundering and the movement of the proceeds of crime.

With the regulation of lawyers, accountants and real estate professionals being considered under the Consultation, now may be an opportune time to assess how art market participants and providers of luxury goods could undertake more targeted compliance steps under the AML/CTF Act. Such regulation could include:

1. Undertaking ‘Know Your Client’ (KYC) checks to assess the provenance of works as well as the source of funds and source of wealth;
2. Reporting on specific transactions to AUSTRAC and particularly where they exceed a monetary threshold;
3. Implementing transaction monitoring programs, risk-based policies and processes for reporting suspicious activity; and
4. Developing internal training programs, guidance and codes of ethics, with respect to the financial crime risks posed in the art market.

Although any regulation of the art industry will place some administrative burden on participants, particularly smaller galleries, these steps may be necessary to prevent art market participants from unwittingly facilitating money laundering. These regulations may also indirectly limit the risks faced by third parties such as banks and other financial institutions who may be involved in the dealings of art market participants. One way to balance regulation may be limiting regulated activity under the AML/CTF Act (known as ‘designated services’) to entities that undertake transactions of $10,000 or more.