Investigating and Preventing Crime in the Art World

Abstract

Preventing the crime of money laundering through works of art requires an analysis of the roles of each actor in the art world, including those in the private sector (galleries, museums, auction houses and insurance companies) and the public sector (Financial Intelligence Units and the Internal Revenue Service).

4.1 The Art World: Its Actors, Crime Investigation and Crime Prevention

Art shapes society and gives it its character. Art defines humans. Art is both heritage and history. Art is difficult to conceptualize, for it involves esthetics, feelings, utility and imagination. Certain knowledge is required to understand the art world, but this does not mean that one has to take a course in art history. A basic foundational understanding of the art world is sufficient to analyze cases involving robbery, theft, and forgery of artworks, and even money laundering through art.

Yet this is no small task, for artistic production, like the production of foodstuffs, clothing, etc., is the result of vast and ongoing human endeavor. Like agricultural production, the production of artworks can vary in both quantity and quality at different times.

We must not lose sight of what is often understood as persistent discrimination, primarily in favor of Europe and the United States, where quantity and quality are less important than the location and time period that the artwork belongs to. According to Robert Spiel, Jr., “collectors, dealers, and museums discriminate in favor of certain periods and geographical regions and have excluded others, to at least a significant extent.”¹

The following art, by time period and geographic region, are the most favored²:

• (1) 3000 B.C.–1000 B.C.

  Europe:

  Greek art and Greek and Roman writings

  Africa:

  Egyptian art

  Asia:

  Chinese pottery, Art of Babylon (Iraq) and Troy (Turkey) and the beginnings of Hinduism (India)

  America:

  Olmec art (Mexico)

• (2) 1000 B.C.–500 A.D.

  Europe:

  Roman art, Etruscan art (Italy), Greek and Roman coins and Greek art made of gold

  Africa:

  Pottery and sculpture (Nigeria), scientific instruments (Alexandria, Egypt) and iron sculptures

  Asia:

  Assyrian art (Iraq), Buddha (India 550–480 B.C.), development of Chinese calligraphy and early prophets

  America:

  Mayan art (Mexico and Central America) and art of the Moche civilization (Peru)

• (3) 500 A.D.–1000 A.D.:

  Europe:

  Byzantine art, cathedral architecture and decoration, tapestries, glazed pottery, Russian sculptures and icons, manuscripts and Venetian glass

  Asia:

  Islamic paintings, mosque architecture, Buddhist temples, Chinese and Japanese porcelain, Indian and Japanese sculptures, art of the Khmer civilization (Cambodia) and the Táng Dynasty of China

  America:

  Incan art (Peru) and Pueblo art (New Mexico and Arizona)

• (4) 1000 A.D.–1400 A.D.

  Europe:

  Clocks, scientific instruments, stained glass and Venetian glass

  Africa:

  Early Western kingdoms

  Asia:

  Ming Dynasty (China, 1350–1650) and Samurai swords (Japan)

  America:

  Aztec art (Mexico, 1000–1500) and Anasazi art (Arizona, New Mexico and Utah)

• (5) 1400 A.D.–1500 A.D.:

  Europe:

  Italy—Botticelli (Quattrocento), Brunelleschi, da Vinci, Donatello, Fra Angelico, Masaccio, Michelangelo, and Titian. Elsewhere—Bosch, Durer, Gutenberg and the Van Eyck family

  Asia:

  Sikhism (India)

  America:

  Pre-Columbian Period

• (6) 1500 A.D.–1600 A.D.:

  Europe:

  Italy—Caravaggio, Cellini, Giorgione, Michelangelo, Raphael, Tintoretto, Vasari, and Violins Elsewhere—Brueghel Family, Cranach, El Greco, Grunewald, Hals, Holbein and Rubens

  Africa:

  Sculptures in bronze and ivory (Nigeria)

  Asia:

  Oriental rugs and paintings, especially Persian (Iran), Ottoman culture (Turkey) and Ukiyoe paintings (Japan)

• (7) 1600 A.D.–1700 A.D.:

  Europe:

  Bernini, Borromini, Murillo, Poussin, Rembrandt, Stradivari, van Dyck, Velasquez, Vermeer, Watteau, Zurbarán, silverware and fine porcelain

  Asia:

  Imperial Chinese engravings and artwork

  America:

  Last of the Mayan civilization (Mexico)

• (8) 1700 A.D.–1800 A.D.:

  Europe:

  Antique furniture (Louis XIV and XV), elegant glassware (Baccarat and Waterford), fine porcelain (Dresden, Limoges, Meissen and Sèvres), vintage wines, Canaletto, Constable, David, Fragonard, Gainsborough, Goya, Guardi, Hogarth, Reynolds, Turner, Tiepolo and Wedgwood

  Asia:

  Hokusai and Utamaro (Japanese painters)

  America:

  Copley, Gilbert Stuart and Benjamin West

• (9) 1800 A.D.–1900 A.D.:

  Europe:

  Art museums (ca 1890), art nouveau, Cézanne, Degas, Dufy Family, Fabergé, Gauguin, Manet, Matisse, Monet, Pissarro, Renoir, Rodin, Seurat, Toulouse-Lautrec, van Gogh, the development of photography and the industrial revolution

  Asia:

  Hiroshige (Japan)

  America:

  Bierstadt, Carousels, Cassatt, Homer, Innes, Sargent, Remington, Russell, Stieglitz and Whistler

• (10) 1900 A.D.–1945 A.D.:

  Europe::

  Art deco, cubism, constructivism, expressionism and surrealism. Braque, Brancusi, Calder, Chagall, Dalí, Hummer, Kandinsky, Klée, Léger, Matisse, Miró, Modigliani, Mondrian, Moore, Munch, Picasso and Utrillo

  America:

  Bellows, Benton, Calder, Cassatt, O’Keeffe, Pollock, Rivera, Rockwell, Tiffany, Wood, Wright, Di Cavalcanti, Portinari, Tarsila do Amaral, Anita Malfatti and Galileo Emendabili

• (11) 1945 A.D. to present:

  Europe:

  Picasso, Damien Hirst and Anish Kapoor

  Asia:

  Takashi Murakami

  America:

  Ansel Adams, Botero, Calder, Edward Curtis, Johns, Lichtenstein, Rauchenberg, Rockwell, Rothko, Warhol, Di Cavalcanti, Portinari, Tarsila do Amaral, Anita Malfatti, Galileo Emendabili and Romero Brito.

Ordinarily, when we think of artworks, we immediately think of these and of museums. Museums, however, are but a part of the world of art—one of the most commonly accessed, much like libraries. Both collect and maintain works, rare books and manuscripts that are valuable and draw the interest of collectors and specialized dealers. Oftentimes they regard their establishments as more of a museum than a business. This is partly true, if we take into account the people who frequent these spaces for purposes of observing rather than acquiring art, in an informal way that is more intimate and less institutional than in a museum. Then again, everything a gallery owner has to offer is placed on exhibit rather than put up for sale.

There is a widespread belief that only the well-off can afford art. Some can, but a surprising number of persons and collectors from the middle class passionately devote their time and money to the arts. Collectors also make donations to one another, much like an exchange of gifts.

Furthermore, large companies or corporations routinely take an interest in acquiring works of art, encountering no resistance from their stockholders. Such acquisitions often turn out to be important investments.

Investors in art are collectors who often care little about the asset collected. Those investors who frequently engage in acquisitions and sales are considered art dealers.

Artworks are fragile and intolerant of temperature and humidity extremes, and therefore require proper transportation by specialized companies.

