Art has long been seen as a symbol of wealth and status. It is also a means of expressing and displaying beauty, as well as a reflection of cultural values. Behind the façade of the glamorous art world, however, lies a darker side where greed, corruption, and lawlessness prevail. Today, we're going to pay special attention to this dark side, focusing on the role of oil money, stolen paintings, artificially inflating the prices of artworks, and money laundering in the industry.
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How money laundering works in the art world
Artwork has long been identified as an ideal vehicle to launder money. Where is the intersection between these two seemingly incompatible worlds? In practice, art circles accept and respect the desire of those who want to buy art anonymously, at a high price. Furthermore, in the art trade world, cash transactions are allowed. For those who want to launder money and legitimize funds, it is an ideal way to make the money "clean".
There are also many cases where art has helped to wrangle huge sums of money. When the Mexican government passed a law in early 2010, that required more information about buyers, and set a cap on the amount of cash that could be spent on a piece of art, the art market collapsed and sales fell by 70 % in less than a year. Many believe this is because previously, the biggest buyers in the market were the Mexican cartels.
So how is money laundered in the art world? According to special reports, some of the cases are very simple. Suppose someone has $10 million. He can buy a Picasso at an auction, (e.g. in Geneva, Switzerland), and order the painting to be immediately moved to storage in the "free port zone", or to a high-security storage location near the airport. The painting can then be anonymously sold without moving an inch, and the new buyer will collect it from the same free port. Suddenly, the original buyer-turned-seller is cashing in on what is considered a legitimate business transaction. In 2013, the Economist estimated that the Geneva Freeport probably holds $100 billion worth of American art, hidden away in a space that doubles as a tax haven.
Other cases are more complicated. Take, for example, the story of the painting "Hannibal" by Jean-Michel Basquiat, which is estimated at 8 million dollars. The work was smuggled into the US by convicted Brazilian money launderer, and former banker, Edemar Cid Ferreira. According to The National Law Review the painting arrived in the US from Brazil via the Netherlands, with false shipping invoices stating that the contents of the shipment were worth $100. It is likely that Ferreira was en route to the US, to sell the painting.
Jean-Michel Basquiat, Hannibal, 1982
There are also cases of international terrorism, where groups like ISIS launder money using cultural antiquities. Although much of the territory controlled by ISIS has been captured by government-backed forces, the group still reportedly controls millions of dollars, perhaps hundreds of millions, thanks in large part to the active antiquities trade.
In 2017 "Wall Street Journal" published a lengthy piece detailing exactly how ISIS monetizes these artifacts. The process begins with ISIS-affiliated jihadists monitoring local mining groups in Iraq and Syria. If and when a valuable item is found, the "diggers" sell it to ISIS operatives at a preferential price. The goods are sold to independent middlemen who smuggle them out of the country to border countries such as Lebanon and Turkey. The artifacts eventually end up in warehouses in Europe, where they await Western buyers. That's the process by which the president of Oklahoma City-based retail giant Hobby Lobby buys Iraqi artifacts for the Museum of the Bible, and while it's impossible to say with certainty that the items are of direct ISIS origin, the lack of documentation of origin of the artifacts and regulations in this direction, means that anything is possible.
Still, not everyone agrees that money laundering in the art world is as widespread as it is claimed to be. This discussion has intensified in the US in recent years, prompted by the proposal of Luke Messer (of the House of Representatives) to add artwork as a supplement to the Bank Secrecy Act. The Bank Secrecy Act is a 1970 law put in place to make it harder for mafia and terrorists to launder money. At the time Messer proposed this addition, many argued that regulations already existed to make it more difficult for fraud and illegal activity to occur. It also claims that collectors and museums will have to fill out additional paperwork to track every sale and purchase, financially crippling businesses in the same way Mexico's regulations hurt the art trade.
During a symposium in Fashion Institute of Technology, in 2018, former Department of the Interior Special Agent James McAndrew stated, that until that point, there had been no art dealer or collector convicted of money laundering through the art trade.
According to Thomas Christ, a board member of the Basel Institute on Governance, the art market is an ideal playground for money laundering. He also calls for clarity and transparency as to where the money comes from, and where the artwork goes.
Oil money in the the world on the art
The art world is proverbially opaque when it comes to the source of funds used to purchase artwork. Wealthy collectors often keep their identities a secret, and galleries and auction houses don't always disclose the provenance of artworks. This leads to suspicions that some of the funds used to purchase artworks come from illicit sources, particularly from the oil industry.
Oil money is connected to the art world in different ways. On the one hand, wealthy oil businessmen use their fortunes to buy expensive works of art as a way to legitimize their wealth, and power. Others use art to launder money from illegal activities, such as drug trafficking, or arms dealing. The art market is complicit in that it provides criminal groups with a convenient way to convert their illicit funds into legitimate assets.
One example of the potential connection between oil money and the art world is the case of The Louvre in Abu Dhabi. The museum, which opened in 2017, was built with the help of a loan from the French government in the amount of 525 million dollars. However, much of the funding for the project is said to have come from Abu Dhabi's oil wealth. Critics say the museum is a way for the UAE to repair its image, and that its collection is being used as a means of diverting attention from the country's human rights abuses, and lack of democracy.
