Tuesday, January 8, 2019

"No invoices? Cool." Art, Artifacts, and Money Laundering

A look at cases involving art, artifacts, and money laundering helps explain why art and antiquities dealers should be included in anti-money laundering laws.

Art, Looted Antiquities, Artifacts, Artworks and Money Laundering
Money laundering transforms criminals' ill-gotten gains into usable cash or commodities. It also mitigates the risk and anxiety of getting caught. "You don't have to worry about it," an art gallery owner and money launderer confidently assured a potential client, who really was an undercover police officer.

Pretending to be a narcotics trafficker who needed to launder dirty cash, the undercover agent asked the gallery operator if the artworks she wanted to buy could be "in somebody else's name to where if [the undercover] were to ever have to sell it, that [other] person can sell it." The gallery owner explained, "We can do it any way, any way you want." "It doesn't have to be, it doesn't have to be in anybody's name," he said, "It can be in anyone's name you want."

The prosecution of the gallery owner is among the sample of court cases described below that offer a window into the world of art, artifacts, and money laundering.

Why is knowing about money laundering in the sale of art and antiquities important?

Industries that deal with high cash value transactions are the first lines of defense against money laundering. Banks, life insurers, casinos, precious metal dealers, automobile sellers, travel agencies, and other sectors are best positioned to become aware of unusual financial transactions early. That's the reason why the Bank Secrecy Act (BSA) directs certain of these businesses to file Suspicious Activity Reports (SARs) with the U.S. Treasury's Financial Crimes Enforcement Network (FinCen) and requires designated sectors to maintain risk-based anti-money laundering (AML) programs.

Art and antiquities dealers do not fall under the BSA's directives, yet they are susceptible to money laundering. Like other trades and businesses, they are required to file Form 8300 when they receive more than $10,000 in cash, cashier's checks, bank drafts, traveler's checks, or money orders either from a single or several related transactions. But they are not part of the BSA's reporting, recordkeeping, and anti-money laundering program requirements even though they sometimes receive large amounts of cash for high value goods.

In its National Money Laundering and Terrorist Financing Risk Assessment (2013) report, the Financial Action Task Force (FATF) expressly called attention to the illegal trading of antiquities as a predicate crime of money laundering. FATF, in fact, specifically flagged art and antique dealers as a commercial sector that must "build[] a list of the [money laundering/terrorist financing] vulnerabilities that can be exploited." They additionally need to assess "the adequacy of their [anti-money laundering/counter-financing of terrorism] controls."

Both FATF's report and the Basel Art Trade Guidelines' (2012) conclusion that "the art market faces a higher risk of exposure to dubious trade practices" is why CHL in 2014 called for taking a fresh look at federal AML laws and why CHL later listed such improvements as one of the top six law enforcement recommendations to combat transnational cultural heritage trafficking.

Congress made initial progress on this topic last year when Rep. Luke Messer (R-IN-6) introduced the Illicit Art and Antiquities Trafficking Prevention Act (H.R. 5886) in the U.S. House of Representatives. The bill sought the addition of "dealers in art or antiquities" to the BSA. Although the legislation sat idle in 2018, it could be presented to lawmakers again in 2019. In the meantime, the nonprofit Antiquities Coalition has started to focus vital attention to the AML issue.

What is Money Laundering?

Money laundering is the method used by criminals to change money collected from predicate crimes like drug running, illegal gun sales, contraband cigarette distribution, counterfeit pharmaceuticals sales, and other illegal business ventures into cash that appears to have been earned honestly. Simply put, it's a way to clean dirty money. The crime undermines the integrity and stability of financial structures.

Art, Artifacts, and Money LaunderingMoney laundering can take many different forms, from the simple to the sophisticated. But generally there are three parts to the crime that can happen all at once or in sequence. They are (1) placement, (2) layering, and (3) integration.

PLACEMENT happens when dirty money is placed in to the financial system for cleaning. For example, a drug dealer might inject $15,000 in illicit cash into the mainstream economy by purchasing a few money orders. This purchase puts the money into the safe haven of the financial system and can offer safety and convenience for the criminal. It's much safer to carry a few money orders in a wallet or handbag than it is to walk down the street with a wad of bills in a brown paper bag. Moreover, if a launderer carried $15,000 in denominations of twenties, the three and a quarter inch stack of 750 total bills would thin out considerably after changing the cash into a handful of money orders. The dirty money, meanwhile, would dissolve into an ocean of millions of everyday currency transactions.

LAYERING involves weaving dirty money into complex financial transactions that separate the illegal cash proceeds from their dubious origins. So if a small arms trafficker wanted to place $15,000 in dirty money into a layered transaction, he might give two people $7,500 each to buy fifteen separate $1000 money orders over a four week period from five different grocery stores, five separate post offices, and five distinct bodegas located across two states. Then the money orders might be cashed at various check-cashing stores and converted into prepaid credit cards. This dizzying kind of layering easily can frustrate investigators working to find the source of the dirty money.

INTEGRATION occurs when the laundered money arrives in the criminal's hands through a transaction that looks legitimate. So a drug dealer might use illicit cash placed into legitimate money orders and layered into ordinary prepaid credit cards to buy art from a gallery.

Of all the three stages, catching money launderers is easiest at the time of placement, which is why having art and antiquities dealers protect themselves from money laundering is important.