Mere examination by a specialist³ is no assurance of authenticity, although the specialist may, in many cases, be capable of authentication. Authentication requires special expertise in specific areas. Anyone who claims knowledge of everything, rather than of fine art, of arms and armor, or of stamps, for example, is unlikely to be a good appraiser or authenticator.

Preservation of a work of art requires diligent care to minimize all hazards, even when strict security measures are put in place. To that end, a proper insurance policy is in order to protect against incidental damage. One would normally expect protection against loss of the work, a drop in its market value, and assumption of liability.

As a general rule, insurance policies are based on contracts. Yet in the case of artworks, special consignment arrangements are often used when the parties would normally be disinclined to rely on standard agreements. Insurance companies and their clients are free to negotiate any contractual clauses that do not violate public policy or preestablished rules.

A number of ethical questions might be raised. One of these might be, for instance, whether a dealer may also be an appraiser. Conflicts could arise as to whether an appraisal was intentionally low so that the appraiser might himself acquire the property through someone else. This would be artificially lowering the price for illegitimate gain. An appraiser for a given class of art ought not to be able to buy or sell it.

Countless variables go into determining the price of a work of art. Diva Benevides Pinho illustrates this complexity by explaining that “people present at the sale of a piece also play a role in determining its price through the operation of supply and demand. If famous buyers compete for a work of art, they bid up the price and their interest lends it an aura of quality. Conversely, if important buyers stay away in droves, the price of the piece tends to fall.” Citing Howard Becker’s observations, she adduces: “It is more important to know who is buying or bidding for the work of a given artist than to have precise knowledge of the quality of that work.”⁴

Academia plays an important role in the scientific study of artworks, placing historical, geographic and sociological aspects of art before the public—especially with regard to those works more recently discovered or held for years by collectors.

For legal issues, there are specialized professionals (such as attorneys) who deal with consignments, auctions, charity institutions, gifts, and copyrights.

In any discussion of the world of art, we would do well to take note of its underworld. Indeed, there is always a need to be aware of the underworld (in the pejorative sense) as an ecosystem apart, one that permeates the artistic environment.

Along similar lines, Robert Spiel, Jr., states that currently, “criminals who are comfortable functioning in the art world far outnumber their police or law enforcement counterparts.”⁵

There are reports of crimes committed by employees of museums and specialized companies, usually from collectors and dealers. Investigations in the United States, for instance, show that most (80–90%) of the crimes committed in this field are perpetrated by participants in the market, which includes curators, collectors, volunteers, dealers, appraisers and even professors. The small remainder is attributable to ordinary criminals who know practically nothing about the object of their crimes—other than what they have heard in the media about how easy they are to steal and how much they are worth. Forgers and distributors of fakes, on the other hand, require knowledge and connections in the art world, and sometimes emerge from the artistic milieu or are themselves professionals in restoration.

Business practices in the art world are different from many other industries. It is not uncommon for collectors or dealers to simply make an exchange, without a penny ever changing hands. Furthermore, museums make acquisitions by payment, barter or on loan from other museums, dependent as they are on donations or government subsidies.

Acquisitions are ordinarily recorded, whether by the seller or the buyer, in the case of museums and auctions. The amounts involved require that the parties keep a record, and that often facilitates investigation. Still, among private collectors or investors, wealthy or not, records are not kept, and proof of legitimate ownership hinges on finding a receipt, petty records or even photographs. There have been cases in which the press revealed the existence of works of art based on photographs taken at the home of a person being investigated.

Inventories gather together many descriptions by collectors, yet partial records of artworks have also been assembled by private collectors, notably of the more important artworks, relying on memory as a form of concealment, to the detriment of searches conducted afterward.

An important consideration is the confidentiality surrounding dealings in art, except, of course, where dealers are concerned. Buyers and sellers do not seek exposure. Sellers are often embarrassed at having to part with their treasures, and buyers, mindful of this, will avoid adding to their displeasure. Dealers, in turn, are protective of their margins, and prefer not to disclose them.

A general lack of transparency as to how prices are arrived at is a characteristic of this market. We often do not know, for instance, the true worth of museum pieces. Art dealers are by no means consistent, either. Some will cut prices to attract customers, while others will categorize or label their items with little regard for market niceties.

World War II and drug trafficking were important events affecting the theft of artworks. During the war, art was stolen by civil and military authorities. Soldiers engaged in this theft throughout the conflict, and the art taken has ended up on the market because the generation that took it is dying out. This has resulted in claims being brought by the victims (governments, institutions or descendants).

With regard to drugs, there are theories to explain this underworld’s connection to the world of art. Art can finance the acquisition of drugs or be coveted by drug dealers or their associates, now engaged in its legitimate acquisition—a phenomenon heretofore unknown. One theory is that, as in the case of rich gangsters of yore, the purchase of paintings, engravings, and rare books will, it is hoped, bring them a measure of respectability—a doubtful prospect given the low esteem in which drug traffickers are held.

Manus Brinkman believes that the underlying causes for the international traffic in cultural property are similar to those underlying the traffic in drugs. “On the one hand, there is a demand from wealthy consumers, and, on the other, there is a huge supply in regions where poverty reigns. It is rather strange that the collection of cultural objects of unknown provenance by wealthy private individuals is still widely considered to be socially acceptable. Nobody has to collect illicit material.”⁶

Constant forgery of works of art has decreased the interest of serious buyers. They are increasingly skeptical of an artwork’s authenticity and disinclined to blindly trust many dealers, whether because of the quality of the forgery or misgivings about their intentions.

Fences or forgers engaged in selling the proceeds of crime to an unsuspecting public have also played an important role. Criminals pass forged or stolen items along to fences who in turn sell them to the unwary.

The use of fake identification documents is an added complication. A fence with a fake ID can ask a buyer to call the bank to have a payment order made out to the seller’s fake name; that way the seller is able to skirt bank security procedures.

Authentic provenance papers may also be stolen, or even forged from museum or auction house catalogs. The crime against property can occur before or after the forging of provenance papers. The fact that, for example, Sotheby’s or Christie’s⁷ may once have sold a piece is no clear assurance of its authenticity. Provenance may have been legitimately acquired for fraudulent purposes using the family of the artist or even the artist for authenticity, thereby engendering an irrefutable presumption of authenticity even in a court of law. That would happen if an artist or relative were hired to certify new provenance for a third party, causing a conflict of interest between the original buyer of the work and whoever hired the second provenance.

Finally, unlike museums and art dealers, ordinary people rarely have documentation for artworks in their possession. Seldom do they have a bill of sale, proof of payments, provenance, or any trace of original or subsequent documentation. This is normally because the piece has been in the family for generations, providing fertile ground for criminals to commit a vast array of crimes based on advantages deriving from this overly common situation.

Nowadays, with the use of computers, it is easy to verify stolen or recovered artworks, especially in archives containing inventories of pieces in the hands of collectors under investigation or indictment. These also facilitate rapid transmission of information on disappearances, with complete descriptions, often including photographic records.

We know that the commission of ordinary crimes (larceny, robbery and possession of forged works, not to mention fencing) is common in the world of art. This is relevant to calculations involving statutes of limitation. For example, there are large differences among these types of crimes when it comes to statutes of limitation. The issue is to know when the crimes were perfected—that is, when their commission was complete. Theft or robbery is consummated by possession, i.e., once the criminal acquisition is complete or, where violence is involved (robbery), once the deed is done and the thing is taken into the peaceful possession of the perpetrator. It would be easy to calculate the statute of limitations from that moment, but in the case of forged items (receiving), note that the statute of limitations begins to run at the time the perpetrator is in peaceful possession of the work and conscious of the forgery having been committed in an earlier crime against the property. As in the case of artworks that have been handed down for generations, only the last person in possession of the work can be held liable as of the moment that person—aware of the illegitimacy of the thing—acts as though he or she is the owner. The statute of limitations would begin to run at that moment.

