A Wall Street Journal op-ed calls for sensible art market regulations but relies on some money laundering fairy tales
This commentary by Marion Maneker is available to AMMpro subscribers. (The first month of AMMpro is free and subscribers are welcome to sign up for the first month and cancel before they are billed.)
The Myth of the Money Laundering Art Market
With apologies for beating a dead horse, it is time to wade once again into the issues surrounding the art market and international money laundering. The occasion for our latest foray is William G. Rich’s opinion piece in the Wall Street Journal which is a perfectly reasonable idea justified with a load of nonsense.
The good news is that Rich is pushing for the art market to keep better records of the beneficial ownership of works of art over a certain value. One might reasonably and sensibly suggest that such record-keeping is necessary for works of art worth above one million dollars. The Treasury department has successfully imposed similar rules for the sales of luxury homes and condominiums in US cities where real estate was becoming an obvious conduit for money laundering. There is no evidence that art is being used to launder money, despite the penchant for claiming it is, but that’s probably as good a reason as any to do the record keeping.
The most clear-cut case of art being used to launder money by a criminal is Edemar Cid Ferreira, a Brazilian banker who had committed fraud in his own country. With the illicit money he received from the fraud, he bought a lot of art which he secretly moved to the United States. There he was storing it to be turned into cash at a later date, if necessary. That day never came. Edemar Cid Ferreira never sold his art in the US. It was seized there.
Money laundering is the act of concealing the origin of money because it was obtained through illicit means like theft, extortion, drug trafficking or receiving a bribe. So far, there’s no known example of money laundering where the perpetrators succeeded and were discovered later.
For example, a former aide to Imelda Marcos, Vilma Bautista, sat on 50 paintings once owned by the former despot for a very long time. She finally sold a $32m Monet to a famous hedge fund manager. News of the sale unravelled Bautista’s scheme (the hedge fund manager paid an additional $10m to get clear title from the Philippines) but no one has ever shown that Bautista was funneling money back to Marcos. The Bautista case looks more like theft from a thief than money laundering.
At least there was a sale in that case. The most recent case of art supposedly being used for money laundering was uncovered in a sting operation, cited by Rich in his opinion piece, that nabbed the son of a famous London art dealer. As Rich says, they “concocted a scheme […] using a Picasso painting valued at $9 million.” But they never actually did it. The scheme wasn’t terribly clever and there’s no proof that the not-so-successful son of an art dealer was somehow going to turn into a successful criminal mastermind.
The final example of art being used to launder money is Jho Low, the fugitive Malaysian fraud who bought a lot of art, real estate and bottle service at night clubs from Vegas to Monaco. That’s the one William Rich hangs his hat on.
The Billion-Dollar Whale Tale
Rich opens his piece by illustrating a loan made by Sotheby’s against 17 paintings Jho Low owned. To Rich, Sotheby’s unknowingly assisted money laundering when it did so. Except that’s not at all what happened. And Rich only had to pick up a recently published book, The Billion-Dollar Whale, to learn the details.
First, let’s talk about ways in which art has been successfully used to launder money. It was a fairly common practice recently in China for public officials to receive bribes by taking family heirlooms to auction houses who would offer them as valuable antiques. The briber would then conspire to bid on the object far in excess of its actual value but to the level of the agreed upon bribe. The consignor would then seem to receive legitimate funds for a family heirloom from a buyer concealed by the process. We know about this because Chinese officials eventually clamped down on the practice because it was so widely abused.
Had Jho Low wanted to use art to launder his money, he would not have gone through the very costly process of getting a loan from Sotheby’s. He would have simply conducted a private transaction where a “work of art” was sold and documented as a legitimate transaction. In fact, Tom Wright and Bradley Hope go into some detail about how Jho Low created fact email accounts for officials at some of his shell companies to generate a paper trail legitimizing his ownership of some of the art paid for by these companies.
Ownership was not why Jho Low bought art or anything else really. Wright and Hope thoroughly and depressingly document Jho Low’s compulsive spending. It began when he was student and achieved super-nova like levels once he had the multi-billion dollar 1MDB fraud in full swing.
By the time, Low went to Sotheby’s with his art collection, he was way beyond money laundering. Low was cash-strapped and scrambling to cover his tracks.
As Wright and Hope make clear repeatedly in the book, Low’s profligate spending was a sociopathic compulsion that drove him to create the 1MDB fraud in the first place and undermined any chance at the scheme ever succeeding.
Low spent money for status. His goal in the spending was to be seen spending money, not having the money itself nor possessing what the money bought.
In 2013, Wright and Hope document, Jho Low spent $330m on art privately and at auction. When he bid at Christie’s setting a record for Jean-Michel Basquiat, he did so in front of a dozen friends, including Swizz Beats and Leonardo DiCaprio. Being seen spending the money was Low’s goal. As a Christie’s employee wrote about the need for a lavish spread in Low’s skybox during the evening sale, “The box is almost more important for the client than the art.”
Suffice it to say, if Low was trying to use art like Edemar Cid Ferreira to move money quietly and secretly from one country to another for safe-keeping, he failed miserably every step of the way.
Art Dealers v Money Launderers: Bet on the Art Dealers
Getting back to Rich, the point of this defense isn’t to venerate the art market. The reason art is unsuited to money laundering lies in the art market’s vices. The volatile and subjective pricing, the illiquidity and lack of capacity make art a poor vehicle for money laundering. Timing is everything in art transactions but money launderers, as Jho Low demonstrated so well, often don’t get to choose their moment to transact. That makes a money launderer an easy market for some of the sharper players in the art market.
To prove the point, the art dealing family who sold Jho Low some of his more expensive Impressionist works and Basquiats were only too happy to buy them back when they were being liquidated at greatly reduced auction for prices.
In a battle of wits between Jho Low, who connived billions of dollars from sovereign wealth funds, national governments and a series of global banks, versus a family of art dealers, the art dealers won handily.
One might say to Rich, no amount of regulation will ever make the art market safe for money launderers.