If the party is not quite over for organised crime in the art world, the booze is running low, daylight is beginning to peep through the curtains and last remaining guests really ought to take a hint.
Last week the UK became the first country in the EU to enforce the Fifth Anti-Money Laundering Directive, stringent new regulations that can be seen as an initial first step towards making money laundering and the funding of terrorist organisations a thing of the past. Now any artwork sold in excess of 10,000 euros needs to be confirmed with an authorised photo ID and residential address. For a trade that has historically flourished by being free from regulation, these new directives could have far-reaching consequences, with many art world participants concerned for the longterm effects on their business.
The regulations are intended to tackle widespread criminal activity amidst the fallout from a number of prominent cases. Including the 2018 prosecution of the London-based dealer, Matthew Green, for his role in laundering money through a $9.2 million Pablo Picasso (pictured) and a Marc Chagall’s La Revolución. Under the new rules, dealers and auctioneers will now have to register with the government’s tax agency and establish the identity of the “ultimate beneficial owner” (seller and buyer) — before completing a transaction. The names of the client will then be checked against a global sanctions list.
One man who most certainly will be on that list is the disgraced old Harrovian, Jho Low. The 38-year old Malaysian financier and fixer for the global super rich, carved out a role for himself as an international playboy, hanging out with supermodels and buying Picasso’s and supercars for his celebrity buddies. In 2013, Leonardo DiCaprio singled him out at an award ceremony to publicly thank him for his help in funding his movie The Wolf of Wall Street. The following year, Low made the headlines again after winning the $57.5 million Monet canvas, “Nympheas” at Sotheby’s auction house in London.
Since those heady days the so-called Asian Great Gatsby was revealed to have been illegally siphoning money out of a Malaysian government fund. The subsequent investigation, The 1MDB Scandal, has implicated Jho Low and the then-Malaysian Prime Minister, Najib Razak, in a $5.25 billion money laundering operation. DiCaprio has since returned the Pablo Picasso and Jean-Michel Basquiat masterpieces Low gave him as presents.
Low is now in hiding but under todays’ guidelines he would barely be able to pass through the front door of a major European auction house. His spending spree was worldwide but the fact that he chose to make his most lavish purchase in London should come as no surprise. The British capital has long harboured a reputation as the money laundering capital of the world. The situation is so out of hand that commentator Simon Jenkins has accused successive British Governments of “offering houseroom to laundered money”, ranking it as a form of “inward investment”’.
Before the introduction of these regulations, buying art from a dealer could still be a quasi-trust transaction. A shake of the hand and a business card was enough to lock down a sale. To James Goodwin, a lecturer and writer on the vicissitudes of the global art trade, “these regulations are revolutionary… the door is now closing on money laundering. The big question is whether they will have the manpower to discover where criminality has occurred.” Criminals are increasingly deploying and adapting technology with ever greater skill and since its 2017 inception, the regulations have been expanded to close further loopholes and take into account advances in financial technology and cryptocurrencies.
In Germany, where the law is being less speedily enforced to give the participants time to prepare, the dealers have approached the regulations with a mixture of trepidation and annoyance. The German Association of Art Dealers and Galleries (BVDG) has lobbied against the “extremely strong and hard to fulfil” regulations, arguing that dealers are already “overwhelmed with excessive documentation and bureaucratic obligations”. Even going so far as to claim that there’s been very few cases that indicate or support the notion that multiple criminal activities have taken place. For an exasperated Goodwin that’s precisely the problem: “There are no cases or prosecutions because there is no law in place to catch the criminals in the act!” He has a point, the international art market is an exclusive club, secretive in its dealings and thriving on its ability to keep its buyers and sellers anonymous.
Alfons Klosterfelde, of Klosterfelde Editions, questions whether “They (regulations) are sending out the right signal in an industry that exists for enterprise and creativity.” Aside from the enriching experience that comes with art collecting, part of the attraction of the market is its thrilling unpredictability, allowing for artist’s prices to skyrocket at one moment or plummet the next. “Deregulation is characteristic of the ‘product’ being worked with,” Klosterfelde goes on to say, “and if art is the product you are trying to sell, then these laws might end up doing more harm than good.”
Germany’s Handelsblatt Newspaper has described the regulations as yet another turn of the thumbscrew on dealers already burdened with bureaucracy and high taxes. There are increasing fears that it could lead to a breakdown in trust and a potential loss in sales. “The fact that trusted clients will now have to show me their ID which I will have to go off and photocopy is not a pleasant idea…They (regulations) have the potential to put pressure on sensitive client relationships…” says Klosterfelde.
Last week The White Cube Gallery in London wrote to its collectors, asking them to be patient whilst they adjust to the new demands, assuring them that their personal data would only be used in accordance with “data legislation protection”. Whichever way you look at it this is a significant departure from the days when you could walk out of an art fair with your bubble-wrapped artwork tucked under your arm.
Last year, despite the uncertainty brought about by Brexit and the US-China trade war, the global art market rose an astonishing 6% to $67.4 billion – the second highest year on record. It’s hardly surprising that governments, tackling the increasing demands brought about by a rapidly ageing population, are finding ways to maximise their future income streams. For the next few years it will be difficult to determine accurately how the regulations impact on business, but to avoid spooking the market, experts are recommending governments take a cautious approach to their implementation. A view reflected in the words of financial advisor Evan Beard in the New York Times, “We have to tread lightly… without throwing too much sand in the gears.”
Whatever happens from here, Goodwin believes it is just the start: “For the first-time governments are going to have an eye on the art world, with freeports and auctioneers forced to expose their information and with detailed providence reports available… this is an unprecedented step towards transparency in the art market.” It will be intriguing to see how this pans out, whether we will look back to see the enforcement of these regulations as a major turning point, the moment when the art market finally began to clean up its act. “Increased legitimacy and trust will only attract new collectors”, Goodwin says optimistically, “generating more business and plugging any gap left by criminality.” Let’s hope he’s right.