There are large databases listing stolen or missing works of art. They may be found at museums, international agencies (International Criminal Police Organization—INTERPOL⁸), governmental agencies (Federal Bureau of Investigation—FBI⁹), nongovernmental organizations (The Art Loss Register ¹⁰) and International Forums (UNESCO¹¹ and the International Council of Museums—ICOM¹²).

The issue we face today is that both stolen and legitimate artworks may attract criminals seeking to launder dirty money by exploiting a market that is little known, hard to understand, easily manipulated (by its own actors, such as collectors and dealers), and fraught with problems (theft, robbery, forgery and laundering).

Although traditional money laundering methods, such as the purchase of commodities and real property through the financial system (especially parallel or clandestine financing), through third parties (stooges), and through offshore banks or hawala systems, to drive a wedge between the money and its origins, have long served organized crime, it has moved into other areas, less closely watched and with fewer rules.

As explained by Fletcher Baldwin, Jr., a “novel way is through the use of art. Although it sounds strange to think of drug traffickers and arms dealers purchasing famous Renoirs and Picassos, the use of art to launder money is not as strange as it seems; and in fact, it is extremely effective.”¹³

Dealers can help in detecting crimes against property (theft, robbery and fencing) or even financial crimes (money laundering). When a tender is made, they can promptly and anonymously access the websites involved (an informal cautionary investigative technique) and disallow or allow the deal. They might also notify the police, the Attorney General’s Office or the Financial Intelligence Unit for their country (Financial Crimes Enforcement Network – FinCEN, and Council for Financial Activities Control – COAF), in which case they might not remain anonymous (for the records would identify the source). If they do accept the operation while notifying the authorities, they risk future civil or even criminal liability, including prosecution for money laundering (given suspicious activity reporting requirements, should the omission be deemed significant, in view of prior behavior, if there was any risk of an untoward outcome). Here we would have a potential criminal offense, a special mode of participation, and a confluence of agents, where the primary act was negligence on the part of the individual who should have taken proper precautions given their prominent position in the market.

In that case there would be no room to allege violation of the principle of legality. The principle does indeed bar curtailment of rights through criminal sanctions provided by law in both the formal and practical senses, already expressly and precisely set forth in great detail. When a crime does not specify the requisite level of intent, it opens the door to subjective interpretation as to whether a crime has occurred, even though the perpetrator may deny having had any intention to commit the crime.¹⁴

One might invoke the “conscious avoidance doctrine”—that is, a traditional rule in the United States whereby knowledge is imputed to anyone who engages in willful blindness.¹⁵

Dealers may simply prefer to decline a purchase, in which case they would report nothing and avoid involvement with the authorities. That would make it more difficult to uncover the crime and recover the item for delivery to the victim; this is why their behavior is so important in fighting the kind of crime that pervades the art world.

An unwary or negligent dealer might, in hopes of acquiring some important work, prefer not to select the private method of investigation and simply make the acquisition without notifying the authorities, thereby increasing the separation between the victim and the property (here again we have the possible case of prior behavior having given rise to the outcome).

It might happen that out of panic some dealers, faced with persistent investigation, might destroy the purloined, stolen, forged or laundered item, or simply drive it underground, dodging the investigation and evading their duty to notify the authorities or even protect potential buyers. The intensity of the investigation could have a double effect: It might frighten or provide assurance that the item will be recovered and that perpetrators will eventually face charges. Faced with strenuous enforcement efforts, more and more participants in the market will likely pitch in to cut down on its utilization by criminals.

The dealers could, in effect, act something like informants—that is, those who, by virtue of their confidential contacts (among, perhaps, their former underworld cronies), their contacts in the world of art, or both, either know or are in a position to find out things that would not otherwise be discoverable. These are persons whom criminals are inclined to trust, even though that does not necessarily mean they are themselves current or former criminals. Directly or indirectly, they end up receiving pertinent information about past, present and future criminal activity.

In the United States, undercover agents are essential to solving such crimes. They are government law-enforcement agents, professional officers who pass themselves off as criminals. Unlike informers or dealers, they are highly resistant to retaliation, easily controlled or directed, and capable of reacting very capably in an emergency. They are, in addition, able to come off as highly credible witnesses. They would be relatively unexposed to liability in the event of some accident—unlike informers or dealers.¹⁶

That approach might, together with others, result in the apprehension or recovery of purloined, stolen, forged or genuine works of art procured with the proceeds of earlier crimes. In most legal systems, whenever an arrest is made, it is possible to seize things pertinent to the crime (in the case of money laundering, things relating to the current crime or some antecedent crime). These provide important evidence, both as to the purpose of the crime (the thing or person the unlawful behavior is about) or whom it benefits.

4.2 The Art of Money Laundering and the Roles of Those Who Combat It

The romantic view of art (utility, historical record, expression, imagination and beauty) has no parallel in current practices, especially in a world in which unlawful conduct, including the proceeds of drug trafficking, once restricted to certain industries, now makes inroads in the field. To make matters worse, criminal methods have changed radically in pernicious crimes, such as money laundering.

Art has been highly valued by mankind since ancient times. However, its current business sophistication, unprecedented international market, the huge sums of money involved and its use as an investment by persons indifferent to it and even by criminals, would once have been unthinkable.

University of Florida professor Fletcher Baldwin, Jr.,¹⁷ and University of Ohio professor Hanna Purkey,¹⁸ draw an important parallel between real estate and art. Real estate offers some of the best-known methods for money laundering because the properties involved are themselves relatively high in value, are often the subject of speculation, and can even be paid for in cash. There are other similarities between real estate and art. Both are classed as non-financial, and therefore lack the regulation and rigid, standardized controls in place for the financial sector.

One important difference is that art may be transported, appraisers or dealers are easily bought or even made up—insofar as no license or qualification is required of them (reputation and experience being sufficient)—and no authorization is even required for dealing in art.

In turn, regulatory agencies pay little attention to the art world.

In the United States, the Patriot Act has properly regulated the real estate market to exclude all criminality, and requires real estate agents to report cash operations of $10,000 or more.¹⁹ Although it does impose reporting requirements on non-financial sectors, Section 365 places no such requirement upon art dealers, as it does for banks, casinos, car dealers and currency exchanges.

In Brazil, the obligation to report suspicious operations is just as incumbent upon “individuals or companies engaged in real estate promotion or the purchase and sale of real property” as it is for “individuals or companies dealing in jewelry, precious stones and precious metals, art objects and antiques” (Article 9, Subsections X and XI respectively, of the Money-Laundering Law, Law No. 9613 of 03/03/1998, amended by Law No. 12683 of 2012). The new language did amend Subsection X to also include individuals, and added Subsection XIII, placing similar obligations “upon business syndicates and depositories of public records.” These amendments are welcome, but ought to be accompanied by more stringent controls on communications, which have traditionally been lacking in the art industry. Another problem is self-regulation, which could lead dealers to accept cash payments without any concern for future liability.

For example, the two largest auction houses in the world, Sotheby’s²⁰ and Christie’s,²¹ are self-regulated and required to act in good faith in the interest of their clients or consignors.²² Both have accepted cash payment and are not under any specific obligation to report suspicious operations. Sotheby’s does not prohibit cash payments, but does subject them to unspecified legal restrictions, whereas Christie’s does not even mention any limitations on cash payments, which may be made by electronic transfer, payment order, cash or check.