Stolen paintings and the black market
Stolen paintings are another part of the dark side of the art world. Art theft is a lucrative business, with stolen works often ending up on the black market, where they can fetch extremely high prices. The black market for stolen art is estimated to be worth billions of dollars every year.
One of the most famous cases of art theft occurred in 1990 when thieves stole 13 paintings from the museum "Isabella Stewart Gardner" in Boston. The stolen works, including works by Rembrandt and Vermeer, were never found, and the case remains unsolved. The theft is believed to be the largest art heist in history, with the value of the stolen paintings estimated at over $500 million.
Gustav Klimt, Portrait of a Lady, 1916-1917, Galleria Ricci-Oddi
Another recent case of art theft involved the painting “Portrait of a Lady” by Gustav Klimt. The painting was stolen from the Ricci Oddi Gallery in Italy, in 1997, and has been missing for more than 20 years. In 2019, it was discovered hidden in a gallery wall, and its recovery sparked a debate about the role of the black market in the art world.
Artificially "bloating" prices and the art on market
There are several factors that can contribute to artificially high prices in the art world, including:
- Manipulation of the market
- Insider trading
- Brand recognition and marketing
- Artificial creation of positive reputation
Market manipulation refers to the practice of artificially increasing the price of a work of art through various means. One common tactic is to use an auction house, in order to create the illusion of high demand for a particular piece of art. An auction house may use tactics such as bid bidding (where people are paid to bid on a work of art to raise its price), or artificially inflating the value of the work of art by creating hype in the press, and advertisement.
Insider trading is another practice that can contribute to artificially high prices in the art world. This is a practice where people with inside knowledge of the art market, such as gallery owners or art dealers, use that knowledge to their advantage to realize profits. For example, an art dealer may acquire a piece of art at a low price, and then artificially inflate its value by using inside information about upcoming auctions or exhibitions.
Branding and marketing are also important factors in the art world. Like any other luxury brand, the value of a work of art can be affected by the branding and marketing surrounding it. For example, if a piece of art is associated with a famous artist, or is part of a prestigious collection, its value can be artificially inflated.
Hype refers to the practice of artificially boosting an artist's reputation through media hype and aggressive PR. This can be done by using marketing and branding tactics to position an artist, and present him as a genius or revolutionary in the field in which he creates. This increases the value of the artist's works, even where the actual artistic qualities of the work are questionable.
An example is the artist Jeff Koons. Koons is known for creating works of art that are often perceived as kitsch or whimsical, but his works regularly sell for millions of dollars. In 2013, his sculpture "Balloon Dog (Orange)" was sold at auction for a record $58.4 million. This price is largely the result of proper marketing, as well as the hype surrounding Koons and his established reputation as a controversial artist.
Jeff Koons- Balloon Dog (Orange), Image courtesy of Capitolium Art; sold at Sotheby's, May 2013
Another example is Damien Hirst. Hirst is known for creating works of art that shock and challenge the viewer, but many critics accuse him of being more concerned with his own brand and reputation, than the actual artistic merits of his works. In 2008 Hurst auctioned a work titled "Beautiful in My Head Forever" for a record $198 million. The price largely determined by the well-positioned brand Damien Hirst – a scandalous, and genius artist.
Damien Hirst at the exhibition "Damien Hirst The Complete Spot Paintings 1986-2011", Gagosian Gallery, New York. Image: Andrew Russeth, New York. Source: Wikimedia Commons
There are numerous examples of artificially inflated prices in the art world. One of the recent cases is related to a picture of Jean-Michel Basquiat, which was sold for $110.5 million, in 2017. Although Basquiat is a highly respected artist, many experts believe that the value of the painting was artificially inflated by the hype surrounding the auction, which was heavily advertised, and attended by numerous high-profile collectors.
Cady Noland, Deep Social Space, 1989. Collection Udo and Anette Brandhorst, Munich. Photo: Axel Schneider
Perhaps the most striking example of artificially inflated prices is the artist Kady Noland. Noland is known for her sculptures, which are made from found objects such as beer cans, chains and car parts. Although highly regarded by critics and curators, Noland's works are rarely sold on the open market, as she has strict control over who can sell them and for how much. This has led to an almost complete impossibility of purchasing Noland's works. This in turn has led to an even greater demand and therefore an increase in the prices of the few works that are offered for sale. In 2018, one of her sculptures sold for $6.6 million, despite some critics describing it as "essentially a pile of junk."
Cady Noland, Bluewald 1989, Screenprint on aluminum with printed cotton flag, sold at Christie's
It is important to note that not all high prices in the art world are artificially inflated. There are many works of art that are truly valuable, and deserve their high prices. However, it is important to be aware of the factors that can contribute to artificially high prices and to approach the art market with a critical eye.
So what is the problem with artificially "inflated" prices in the art world and all the dark practices? The answer is that all together, it can lead to a situation where only the wealthiest collectors and institutions can afford to buy the most valuable works of art, and keep them away from the general public and connoisseurs.
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