Dealers in luxury goods are at risk not just because certain items can easily be sold for ‘clean’ money, but because the purchase of coveted items – from Swiss watches to extravagant cars – are status symbols in the criminal world.
Compliance
Experience shows that small dealers can struggle in their development of anti-money laundering procedures and compliance oversight.
As an example of this, in the last 18 months, HM Revenue & Customs has taken enforcement action against a specialist car dealer for anti-money laundering breaches. However, businesses that trade in smaller goods should also take care.
Customer-facing staff, including in shops with niche clientele, should be aware of the need for due diligence when a customer with deep pockets walks through the door.
Jewellery, in particular, has a high money laundering risk as precious gems and gold are easily portable and can be sold quickly, albeit at a small loss. Iconic handbags, such as those by Hermes and Chanel, have also been recognised as a better investment than the stock market.
Such items attract wealth, including that acquired through illegal means. However, the anti-money laundering obligations only bite on a dealer when an item is bought with cash.
Few retailers would take steps to know who their customer is when a high value item is purchased by card or bank transfer.
There can be no criticism as it is not required of them. But, as a result, suspect wealth may be used to pay for a luxe item and the retailer would be none the wiser.
The world of fine art also has a money laundering exposure. This, in large part, is due to its entrenched culture of secrecy and discretion. Some of the world’s most venerable art dealers are based in London.
The use of intermediaries to facilitate purchases on behalf of a buyer located overseas is commonplace – as is the establishment of special purpose structures registered offshore to conceal ownership.
This may be driven by a legitimate desire for privacy rather than a dark motive, but, regardless, the beneficial owner of an artwork is typically difficult to trace.
For the person engaged in dishonesty or other criminal activity, this suits them perfectly. It is a matter of public record that the proceeds of the Malaysian 1MDB fraud were allegedly used to purchase masterworks.
Several years on, efforts by law enforcement to seize prized pieces by greats such as Monet and Warhol are continuing.
Persons involved in wrongdoing take advantage of the culture of secrecy in the art world and buy and sell artwork with relative ease, a form of layering criminal proceeds.
Although in the UK those involved in the art market have recently been made subject to anti-money laundering obligations, the latest national risk assessment recognised that there is “still a lack of complete understanding of the mitigations and vulnerabilities” when it comes to art.