Manus Brinkman explains that “although reputable auction houses and dealers act within the parameters of the law, previously their trade associations did not support initiatives to actively restrict the free trade in cultural objects on the theory that the black market thrives from overly retentive trade in cultural objects: as the demand for antiquities grows, the supply is cut off.”²³

These auction houses foster demand for objects from supplier countries, and they are aggressive trendsetters. Brinkman illustrates: “In 1996, the strong demand for Southeast Asian paintings among an increasingly affluent Asian middle class became apparent when Christie’s withdrew five Indonesian paintings from its Singapore sale after the National Museum in Jakarta saw them and identified them as stolen.”²⁴

International auction houses in the United States all follow the Uniform Commercial Code, which does not restrict the use of cash as a form of payment. They may therefore accept cash payments, irrespective of knowledge of illegality or whether the money comes from unlawful activity—this despite the requirement that they act in the best of good faith.

Because they are self-regulated, it is easy to shift responsibility to the consignor and assume no obligation toward the international community.

Note that according to Erin Thompson, traditional confidentiality has allowed dealers and auction houses to omit information about prior owners. A research paper on Sotheby’s and Christie’s showed that from World War II until 2000, some 95% of the objects handled in London came with no indication of where they were found, and 89% listed no historical information. Similarly, less than 1% of Mayan objects auctioned by Sotheby’s between 1971 and 1999 were listed with any indication of where they were found. It concludes by stating that “the great majority of antiquities sold to private collectors in the last 50 years have no provenance.”²⁵

It must be pointed out that the lack of provenance means that the piece is not accompanied by documentation on where it was found or a paper trail showing past ownership (to say nothing of the money flow involved). Still, it cannot be categorically stated that the object was necessarily illegally exported from its country of origin.

Lack of proper rules, monitoring, or even interest has caused many launderers to look to this market as a means of cleaning their dirty money, since prices may be established, manipulated and altered at any time.

It is true that dirty money gradually and on a large scale began discovering art and real estate. Increasing the flow of illegal money allowed organized crime to move in, followed by harmful consequences given the increased danger of fraud, tax evasion and corruption. Art thus became a natural channel for the laundering of illegal money.

Authorities have become aware of problems surrounding the world of art, such as its vulnerability on a whole series of issues and threats (for there are terrorist organizations stealing cultural assets to finance their activities). The large amounts of money involved and the lack of transparency in their negotiations require greater control by the authorities, whose inaction provides unprecedented opportunities for organized crime to launder dirty money. All of this leaves out the hunger for profits of private investors, who view art as just another business whose first principle would be “Business is not built on the Beatitudes.”

Actual economic impacts are felt whenever a large volume of illegal money is channeled. In the case of art, in the name of the transmission of cultural values, its actors appear to have paid little attention to a number of unlawful practices—most notably, tax evasion, money laundering, and even corruption.

In an important observation, Misha Glenny explains that “the shadow economy has become such an important economic force in our world, and yet it is surprising that we devote so little effort to a systematic understanding of how it works, and how it connects with the licit economy. This shadow world is by no means distinct from its partner in the light which is itself often far less transparent than one might suspect or desire.”²⁶

Questionable practices on the part of its participants have been permitted in the name of the independence of the industry and its necessary secrecy. All the while, court cases, reports in the international press and several studies have suggested that there might be international, organized, illegal conduct behind it.

Neither could the emergence of visible links between organized crime and art be viewed with equanimity, for it could soon spell the end of its market—known as it is for forgeries rather than good practices—and add to this the risk of fostering and perpetuating serious criminal behavior (terrorism) against a backdrop of institutionalized inertia.

There appears to be a generalized perplexity acting against all efforts at government control, dependent, as it is, on confidential information doled out in dribs and drabs and not easily understood. This realization has surprised scholars and confronted orthodox management practices. The industry is surrounded by an aura of mystery that cannot be boiled down to a simple prognosis of unlawful behavior, but instead, more of an unevenly-distributed criminal prognosis.

That sophisticated methods and techniques are used to wipe out all vestiges of crime—methods that mutate in response to changes in crime-fighting techniques—calls for nimble, flexible legislation, focused on the harm done by antecedent crimes, and on the greater harm occasioned to the economy by the mixing of licit and illicit money.

Hence the need to reflect on the role of each participant in the industry, so that necessary measures may be adopted to obtain the desired results in a reasonable time—all of this, of course, without prejudice to fundamental rights.

Despite the appearance of regulatory control, the use of art in the laundering of money has attracted organized crime, inasmuch as the authorities lack the training required to spot a potential suspect. Drug cartels—mindful of the inattention or even lack of knowledge on the part of many authorities as to the considerable growth in the use of art as a means of laundering money—have made considerable use of this industry.

Examples abound worldwide, even in Brazil,²⁷ showing that artworks are transferred into or out of the country for use in the international market, with little apparent regard for the origin of the funds used to acquire the pieces, but concerned entirely with the art itself as its sole qualification.

Citing Marianne James, Hannah Purkey shows that groups as different as Americans, Italians, the Russian Mafia, the IRA and Colombian cartels are believed to have laundered illegal money through the use of art because of its facility of transport, its high value and its lack of regulation or control.²⁸

Other typologies have been detected. One of these, smurfing, consists of dividing up illegal funds among many institutions. It is a spreading out of financial investments designed to make it more difficult for the authorities to fight money laundering. Because it has come under effective control, that approach is no longer so popular among criminals, who have moved on to non-financial vehicles, such as real estate, in order to sidetrack government enforcement efforts. The Financial Action Task Force (FATF) is working on the problem, and has proposed greater control over non-financial activity. It is also looking into techniques whereby prices are artificially raised or lowered to create bogus invoices.

As in real estate, art makes it possible to appraise an asset so as to facilitate laundering, through the resulting substantial increase in insurance (or the mortgage, in the case of real property). Fake documentation makes it possible to obtain an incorrect property appraisal to secure hefty financing.

Laundering through artworks is accomplished by incorrectly stating prices, quantity and quality, and by overseas transportation, all in an effort to convey some legitimacy to illegal money.

4.3 The International Council of Museums

Established in France in 1946, the International Council of Museums (ICOM) has been granted consultative status by the United Nations Economic and Social Council. Specifically with regard to museums, it has prepared a Code of Ethics for Museums,²⁹ unanimously adopted by the 15th General Assembly held in Buenos Aires, Argentina, on November 4, 1986, and revised by the 21st General Assembly held in Seoul, South Korea, on October 8, 2004.

The Code constitutes a minimum standard for museums. It provides, for example, a clear statement of institutional standing for museums (1.1), public access to its collections (1.4), proper safety standards (1.5), sufficient funding (1.9), and income-generating policy (1.10). It requires that every effort be made to ensure that each item purchased, donated, loaned, placed in trust or exchanged was not acquired illegally in its country of origin, nor illegally exported therefrom, nor from any country through which it transited, where clear ownership title might exist, including the country in which the museum is located. To this end, there is a due diligence requirement to establish the complete history of the item in question, back to its discovery or creation (2.3). It bans the acquisition of an object where there is reasonable cause to believe that recovery involved unauthorized or unscientific fieldwork or intentional destruction of or damage to monuments, archaeological or geological sites, or species and natural habitats (2.4). Museums likewise should not acquire biological or geological specimens that have been collected, sold, or otherwise transferred in contravention of local, national, regional or international law (2.6). In the case of disposal, the legal or other requirements and procedures must be complied with fully (2.12).

4.4 Cultural Entities and Incentives for the Diffusion of Art

There is no central federal agency in the United States charged with cultural policy—a Ministry of Culture, for example—as there is in Brazil. Cultural policy in the United States is spread out through different institutions, among them the Smithsonian Institution. Regulation of museums is handled through local legislative bodies (on the state, city or county level) and not by federal institutions. Public policies are therefore not easily coordinated.