What are some examples of cases involving money laundering, art, and artifacts?

Some federal court cases that have involved money laundering, art, and artifacts include U.S. v. Betts, 12-CR-277 (D. Or.); U.S. v. Belciano et al., 11-CR-00343 (M.D. Pa.); U.S. v. Isen, 15-CR-00003 (E.D. Pa.); U.S. v. Various Pieces of Artwork, 13-CV-01107 (D.N.J.); U.S. v. Usuga-Norena et al., 05-CR-135 (S.D.N.Y.); and U.S. v. Nicoll, 13-CR-386 (D.N.J.).

In Bettstwo thieves broke into the Overbay Museum in Astoria, Oregon and took cultural artifacts that included gold coins and jewelry. About one month after the burglary, the pair traveled to a coin dealer 615 miles away in Reno, Nevada and sold the stolen coins, converting the hot objects into a $10,750 check. One of the thieves deposited the check in his bank account in Vancouver, Washington, about 90 miles away from the museum break-in. He then withdrew $10,301 in cash, giving a portion of the money to his accomplice. The pair were charged with stealing and transporting artworks as well as conspiracy to commit money laundering.

The case of Belciano et al. involved both the distribution of marijuana and conspiracy to commit money laundering using artwork. Police seized over $4 million in cash, and they confiscated from a storage unit in Mechanicsburg, Pennsylvania approximately 125 pounds of marijuana and 33 paintings worth over $600,000. In total, authorities secured 59 paintings related to the narcotics trafficking ring.

The operation netted money laundering convictions against the traffickers and a prominent Philadelphia art dealer, Nathan Isen. Court records in Isen's criminal prosecution revealed that his neighbor laundered drug money through the art dealer, who was owner and operator of the I. Brewster and Company Gallery. The neighbor/drug trafficker then cooperated with federal officials to nab Isen.

The cooperating witness introduced Isen to a Homeland Security undercover agent named "Lisa," and the gallery owner told Lisa that he could launder drug money by selling paintings. Isen sold Lisa, who pretended to be a narcotics trafficker, one dozen Salvador Dali works for $20,000 cash.

During the purchase and sale, the undercover agent happily remarked to the gallery operator, "No invoices? Cool. No receipt, no invoice, I'm good with that. That's the way I like to do business.'' "We never saw you before,'' was the art dealer's reassuring reply, promising Lisa that there would be nothing linking the paintings to her and that they could not be traced.

Before the purchase and sale, Lisa questioned how she could possibly sell art bought with dirty money. "Like, I'm willing to invest in stuff like this, but this I don't know. I don't know how to sell this. Cars, other things I can get rid of easy. Like this I'm nervous about," she voiced openly. But the gallery operator explained, "It's different than selling a car, 'cause car has to have the registration, the title, and this and that and everything. ... These are nothing. ... These could have been, these could have been your grandmother's. You follow me?" The agent replied, "So I can say, hey, this is stuff that I inherited not that I bought," and Isen confirmed, "Right. I found it at a thrift store, they were $10 a piece."

In the civil case of Various Pieces of Artwork, covered by CHL in 2013, a U.S. Attorney filed an in rem action targeting 2,251 artworks housed in 14 crates at a fine arts business in New Jersey.  The pieces included photographs by André Kertész, Edward Weston, Eugène Atget, and Alfred Stieglitz. Court papers recite that the CEO and associates of Green Diesel and Fuel Streamers "fraudulently created and sold credits for renewable fuels that were never produced." The parties "laundered the proceeds of their fraudulent activities by layering the proceeds through multiple bank accounts and by purchasing artwork, some of which was shipped to Newark, New Jersey, as part of an effort to hide the proceeds of the fraud and remove the proceeds from the United States ...." The purchases totaled $18 million and a "a substantial amount of artwork" was to be moved to Spain via the Netherlands after having been transported to Houston, Texas, and Newark. Prosecutors pointed to financial records that confirmed purchases from seven prominent dealers and galleries. No wrongdoing was alleged to have been committed by these sellers.

Criminals also used art to launder money from illegal drug sales in the case of Usuga-Norena et al. As a result, the federal district court in Manhattan forfeited nearly 50 works of art, which prosecutors characterized as “property involved in the money laundering offenses and all property traceable to such property,” according to court papers. Two defendants in the case were charged with drug and money laundering crimes.

Finally, in August, in a widely publicized case involving a physicians bribery and money laundering scheme involving a $100 million, the court in the Nicoll issued a forfeiture order for artwork that "had the requisite nexus to the conspiracy to commit bribery ... and/or money laundering ...."


More cases involving artwork and money laundering undoubtedly would be uncovered by law enforcement if art and antiquities dealers were added to the BSA as a covered sector.

Photo credit: Scott Kidwell.freeimages.com. Text and original photos copyrighted 2010-2019 by Cultural Heritage Lawyer, a blog commenting on matters of cultural property law, art law, cultural heritage policy, antiquities trafficking, museum risk management, and archaeology. Blog url: culturalheritagelawyer.blogspot.com. Any unauthorized reproduction or retransmission without the express written consent of CHL is strictly prohibited. The materials presented on this site are intended for informational purposes only and should not be used as legal advice applicable to the reader’s specific situation. In addition, the provision of this information to the reader in no way constitutes an attorney-client relationship.