New revelations by law enforcement officials in both the United States and overseas show how money launderers – ever eager to find new ways to cover up their criminal deeds – are utilizing thousands of expensive artworks to disguise their illegitimate profits and unlawfully transfer assets on an international scale. Seeking ways to circumvent stricter government oversight of classical money-laundering methods, purveyors of such nefarious activity as smuggling, arms dealing and drug trafficking are taking advantage of the harder-to-track art market in much greater numbers than before.
In just one typical example of this growing trend, federal investigators found out that – despite an air bill stamped on the crate arriving at New York’s JFK Airport from London that claimed there was an untitled painting inside worth $100 – the content inside was actually a top-level artwork by American artist Jean-Michel Basquiat worth an astounding $8 million. Known simply as “Hannibal” due to that word being inscribed on its surface, the painting was snuck into the U.S. in 2007 as one element of a Brazilian embezzler’s intricate scheme to launder money. Subsequently confiscated at a warehouse in Manhattan by U.S. investigators, the feds are planning to ship it back to Brazilian law enforcement officials.
The seizure of this artistic masterpiece was a major boost for authorities who have been working on the billion-dollar fraud and money laundering case involving ex-Brazilian banker Edemar Cid Ferreira, who transformed some of his ill-gotten funds into a sprawling 12,000-piece art collection.
The increasing prevalence of art-as money laundering cover has been documented by the Basel Institute on Governance, a nonprofit research organization based in Switzerland, which hosts the world’s most prestigious contemporary and modern art show, Art Basel, the parent event of the famed annual Art Basel Miami Beach. Despite the B.I.G.’s warnings, however, authorities have found it difficult to establish a proper international *system of regulation.
Federal money laundering statutes in this country are applicable to virtually every significant transaction through which illegal profits are funneled to appear in conformance with the law. In the most common scenario, tainted funds are laundered through the acquisition of a high-end apartment, or included with the profits of a legitimate business entity such as a restaurant. While the money began as financial gains from gambling activity or narcotics sales, it ends up in the guise of a seemingly legitimate business profit or real estate asset.
The lucrative art market has become the money laundering vehicle of choice for so many because it is devoid of the legal safeguards found in most other industries. In the real estate business, for example, titles and deeds require the listing of a name at the very least. Mortgage brokers, stockbrokers, banks, gambling casinos and Western Union are obligated to report suspicious financial dealings to the federal Financial Crimes Enforcement Network. Banks are required to report all financial transactions of $10,000 or more. In total, the network registers over 15 million currency transactions annually that can be employed to track illegal money, explained Steve Hudak, a spokesman for the agency.
In sharp contrast, it is relatively easy to move a painting from one country to another; the price of such an item can be raised or lowered by millions of dollars arbitrarily; and the identities of purchasers and sellers tend to be kept secret with a vengeance, leaving law enforcement to merely speculate who was actually involved, the source of the money and whether the price was suspicious.
In response to this thorny situation, governments worldwide have implemented new measures to expose such illegal activity. In one example, the European Commission this past February passed regulations that require art galleries to report any individual who purchases an artwork by paying in excess of 7,500 euros in cash (approximately $9,825), and to file suspicious-transaction reports.
In a similar manner, the United States mandates that all cash transactions of $10,000 or more must be reported. Nevertheless, money laundering connected with art is generally handled on a case-by-case basis. Federal prosecutors, who usually bring to light art-related laundering as a result of suspicious banking activity or illegal transporting of artistic objects across borders, have worked in conjunction with other countries and aggressively implemented their powers under civil law to confiscate art that they are able to prove is tied in with a criminal act, even if they are lacking a criminal conviction.
In a soon to be published book, Money Laundering Through Art, the Brazilian judge who handled the Ferreira case, Fausto Martin De Sanctis, calls for more focused international regulation, arguing that if businesses such as casinos and diamond dealers are legally obligated to report suspicious financial activity to government regulators, the same should apply to art dealers and auction houses.
However, art dealers and their clients are greatly reluctant to relinquish the trademark secrecy that is historically embedded within their business practices. In fact, the Art Dealers Association of America scoffs at the very notion that using art as a means of laundering money is a serious concern. “The issue is not an industry-wide problem and really does not pertain to us,” insisted Lily Mitchem Pearsall, the association’s spokeswoman.
For their part, law enforcement officials bemoan the fact that art dealers minimize art’s role in a criminal underworld.
In New York, victims of the fraud and money laundering schemes of the disbarred lawyer Marc Dreier continue to be embroiled in litigation over art he purchased with a portion of the $700 million that was stolen from hedge funds and investors. Currently, 28 works by such noted artists as Matisse, Warhol and Rothko are being stored by the federal government. The feds are also storing “Hannibal,” which was part of a grand collection that Ferreira put together while he controlled Brazil’s Banco Santos. Some of these high-end artworks were previously exhibited at such prominent museums as the Guggenheim in New York.
Similar to the majority of art-related money laundering cases in the U.S., this scheme was exposed when the painting was illegally transported into the country. In 2004 Ferreira’s business empire, constructed partly from embezzled funds, collapsed, leaving over a staggering $1 billion in debts. A Brazilian court sentenced him in 2006 to 21 years in prison on the charges of bank fraud, tax evasion and money laundering, the latter of which Ferreira is appealing. Prior to his arrest, however, more than $30 million of art owned by Ferreira and his wife, Marcia, was smuggled out of Brazil, according to Judge De Sanctis.
As stated in the court papers, “Hannibal” was purchased for $1 million in 2004 by a Panamanian company, Broadening-Info Enterprises, which subsequently attempted to sell the painting for $5 million. “Hannibal” was shipped to New York in 2007, passing through four shipping agents in two countries before ultimately landing at Kennedy Airport.
Since merchandise that is valued at less than $200 is allowed to enter the United States without customs documentation, duty or tax, “Hannibal” – which according to its label is only valued at $100 – was cleared for entry even before the airplane carrying it landed in New York.