According to James Reap, amendments made since 1980 to the National Historic Preservation Act (NHPA) have charged the Secretary of the Interior with the responsibility of directing and coordinating North American activities based on the UNESCO Convention of 1972, in coordination with the Secretary of State, the Smithsonian Institution and the Advisory Council on Historic Preservation.³⁰

The Smithsonian Institution (the world’s largest network of museums and research centers), which brings together some 19 museums and galleries, in addition to the National Zoological Park, and nine research centers,³¹ is a respectable American institution and receives donations from foundations, corporations and individuals. This happens, according to Judith Leonard, General Counsel for the Smithsonian Institute,³² as a self-regulated gift authority and a nonprofit organization. Its funding is separate from the Treasury Department. On its website, one sees that money can be donated, yet there is not much information on how such donations or payments are made.³³ Counsel made it clear that the Institution makes careful examination of provenance, and always checks the authenticity of artworks. Both she and Bonnie Magness-Gardiner, FBI agent and member of the Art Crime Team, categorically assert that the Institute has ethical restrictions in place that are stricter than those drawn up by ICOM.

Bonnie Magness-Gardiner added that many crimes were discovered because of illegal transportation, or when suspicious banking activity occurred, in which case alone there would be reason to report a suspicious operation. She also disclosed that all possible information, including the use of Google searches, is obtained by FBI agents, and does include published notices. Finally, she stated that the Archives have suffered considerably from the illegal acts of their countless visitors, because of the sheer quantity and fragile condition of the papers consulted.

The U.S. Congress has, since 1917, allowed deduction of donations to religious, educational and charitable entities organized as nonprofits (NGOs). We cite a 1938 report from the House Committee on Ways and Means in which Aaron Thompson explains that tax revenue losses due to charitable donations are offset by lessening the financial burden, which, through the resulting benefits, promotes the general welfare.³⁴

The correctness of granting large tax deductions has been the subject of frequent assessment of its effectiveness, purpose and potential for abuse. The Internal Revenue Service has only allowed deductions of up to the market value, in the case of art donations, in order to prevent the artificial inflation of appraisals and the corresponding undue increase in the tax deduction.³⁵ In order to preclude deductions of illegally imported items, only those donations based on provenance should be allowed. This would shift buyers’ interest in acquiring fraudulent or stolen objects.

Deductions are also allowed in Brazil. The best-known cultural incentive legislation is the so-called Rouanet Law (Law No. 8313 of 12/23/1991),³⁶ which instituted the National Cultural Support Program (PRONAC). There is also a law in support of audiovisual work (Law No. 8685 of 07/20/1993), as well as other similar provisions,³⁷ as well as exemptions from assessment of the Excise Tax on Goods and Services (ICMS), and a state tax on sales of items imported into Brazil in the states of Rio de Janeiro and São Paulo.

The Museum of Contemporary Art of the University of São Paulo (MAC-USP),³⁸ for example, has been guided by rules established by the ICOM Code of Ethics for Museums, where acquisition takes place by purchase or donation from artists, collectors, institutions, private companies and the Friends of MAC-USP (with or without reliance on cultural stimulus laws). To that end, evaluations are conducted on the merits and documentation by museum professionals, who in turn issue specific findings to be deliberated upon by the MAC-USP Council. Informality between artists and the art market is still prevalent.³⁹

Institutions should take note. For example, New York’s Metropolitan Museum of Art was publicly criticized for its policy of acquisitions. This is an example of the sort of problems arising from secrecy in acquisitions. In 1972, Dietrich von Bothmer, curator of Greek and Roman Art at the Met, saw a vase in Zurich, which was presented and represented by Robert Hecht, Jr., an American living in Italy and involved in the arts—albeit in several questionable transactions. Dietrich von Bothmer acquired the piece and put it on exhibit in November of that year. A later investigation, however, found that a Lebanese exchange broker took part in the negotiations, and had initially introduced himself as a Swiss collector, then as an Armenian collector and finally as an art dealer. This individual claimed to have received the vase from his father, and to have owned it for 50 years. Subsequent investigation by the Italian police revealed that the piece had in fact been illegally excavated from an Etruscan tomb in 1971.⁴⁰

Museums have grown and developed while changing many of their functions and broadening their scope. They have taken on newfound positions within a globalized and highly competitive society that includes tourism, the Internet and technology among its many features.

As Yani Herreman explains, “[o]ne of the most important and permanent changes in the development of the contemporary museum has been to become more audience-conscious and to be more in step with modern social processes.”⁴¹ This also holds for auction houses, galleries, libraries and fairs,⁴² included as they are in this new global context characterized by sustainable development and cultural tourism.

Sarah Thornton tells us that although many students enrolled in colleges of fine arts do not feel comfortable with the title of artist, they are often in need of endorsement from an art dealer, an exhibition in a museum or a teaching job.⁴³

We thus arrive at the close of the twentieth century and start of the twenty-first century in what is turning into a veritable cultural boom. Never before have so many institutions of culture been turning up under construction, undergoing restoration or being added onto in the midst of important economic and social change.

Auction houses or art galleries may acquire an item by one of two methods—that is, by consignment or by acquisition. They may also enter into combined consignment and acquisition agreements. The first possibility (consignment) is very common because it dispenses with the cost of purchase and, if no sales are forthcoming, simply returns the item to the artist. Because artworks are relatively expensive, auction houses and galleries have opted for that approach coupled with an exposition agreement with the artist, whereby each gets 50% of the sales revenue. This all depends on the agreement, which may arrive at a 70–30% split favoring the artist. The percentage varies, depending on the artist and cost of production of the item, which is good for artists who are still living. Auction houses or galleries in turn undertake to sell the work of the artist, pay to have it published in specialized catalogs (if not their own) and bear the costs of opening up the exposition. Some auction houses specialize in certain types of works or have a knack for making unknown artists popular.

Auction houses are today one of the most popular venues for the sale of artworks and account for 50% of annual sales in the United States. Ninety percent of the multi-billion-dollar global market and almost three-quarters of all sales are handled by Sotheby’s and Christie’s.⁴⁴

The public—observers and buyers alike—have flocked to auctions. A similar phenomenon has taken place in Brazil and “demanded of art dealers a more organized approach to the product and to the clientele. Larger rooms were sought out in ‘nicer’ locations (…). Innumerable works by unknown or little-known artists were added to the catalogs, increasing the number of sales. The cost-to-invoicing ratio became a subject of great concern with the scarcity of higher-priced works by known artists, and this was aggravated by criticisms to the effect that auctions had become ‘fire sales’ liquidating gallery ‘overstocks.’”⁴⁵

Auction houses play an important and complex role as agents for both seller and buyer, while also representing themselves. Hence their broad range of important responsibilities, including that of obtaining a license for their location, making strategic efforts to maximize their offerings of goods, providing relevant information as to the nature and price of goods on the market, accepting payment and providing assurance of safely shipping all orders to the buyer. However, they make the seller liable to the buyer for any defect in the item.⁴⁶

To see the profit they make, one must consider the cost of goods sold, their stock of items (inventory and consignment), and their accounting and sales figures. It is not easy to verify the dealings between auction houses or galleries and artists since there is no requirement that they inform the authorities of their revenue from consignment sales. Some artists pay their own personal expenses in cash and prefer that form of payment from auction houses or galleries for their works sold on consignment.

