Quora Answer: How Often is Art Used for Money Laundering?

The following is my answer to a Quora question: “How often is art used for money laundering?”

It is only natural that art is a major means of laundering money, because it is that easy.  Often, the people involved choose the next big thing in the art world, and hype him.  These artists may not even be involved in much of the production of their art.  Such art is produced in studios run like factories.  Apprentices, and workshop assistants do different aspects of the work pertaining to a particular series.  The artist does the finishing touches, and signs off.  That art is elevated in value due to marketing, and branding.

When it comes to an individual piece of a hyped artist, you buy it for a specific sum.  For example, let us say that the piece was bought for $500,000.  You then pay an appraiser to appraise it, and you could influence him to consider a valuation in the region of $1 million.  This takes place over the course of a few weeks.  You then arrange to have it insured for, perhaps, $3 million, due to expected increase in valuation.

Such a valuable piece of art is not often kept in the home.  That would entail a security cost.  Instead, you keep it at a gallery affiliated with the artist or his workshop.  You get a certificate of ownership, which is a financial instrument, and much more liquid than the art piece itself.  At same time, you have outsourced the cost of maintenance and security.

The financial instruments, the certificates of ownership, and the insurance policy, can themselves be traded and assigned.  That movement is an opportunity to layer illegal funds, and integrate them into the system.  The art piece itself can then be donated to an institute of public character for a tax break that may be two or three times the value of the appraised value.  Assuming you have reappraised that same art piece you bought, and factoring the insured value of $3 million, you could claim it is worth $5 million now.  Assuming a tax break of 200% the appraised value of the donated piece, you now have a tax break of $10 million, which means you have avoided tax to that effect, and made what would otherwise be illegal funds due to tax evasion legal.

Of course, there are many more ways to manipulate the system, if you are familiar with finance.  Every movement of certificates in the secondary market creates the necessary paperwork to justify the presence of more funds.  The way it is done makes it extremely difficult to track, and that is why it is the favoured vehicle of the connected.