Money laundering is no longer a concern only for small businesses and the gambling industry. The art market has recently emerged as a soft target for money laundering activities. According to a recent report by the Financial Action Task Force (FATF), organised criminals consider the art and antiquities market attractive for these activities.
While most of the market participants have nothing to do with illicit activities, a lack of awareness and understanding often puts them at risk. Even worse, many jurisdictions fall short of investigative resources and expertise to combat the threat. Fortunately, the same report offered a list of risk indicators to identify suspicious activities indicating money laundering or terrorist financing.
As an art dealer, the awareness of these risks can help you devise adequate control measures to address the risk of money laundering and run your business smoothly. We will provide a few valuable insights to effectively deal with the threat.
Table of Contents
Implement Robust Know Your Customer (KYC) Procedures
Art dealers can mitigate money laundering risks by implementing robust KYC procedures to verify the identity of clients before engaging in any transactions. Collect comprehensive information about potential clients, such as personal identification, financial details, and the purpose of the art acquisition. Further, update and validate this information to maintain the integrity of your client database.
You can go the extra mile with KYC processes by adding protective layers with biometric authentication and online liveness detection. With liveness detection technology, it is possible to scrutinise biometric input like a facial scan. It means you can verify that the biometric data is from a live person rather than a fake source such as a photo or a video.
According to AU10TIX, this technology serves as a critical step to counter identity theft and fraud in high-value financial transactions. You can rest assured that you are selling art to a genuine person instead of an illegitimate buyer engaging in money laundering activities.
Adhere to Compliance Guidelines
In recent years, several high-profile cases have emerged with vendors and buyers using the market to obscure the origins of dirty money, sidestep sanctions, and avoid provenance checks.
As a preventive measure, the global art market has introduced a set of compliance guidelines to protect the industry from money laundering and terrorist financing crimes. Adherence to the following guidelines can help art dealers stay compliant and do their bit for the industry:
- Know the risks and laws applying to your clients
- Comply with KYC procedures for risk assessments
- Create risk profiles to monitor the background and purpose of each customer
- Establish a system for monitoring transactions with technology solutions like anti-money laundering (AML) software
- Know how to act when doubt arises
- Maintain the necessary records
- Research artwork to get information such as origin and ownership
With these actions in place, art dealers can collectively reduce the risk of money laundering activities in the art world.
Train Your Staff
Transactions related to money laundering and terrorist funding are often hard to detect because criminals have clever ways of concealing them. Everyone in your team should know how to recognise and respond to them. Educating and training staff on money laundering risks is a crucial part of fortifying your defences against such activities.
You can do it by providing regular training sessions to enhance the awareness of red flags and anti-money laundering regulations. Additionally, educate them about the evolving methods money launderers use in the art market. Also, create a culture of compliance within your organisation to maintain vigilance against illicit activities.
Collaborate with Law Enforcement and Industry Partners
The global art market generated a revenue of nearly $68 billion in 2022, touching the second-highest value mark in the last fifteen years. With such massive amounts involved, law enforcement agencies and regulatory bodies understand the risks and play their part in safeguarding the market from money laundering.
Active collaboration with them can help you stay informed about emerging threats. Likewise, connect with industry peers to gain insights into the best practises they implement to strengthen their defences and compliance measures. These steps can help you stay ahead of potential risks and foster a collective effort to combat the threat. Together, dealers can enhance the industry’s commitment to maintaining ethical standards.
Art dealers should master the process of dealing with the money laundering risks they face as a part of running the business. Staying a step ahead of illicit financial activities is essential to reduce the likelihood of becoming unwitting participants in them. You can follow these steps to create a comprehensive strategy that safeguards your clients and reputation as an art dealer.