An auction house may offer financial facilities and options. There are cases of loans given to buyers using the item itself as a guarantee for the loan, but this was criticized on the grounds that exaggerated appraisals of the work would serve to facilitate its acquisition.⁴⁷

On inspection of a consignment document, one can see that it contains the name, address and telephone number of the consigning artist, a description of the item or items, the price set by the artist, the date negotiated, the percentage agreed upon between artist and consignee and their signatures. Nothing is said about the form of payment. Then again, in Information Document Requests for the IRS, there is a requirement that all art received on consignment be individually recorded, along with the profit and the amount of items, on a yearly basis.⁴⁸ This happens because gross revenue must be understood as all revenue, irrespective of the source—whether money, property, services rendered or even payments in kind (meals, lodging, inventory, etc.), unless prohibited by law.

Once items are sold, auctioneers and their employees carefully examine and appraise them. Experts may be consulted to identify or authenticate an unknown work. In the event of disagreement, the auction house must notify the consignor of its internal disagreement, even though the seller normally sees the auction house as a specialized technical market, relying on its recommendations as to what constitutes a good price.⁴⁹ They should therefore provide reliable opinions on prices and make good recommendations as to what to do with an item once consigned.

As an example, examination of the Conditions of Sale for an auction of antique paintings held at Christie’s in New York on June 6, 2012, turned up the following⁵⁰:

• 01. The Conditions of Sale set forth all of the terms on which Christie’s, as the seller’s agent, shall deal with the buyer (Para 1). Christie’s is allowed to make amendments to the terms during the auction, and the buyer in making his bids is bound by the terms (Introduction), with no time for actual discussion of the conditions imposed.

• 02. Christie’s allows advance examination of the work to be auctioned, and even recommends it, but provides no guarantee, and nor does the seller, as to the nature of the item [Para 2(a)]. However, for the five years following the auction, Christie’s warrants any property described in headings printed in upper case type in the catalogue, but only that the work is of the stated author or authorship (period, culture, course, or origin), is authentic and not a forgery. The warranty does not apply to any supplemental material which appears below the upper case heading for the works in the catalogue. [Paras 2(a) and 6].

• 03. The guarantee in question is only valid for the original buyer, and not to any future third-party buyer [Para 6(iii)].

• 04. In the event the buyer wants to make a warranty claim, Christie’s may request written verification by two, mutually acceptable, recognized specialists [Para 6(v)].

• 05. The buyer must return the item to the same saleroom at which it was purchased, and in the same condition it was at the time of the sale [Para 6(vi)].

• 06. The auction house may, at its discretion, reject offers and refuse participants [Para 6(a)].

• 07. To participate in an auction one must first register as a buyer (online or 30 minutes before the scheduled start of the sale), identify oneself and sign a registration form; bank or other financial references may sometimes be required [Para 3(b)].

• 08. In making bids, the buyer agrees to pay the purchase price, including the buyer’s premium and all applicable taxes, plus any and all applicable fees [Para 3(c)].

• 09. Christie’s assumes no liability for currency converters supplied at the auctions, nor for any videos or images depicting the work [Para 3(f) and (g)].

• 10. Unless otherwise indicated, all works are offered subject to a reserve, that is, a minimum price below which the item will not be sold [Para 3(h)].

• 11. The auctioneer is empowered to refuse a bid, increase the pace of an auction, divide any lots and—in the event of uncertainty or error—determine the successful bidder [Para 3(i)].

• 12. The striking of the hammer marks the closing of the deal, and all risk and responsibility for the item and its condition passes to the buyer seven days after the date of the auction [Para 3(j)].

• 13. In addition to the hammer price, the buyer must pay Christie’s buyer’s premium (25% of the hammer price, if less than or equal to US$50,000; 20% from $50,000 to $1 million; and 12% if over $1 million) in addition to all applicable taxes [Para 4(a)].

• 14. Following the sale, the buyer must provide a name and permanent address, and, if requested, details of the bank from which the payment will be made. The buyer must pay the full amount due (hammer price, buyer’s premium and taxes) no later than 4:30 PM on the seventh calendar day following the date of the auction, a deadline which still holds even if an export license must be obtained. The buyer will not acquire title to the piece until all amounts are paid in full [Para 4(b)]. The auction house may retain the items until all amounts have been received in full in good clear funds, under penalty of cancellation (in which case the piece may be sold to outside parties), and all anti-money laundering and anti-terrorism financing checks have been completed to the auction house’s satisfaction [Para 4(c)].

The Christie’s Catalogue makes it clear that payment will only be accepted from the person named on the invoice.⁵¹

Because of its inhomogeneous nature, art requires some specialization, and agencies monitoring the industry must likewise be specialized.

These entities have become centers for cultural diffusion and attractions for any number of multidisciplinary activities intended to draw people in, entertain them, and educate them.

These roles underscore the undeniably cultural quality of these eminently social institutions.

Hence, certainly more delicate situations ought to warrant public scrutiny (by and for the public), even if, outwardly, they appear quite private.

4.5 Insurance Companies

Insurance companies are invariably hired in the case of high-value artworks, which are themselves treated differently than ordinary personal property.

For purposes of coverage, the insurance policy should identify each piece, together with its value, and the underwriter normally would ensure full liability for the amounts declared on the insurance application, for those provide the basis for issuing the policy and calculating the premium. The policy should show that they are not insuring goods without irrefutable proof of ownership or existence preceding the onset of the policy period, and furthermore that the items are not smuggled, stolen, purloined, forged, illegally traded or used in money laundering.

Such companies therefore require a proper appraisal because in case of an accident, the amounts paid must match a statement of worth previously agreed upon. They have required a detailed description to better recover the item in the case of loss or diversion. There must, in addition, be periodic updates on the item appraised in order to adjust its value proportionally between the previous evaluation and market value, for one of the difficulties involving art is precisely how to arrive at a value in case of loss. Insurance companies often request appraisal of each item insured, which does not mean that they will be bound by that figure, inasmuch as it is considered merely a suggested value.⁵²

The insurance agreement should state that the policy does not cover vitiated claims, or acts by enforcement authorities, such as searches, seizures and forfeitures, or hazards arising from theft, robbery, smuggling, illegal transportation, illegal sale and money laundering.

4.6 Financial Crimes Enforcement Network (FinCEN) and the Council for Financial Activities Control (COAF), Suspicious Activity Reports and Banking Risks

The confidentiality of Suspicious Activity Reports is protected in the United States. There was some question as to whether this protection was restricted to the Report itself or extended to supporting documentation. At first, only the Report was confidential, but afterward, the Office of the Comptroller of the Currency (OCC)⁵³ at the Treasury Department decided that supporting documentation was also confidential. This secrecy is so indispensable that even when subpoenas are issued ordering disclosure of Reports or supporting documentation in several cases, the OCC held that it must be notified by the banking institution so that it might take part in the proceedings and that the disclosure must comply with the Federal Rules of Civil Procedure. There was a suggestion that information be shared among financial institutions to better detect new fraudulent schemes. Through FinCEN and other agencies, the Treasury Department decided to provide information so that they might keep abreast of the trends in that class of crimes, issue statements and hold meetings and seminars. In no event could the Report be disclosed to anyone supposedly involved, excepting only FinCEN or other appropriate government agencies.

Note that there is a deadline for Suspicious Activity Reports—30 days from the time the facts are known—but if the suspect cannot be identified, this timeframe extends for another 30 days. No more than 60 days may elapse, however, once the facts become known.

Proper vigilance and Suspicious Activity Reports are deemed essential to ensure that the financial institution has an effective compliance program. Appropriate policies and procedures must be put in place to monitor and identify unusual occurrences by time and place. Reporting systems must include unusual event identifications or alerts (identifying the employee and giving all necessary search information), management alerts (awareness of all methods of identification and evaluation in all business areas), the Report itself and its generation, regardless of size. Monitoring system sophistication must be understood as part of banking risk, with emphasis on what goes into high-risk products, services, account holders and entities. Financial institutions must therefore have adequate personnel to identify, research and report on suspicious activities, with due account taken of the general risk level and volume of transactions.

