As the war in Ukraine continues, Russian invaders have taken to stealing important cultural property from Ukrainian museums. Among the losses are Christian icons, fourth-century Sycithian gold, 300-year old silver coins, special medals, and more. One less discussed but immensely damaging feature of war is the attack on culture and national identity through art and antiquities looting. Conduits of culture, history, and national identity, stolen art and antiquities also fetch a pretty penny in the black market.
Art and antiquities smuggling has been around for centuries. From the British Empire’s looting of artefacts during the imperial era, to the pillaging of ancient sites during recent Middle Eastern conflicts, to more recent art theft from war-torn Ukraine — the illicit art and antiquity trade continues to boom. No institution, no matter how respectable, is unaffected, as evidenced by charges laid against the former head of the prestigious Louvre in May 2022 for turning a blind eye to antiquities trafficking. Believed to make up roughly 5% of the entire art industry, the illegal art and antiquities trade exploits vulnerable conflict zones, effectively fueling war and enriching organised crime groups while destroying cultural property. One report by the United Nations Educational, Scientific and Cultural Organization (UNESCO) posits that the illicit flow of cultural goods is the third-largest in terms of volume, after drugs and arms. Indeed, cultural racketeering has funded drug cartels, mafia syndicates and historical villains like the Nazis and the Khmer Rouge. More recently, and gaining significant international attention, was the looting of Syrian and Iraqi sites on an industrial scale by the terrorist organisation ISIS. This reality has highlighted the need for financial institutions to detect and manage risks associated with a market worth roughly $50.1 billion globally.
Art is in the eye of the beholder
As evidenced by recent reports that Russian soldiers have stolen over 2,000 pieces of art from the Ukrainian port city of Mariupol, art is an easy target for crime during conflict and disorder. Refugees of war may also loot cultural property as a means of survival and better their chances at reaching safety. Once stolen, art and antiquities follow trafficking routes carved out by organised crime groups — ultimately destined for the biggest art and antiquities markets in Europe, China, and the US. London, in particular, hosts one of the largest antiquities markets in the world and has been the site of undercover investigations demonstrating the vast extent of ‘conflict antiquities’ openly sold by dealers.
Unsurprisingly, the online world is also a popular place for buying and selling looted goods, emboldened by lax regulations on online marketplaces, forums, and messaging services. Even during the early days of the COVID-19 pandemic, illicit trade in the art and antiquities sector flourished in the face of lockdown. Online sellers are outward and unsecretive, boldly making sales on platforms like Skype, WhatsApp, eBay and Kik. An investigation by the ATHAR Project (see text box) into the illicit trade on Facebook, called it a “one-stop-shop black market”, which boasts convenient features for criminals to advertise their goods, such as disappearing ‘stories’, uploading capabilities for videos and photos, and payment mechanisms. While officially such nefarious activity is banned from Facebook, it is difficult to enforce in practice. The buyers in these online marketplaces are seldom the end-market purchasers but rather represent a point in a long transaction chain that can last a decade or more.
Investigating the antiquities black market on social media, Antiquities Trafficking and Heritage Anthropology Research (“ATHAR”, the Arabic word for “antiquities”) is an organisation dedicated to tackling the illicit antiquities trade. Spearheaded by archaeologist Amr Al-Azm and anthropologist Katie A. Paul, ATHAR has produced an in-depth report examining Facebook’s black market for stolen Middle Eastern antiquities complete with interactive graphs and maps, and social network data. ATHAR keeps an up-to-date Twitter page here.
Money laundering and tax evasion
Using art and antiquities to launder money is favourable for many reasons. For one, these high-value objects are portable, making them ideal for smuggling over borders and tucking away for extended periods of time. Additionally, art and antiquities tend to appreciate in value, minimising the money lost during the laundering process. They are also highly subjective assets with prices that are easy to inflate and manipulate. Perhaps most importantly is the opaque and anonymous nature of the art world, where the use of intermediaries and emphasis on privacy are commonplace. In fact, 50% of art transactions are estimated to be entirely private, and many artworks are sold between offshore companies, where the beneficial owners are obscured. According to a 2018 European study, transactions with cash are also standard practice. This secretive nature renders the art market rife with money laundering and tax evasion risks.
A defining feature of the art and antiquities world is freeports or warehouses in tax-free zones. These vaults can be rented under a shell company name and often store cultural goods for many years, usually six years and upwards, waiting for opportune moments to release them into the market once the heat has died down from conflict zones. The infamous Geneva freeport has been the site of numerous investigations and seizures, including the recent recovery of three looted Palmyra sculptures, the contested Modigliani piece revealed by the Panama Papers, and thousands of stolen Roman and Ertuscan antiquities hidden inside the vault of an Italian art dealer. Items within the vaults can be sold and purchased many times or moved from dealer to dealer, which can purposely blur their origins or help create a fake paper trail. Ownership history can also be fabricated with old typewriters used to forge backdated ownership certificates. A common practice is claiming an antiquity has been within a family for a long time, inferring it could not have been recently smuggled from a conflict zone.
AML regulations
Regulators have reacted to curb the financial crime risk posed by the art and antiquity market, and the trade has come under more scrutiny since the Financial Action Task Force (FATF) and the Wolfsberg Group identified art and antique dealers as higher risk for money laundering. FATF has launched a project to help countries, competent authorities and the private sector counter art, antiquities and cultural property abuse by issuing best practices and recommendations, with a report due to be issued in June 2022.
In Europe, the EU’s Fifth and Sixth Money Laundering Directives brought art market participants into the scope of anti-money laundering regulations and demanded increased transparency through enhanced due diligence measures. In 2020, the US adopted a new Anti-Money Laundering Act (AMLA 2020) which amended the definition of “financial institution” to include “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” This definition is designed to be broad enough to include not only antiquities dealers themselves but also intermediaries involved in sales and purchases. The Financial Crimes Enforcement Network (FinCEN) released guidance on SAR filing and the new AML Act measures in March 2021.
In the UK, the government released guidance in 2020 on AML for UK art market participants, including red flags and customer due diligence requirements. However, following its withdrawal from the EU it has repealed the EU Regulation on the Introduction and the Import of Cultural Goods (EU 2019/880). The Antiquities Coalition, a think tank focused on the illicit trade in art and antiquities, has issued a policy brief advising the UK government to impose tighter measures of its own following this repeal, arguing the current situation may create a gateway to Europe for illicit cultural property through Northern Ireland. Recommendations made in the brief include creating dedicated points of entry for antiquities and cultural goods,; greater requirements to provide information on import documents; and the inclusion of antiquities in AML regulations.
Conclusion
For financial institutions with clients involved in the art and antiquities market, it is important to scrutinise transactions in greater detail, looking out for funds that have a footprint in high-risk jurisdictions or may indicate an unusual transaction or fire sale. Examining supportive documentation for possible inconsistencies and red flags is also paramount. Since intermediaries and obscured beneficial owners are commonplace in this industry, and as discussions surrounding the possibility of bypassing Russia-related sanctions through art abound, financial institutions must be proactive when dealing with the art and antiquities sector.
At FINTRAIL, we combine deep financial crime risk management with industry expertise to help you optimise your anti-financial crime, transaction monitoring and sanctions programmes. We’re here to support you in refining, enhancing, or testing your systems and providing context-based training to your teams. Please email us at contact@fintrail.com