After the criminals have gained their wealth through illicit activities, they cannot just use those funds without bringing attention to it. They try different methods to cleanse their money so the law enforcement authorities do not trace it back to the crime. This hiding and cleaning the black money to make them seem like legit money is what money laundering is. However, financial regulatory authorities have started the AML program to secure the financial sector from becoming ignorant compliant to the money laundering crime. Now criminals have turned to the art market to take advantage of it. In this blog, we will discuss how money laundering is done through the art market and how the AML program can secure it.
How Art Market is Involved in Money Laundering
The art market prefers the norm of anonymity and this is why the criminals are fleeing to the market for money laundering. The dealers of art are not interested in the buyers’ income and how legitimate the income is and this allows the criminal to hide their funds gained through illicit activity.
What criminals do is that buy an expensive piece of art from their illicit money. Since the industry is not scrutinized that strongly yet, the art is sold without much interference. Now the criminal has placed their money into the system without raising any concerns. After that, they transfer the art to a freeport for a cooling-off period. The art sits at the freeport for a while to divert any attention. The most commonly known freeport is Swizterland, the art can be placed there securely and free of cost. After a certain time has passed and the art properly becomes the known property of the owner, they place the art in the bank as collateral and take the loan from the bank. The loan is then used to invest in different opportunities to layer the source of illicit funds. When the profits are received from the investments, these profits are considered legal money and can be deposited into banks or used without being attentive to it.
The AML Program
The AML or anti-money laundering program is produced by the global financial authorities to trace the illicit funds gained from corruption or drug dealings or other illicit activities. The regulations require business entities especially those that are vulnerable to money laundering to take a risk-based approach. Businesses must identify their clients before onboarding them and monitor their operations and their transactions. They are also to report any suspicious activity to the regulators of their jurisdiction. Those who fail to follow the rules will be penalized with fines and permanent closure of their business.
These regulations first came in the 1970s through the Bank Secrecy Act after the increase in drug trafficking. It was first introduced in the banking and financial service industry. Then after the rise in terrorism activity, these regulations became even more strict and every industry became regulated. Since almost every business industry complies with the AML program, criminals have turned to a more conventional industry like the art market. However, the new reforms are now requiring the art dealers, sellers, auctioneers, and other members of the industry to verify the identity of the art buyer and ensure that they are not involved in the illicit activity.
Digital AML System
The manual method of checking the identity of every client might not only be a lengthy process but it might also not be as accurate. A more intelligent solution must be used for this process. Software-based, Ai-powered AML screening solutions are now available to ensure the AM program. The art industry can use it to verify their end-users and screen them against the sanctions list to ensure that they were not involved in any illicit activity before. The end-user just has to submit their ID card photo and the AI-powered solution scans the information within and ensures the authenticity of the ID document and after that screen it against the watchlists or sanction lists in no time. The solution not only ensures accuracy but is also a simplified process that enhances the end-user experience. It is high time the art industry also embraced the digital means to ensure AML programs.