The Financial Crimes Enforcement Network does not have specific instructions to require auction houses, galleries, museums or art dealers to report suspicious activity. They are, however, under general obligation to report cash payments in transactions of $10,000 or more.

The Brazilian Council for Financial Activities Control Resolution No. 008 of September 15, 1999, with the aim of preventing the use of art objects or antiquities for the laundering of money, requires the completion of Suspicious Activity Reports by individuals or companies that sell, import, export, or intermediate a sale—whether on a permanent or temporary basis, in a principal or accessory role, and cumulatively or otherwise.

It requires that a record be kept of an individual customer for at least five years, to include name, complete address, identification number, issuer and date of issue, passport or photo ID if a foreign national, and Individual Taxpayer Register (CPF) number. For businesses, the company or corporate name, corporate taxpayer number (CNPJ), complete address, telephone number, primary business and name of parent corporation(s), daughter company(-ies) or affiliate(s) (Article 3). The record must contain a detailed description of each piece, the date and amount of the transaction and form of payment (cash, check, credit card, financing, etc.) (Article 5).

The requirement extends to museums, art galleries and libraries, given their nature and language contained in the Money-Laundering Law, but is not, however, limited to only those individuals or companies permanently engaged in the business (such as galleries). Yet this is poorly understood, despite the clarity of the written law.

Furthermore, according to statistical data compiled by the COAF, the number of Suspicious Activity Reports has been very low - only two in 2009, five in 2010, three in 2011 and nineteen in 2012. Since its inception (1999), the COAF has received only thirty-six reports, which shows that the law in Brazil is not being taken seriously.⁵⁴

We have a situation in Brazil in which lack of monitoring activity on the part of the Financial Intelligence Unit and the belief that money laundering through artistic media is a relatively small risk (highly specialized market, highly visible, with low liquidity and high premiums) compared to other industries combine to make the law a dead letter, a sort of institutionalized make-believe that does not properly merit the attention one would expect from enforcement authorities.

Furthermore, COAF Resolution No. 10 of November 19, 2001, places the same requirements on nonfinancial sector companies engaged in domestic or international cash transfer services, obliging them to record the amounts transferred, form of payment, transaction date, purpose of the wire transfer, name, individual or corporate taxpayer ID, where applicable, of both sender and receiver and addresses for both.

These requirements give a false impression that any money laundering occurring in that sector could actually be detected. There is also a need to require dealers (in the broadest sense of the word) to turn in Suspicious Activity Reports upon acceptance of such illegal funds as may be detected (applying the willful blindness doctrine).

In addition, institutions that have become aware of art being acquired for laundering purposes ought to monitor all corresponding interbank transactions.

4.7 Agencies Involved in Investigating Tax Fraud

Internal Revenue Agents should have, at the very least, the specific knowledge required for a basic understanding of the art market in order to check on declared prices. They should, therefore, be given educational training.

There is a tendency to consider artworks to be duty-free, where the accompanying fiscal document should contain the name of the creative artist, if known, and declare whether they are originals, replicas, reproductions or copies, and evidence may be required that they prove the same as on the import declaration.

U.S. customs law has been organized into a “harmonized system,” requiring uniform descriptions of goods bought and sold in world trade. A classification system is now proposed for transporters, importers, exporters, customs, and record-keeping for a high level of uniformity in fees and statistical data.⁵⁵

The resulting more objective descriptions will allow better measurement and observation on the part of Internal Revenue Service authorities, reducing the chances of defective descriptions in import and export documentation, and improving the exchange of information among customs authorities, with more reliable figures, to track all movement of goods across national boundaries.

Regulatory Directive No. 874 for Brazil’s Federal Revenue Service, dated September 8, 2008,⁵⁶ providing customs clearance procedures for temporary admission and exportation of cultural goods, considers such goods to be artworks: literary, historical, phonographic and audiovisual works, musical instruments and equipment, sets, costumes and other goods necessary for putting on dance, theater or opera performances, concerts or similar clearly cultural events (Article 1, sole paragraph).

It requires that the simplified temporary importation clearance papers for cultural goods referenced in Article 4 of Federal Revenue Secretariat Regulatory Instruction No. 611 of January 18, 2006, be presented by the individual or company responsible for their entry into Brazil and their return abroad (Article 2, heading). Where such goods are brought in by a nonresident traveler, the granting of simplified clearance shall be formally set forth on the Accompanied Baggage Declaration, or DBA. The Simplified Import Declaration (DSI) must be filed before the goods arrive in Brazil (§§ 1 and 2).

Article 3 waives completion of DSI fields reserved for import tax amounts and corresponding calculations, as well as for gross weights of each of the items imported. The applicant must specify the purpose of the temporary admission under cultural goods, and enter into the appropriate field all supplementary information for the DSI, including name, location and timeframe for each event occurring in Brazil (Sole paragraph).⁵⁷

Physical inspections may be waived for artworks and historical items submitted for clearance by: (a) a museum, theater, library or cinémathèque; (b) any entity operating an event supported by the government; (c) any entity promoting a well-recognized event; or (d) any permanent diplomatic mission or consular department (Article 6, heading). In such case, authorization is required, but shall only be granted at the request of the interested party, by the chief of Brazil’s Federal Revenue Service for custom dispatch to the institution that (§ 1): I—Has been listed with the National Corporations Register (CNPJ) for over three years; and II—Meets all requirements for fiscal compliance with the National Treasury, for providing a joint certificate of no arrears or positive clearance certificate, containing information on standing on all taxes administered by Brazil’s Federal Revenue Secretariat, and Amounts Payable to the Government (DAU), administered by the Finance Ministry Prosecutor’s Office (PGFN). The filing must be accompanied by images, designs, plans or such other resources as will allow full identification of all works listed in the heading (§ 2).⁵⁸

Physical inspection for temporary admission of goods, when not waived or conducted at the event location, may be done by sampling the shipping unit (Article 9). All goods regulated under the Regulatory Directive are subject to specific legislation providing the special temporary admission customs regime (Article 10): I—Requirements for granting of the regime; II—Timeframe for remaining in Brazil; III—Enforcement of the Liability Agreement; IV—Closing out of procedure; and V—Right of appeal.

Should the goods remain permanently in Brazil, the beneficiary must, during the effective term of the temporary entry permit, file for final customs clearance in accordance with applicable law (Article 11, heading). Art objects listed under Common Mercosul Nomenclature (NCM) customs codes 9701, 9702, 9703 or 9706 and received as donations from a museum instituted or maintained by the government or some other cultural entity recognized as a public utility, shall be exempted from import tariffs pursuant to Law No. 8961 of December 23, 1994 (Sole paragraph).

Simplified temporary exportation clearance papers for cultural goods shall be processed based on the Simplified Export Declaration (DSE) referred to in Part. 31 of Federal Revenue Secretariat Regulatory Instruction No. 611 of 2006, filed by the individual or company responsible for their entry into Brazil (Article 12, heading). Should the goods be taken abroad as accompanied baggage (§ 1): I—The interested party may turn in the DSE for recording purposes, with the proper notation in the field intended for supplementary information, accompanied by the traveler’s ticket, documentation from consenting agencies, if applicable, prior to embarkation, during normal business hours of the RFB when leaving the country; or II—The traveler must list all goods on the Temporary Exit of Goods Declaration (DST) and file it, prior to boarding, with customs officials, for proper monitoring of goods leaving Brazil. In the case of item I of § 1, upon embarking, the traveler must be in possession of a copy of the DSE, duly cleared (§ 2).⁵⁹

In fact, there is no evading the importance of the so-called “Third Sector,” the private sector active in the promotion and preservation of cultural heritage, and engaged in promoting its development. So true is this that laws are actually written to implement financial regulations (for example, in the United Kingdom, France, Italy, Germany and Spain) providing stimulus measures and fiscal incentives,⁶⁰ as in Brazil and the United States.

Laundering through artworks is accomplished by incorrectly stating prices, quantity, quality and overseas transportation (abroad and back) in an effort to convey legitimacy to illegal money.

Artificial price setting to disguise actual value in imports and exports, a form of speculating on established prices, allows money to be transferred by over- or under-invoicing without raising the suspicion of authorities. The practice makes it difficult for customs agents to determine the true value of items. It is also not difficult to transport larger or smaller quantities in such a way as to avoid detection (in tubes, for instance), or filing descriptions that do not quite match what is being transported (by deliberate misstatement of the quantity or quality), again without alerting border agents.

According to Hannah Purkey, exports are not as strictly regulated in the United States as imports, and domestic transportation of art is duty free.⁶¹

What we do know is that taking the profit out of crime—preventing the use of cultural goods or assets for illegal purposes—does fight crime.

Since 1986, the Office of International Affairs at the U.S. Department of Justice has been active in the seizure, blocking and successful confiscation of goods both domestically and abroad. Its activities have been stepped up since the 9/11 attacks of 2001. However, terrorist action has gotten top priority in all its enforcement efforts, and nowhere near so much attention has been given to matters involving cultural heritage items.

We must bear in mind that money being laundered often leaves the country to circulate within the international system of payments in order to throw potential auditors off its trail. It is not at all uncommon to use large amounts of cash in the first stage of money laundering (placement, conversion or concealment).

The practice takes many forms, including cash-based negotiations involving hefty sums. This is how art, like jewelry or gold, comes in as an important means of laundering money because it brings together qualities that satisfy the demands of inherent facility—qualities such as being small in size, light in weight, free of odor and difficult to track.

Inflating and understating (when not just completely falsifying) of the value of goods and services is a well-known form of fraud used primarily in tax evasion, and is based on the juggling of prices to create added value between importers and exporters. When overpricing is resorted to, the difference received by the exporter is sent to a (secret or unknown) account belonging to the importer. Such a practice may be detected by comparing the export value with the (clearly smaller) value generally used by exporters in that market. For underpricing, used to pay less than the correct tax amount, the exporter receives the difference back through operations that are difficult to track (such as hawala or money changers). This only becomes possible when there is an agreement between the exporter and importer, and any intermediaries. In other words, it requires an agreement among persons, with more than one individual acting at several different points.

The money received often travels a tortuous path in the course of its conversion into another form of currency. Instead of a simple conversion into, for instance, dollars, being accomplished by legitimate exchange with all formal notices required for the transaction, direct payments are made by outside parties, using dirty money—payments entirely unconnected with the operation. This illegally received money is then delivered to a currency exchange or currency broker (usually with a discount off the legal exchange rate), in the absence of any economic motivation that would legitimize the operation (no goods are changing hands; only currency is being exchanged or converted). It could happen, for instance, that a company in one country issues a bill of sale to someone desirous of currency conversion and located in another country. This document would show that “purchase” of a product (perfume, furniture, books, artworks), and the currency to be converted should go to the seller. The money is then turned over to an exchange broker in the buyer’s country, who then looks for a third party in need of that currency and located near the seller (often another exchange broker or a remittance company, when both engage in illegal operations) who then pays the seller, giving rise to a business advantage (a better rate). To throw off the authorities, the negotiator (the buyer) may even receive some of the product in situations where inspection or investigations are expected. It is not at all uncommon for no deal to even exist, other than as a façade, the whole idea being to obtain a better rate of exchange. The need to send the money undetected is the reason for the whole operation. Hence, no goods, products or services are changing hands—instead, only money and paperwork.

Because exports, generally speaking, are not handled with the same strictness by customs authorities seeking to establish their value, over-invoicing is more commonly practiced than under-invoicing.

Historically, policy in North America has been favorable to the free importation of art and cultural items, excluding only those that are dangerous or subject to embargo. There are laws that restrict those imports. We should mention, as Barbara Hoffman keenly points out, that the U.S. Congress has passed few laws regulating private ownership of cultural property or its interstate and international transportation: “[t]he United States is perhaps unique in that it has no export restrictions on works of art.”⁶² There are, however, increasingly more limits on archaeological artifacts and American cultural objects.⁶³

In the European Union, the dominant principle is basically free trade in goods. Still, to keep this idea alive while at the same time protecting cultural heritage, two measures were adopted in that region (a Regulation and a Directive). The first is the European Economic Community Council Regulation No. 3911 of 12/09/1992, which deals with the exportation of cultural goods and provides uniform export controls and licensing by the proper authorities. The license must be presented along with the export declaration at the customs offices in which export formalities are to be arranged. To implement this Regulation, Commission Regulation No. 752 of 03/30/1993 determined what types of export licenses may be used and all the formalities required for exportation. The second is Directive No. 93/7 of 03/15/1993, which established a mechanism for the return to the community of cultural goods forming a part of a nation’s archaeological, historical and artistic heritage that was unlawfully removed from the territory of a Member State. One of the purposes of the Directive was to foster cooperation among Member States, particularly in the investigation of items that were illegally removed.⁶⁴

Because arriving at prices is a complex matter, making it difficult for customs agents to arrive at the proper tariff—especially with no foreknowledge or means of accessing data—art has turned out to be a handy vehicle for fraud.

Ideally there would be unregulated international trade in works of art, so as to favor the uncontested spread of culture. But this would entail problems, the magnitude of which might be measured by the number of past incidents of looting, robbery, destruction, etc.

Besides, there is no denying the possibility of money laundering by falsely declaring quantities or quality of goods exported or imported, even if nonexistent, in order to bring about an absolutely illegal flow of money under what would appear to be ordinary transnational trade.

Surely it is now beyond cavil that art lends itself perfectly to money laundering. It is mobile, expensive and poorly regulated—and a more sophisticated means than any other traditionally resorted to for this type of crime, such as the use of financial institutions.

Hence, by fixing the price below the market value, or simply leaving out part of the amount payable, the price actually paid will surely be in cash and delivered under the table. Dirty money is thus converted into an asset that may later be sold at the market price. When prices are pegged at artificially high levels, the launderer may wish to have illicit financing of his acquisition and, to that end, will resort to bad appraisers and fake documentation.

In view of all this, developing a policy to establish the role of each of these, of each actor in the system, whether museums, galleries, auction houses, libraries or government agencies, is of utmost importance in confronting the current problem, and even for the preservation of our cultural heritage.

According to Alissandra Cummins, specifically with reference to museums and the like, but as valuable guidance to all participants, managers and controllers of the art market, “[t]he role of heritage institutions in this area should be recognized and coordinated with the role of their counterparts in the legal, security, and customs professions. Initiatives ensuring enhanced dialogue and coordination between the sectors include specialized training and public information programs.”⁶⁵

Clearly, then, we see the need to join together our understandings. This may follow from an understanding of the term “globalization,” as it occurs today in cooking, in lifestyles and in music. In other words, measures must be adopted based on a global discussion, aimed always at cultural preservation, which is only possible if the spaces in which humanity finds its expression are freed of crime, both ordinary and financial. The harmony will be legitimate if and only if it is joined by consensus as to the need to bring safety and sustainability to the arts market.

In order to preserve our cultural heritage, in relation to the law and the acts of interested parties, a response must arise from an analysis of the sufficiency of existing standards and regulations. We must examine the role of loyalty to national interests, held by societies as the bulwarks of cultural preservation, to override mistaken impulses on the part of those involved.