Truth behind the ‘Billion-Dollar’ Illicit Antiquities Market

The trading of art and antiquities has been equated to the laundry mat of illicit money. The United States Senate Permanent Subcommittee on Investigations’ report proposed an amendment to the Bank Secrecy Act to include the art industry in the scope of regulatory monitoring. RAND’s research attempted to dissect the art market through its market characteristics by using open-source data. If RAND’s findings are a truer depiction of the art market reality, this article discusses the Senate’s proposed policy changes will be a far cry from tackling effectively the real issues the art industry is facing with. A substantial amount of looted antiquities supply has not entered the conventional art markets and the local markets have been mistaken as unimportant. Art trafficking networks exist at different layers, from traditional hierarchy to freelance amateurs, who exploit the social media instead of high-tech encrypted technology for sales purposes. Further research into the market characteristics is dire if effective policy responses should be drawn up to control the art industry.

When art rises to be a matter of national security, it certainly has drawn ‘Un Certain Regard’ from the regulatory world. The United States Senate Permanent Subcommittee on Investigations described the art industry as the ‘largest, legal unregulated market’ nationwide, whereas the media has often depicted the trading of illicit antiquities as a source of terrorism finance. While there is no one angle to get to the true market condition of cultural property, be the object an artwork or an antiquity, RAND took the first step by conducting an exploratory research based on publicly available open-source data. By applying the parameters developed by RAND to the Subcommittee’s report (‘report’), it becomes clearer how useful the report recommendations will be in regulating the art industry. After all, as an oriental idiom goes, ‘Paper can’t wrap up fire’.

Art market sales

The Subcommittee proposed the art industry should be subject to Bank Secrecy Act because it is a multi-billion-dollar industry. Based on observable market channels like auction sales and online platform sales, RAND found the market is actually too small to yield a billion dollars a year.

The 2019 Art Basel and UBS Global Art Market Report, quoted by the Subcommittee, identified the United States as the largest art market worldwide. Occupying 44% of the global sales, the art market in the United States yields roughly USD 28.3 billion in value. The report acknowledges art sales are divided into public auctions and through private dealers. Sales by private dealers form the majority of market share (nearly 60%), whereas sales through auctions houses made up the rest.

Putting together the markets for both licit and illicit antiquities transacted through traditional auction houses and online auctions, RAND calculated the art industry yields a few hundred million dollars annually at most. This is the case considering the primary channels, including the visible platforms of advertised auctions and the volume traded on key online sales channels like eBay. The illicit market alone is valued at no more than tens of millions of dollars per year.

RAND points out the key element of the antiquities market is the transition from a near-term market to a long-term market, where the legality of source becomes more obscure along the stages. Despite the general belief that end consumers of cultural goods are located in Europe and North America, there exists another substantial local market within the Middle East, including Turkey, Iran, Jordan and the UAE.

It should also be remarked the prices of artifacts sold in the Middle East are actually similar to that in Europe and North America. Even for well-advertised auctions promoting museum-quality goods, 25% failed to sell on average. Hence it is more unlikely that large volumes of looted antiquities to be sold through observable channels in these traditional end markets. The difficulty in selling cultural property has been understated, which is evidenced by the ways in which trafficking networks operate.

While RAND’s open-source research did not attempt to calculate the exact size of the art market, the value the Subcommittee attached to the art market seemed unrealistic. By focusing the investigation on specific individual Russian oligarchs transacting in high-value art through shell companies while under sanctions, the report assumes hidden resources could continue accessing the American financial system, justifying the art industry should be subject to AML regulations. The Subcommittee’s recommendations did not seem to have taken into account the variety of existing end markets.

Art trafficking networks

Both the report and open-source study revealed the art market actors work on a secrecy basis. The relationship between them is based on trust, quasi-fiduciary in nature.

Art sales are transacted through art dealers and agents, who are collectively called ‘art advisors’ especially in the auction house setting. It is a trade custom for these intermediaries not to disclose the real identities of both sides. Purchaser is not supposed to ask about the true owner of the artwork, while the seller is not to inquire if the buyer is the ultimate user. Here, the risk lies in customer’s identity verification.

The report pointed out the four biggest auction houses (Sotheby’s, Christie’s, Phillips, Bonhams) have their own voluntary AML policies in place. However, a ‘significant AML vulnerability’ has been detected because none of them has ever asked for the identity of the art advisors’ clients. They simply considered the art advisor as the ‘principal purchaser’ for due diligence purposes, even though they may have reasonable suspicions the ultimate buyer is someone else. Meanwhile auctions houses rely on financial institutions to ‘ensure the integrity’ of their art-purchasing funds.

With respect to looted antiquities, there exist two types of trafficking networks. The markets in Syria and Bulgaria reflect a hierarchical structure that is typically associated with organized criminals who also trade drugs and weapons. There is a co-existing market in Iraq and Turkey with middlemen who are ad hoc and opportunistic smugglers and brokers, even amateurs. Their common objective is profit-oriented. However, irregular supply, piecemeal sales and few repeat customers compose the real market situation. The hard part of their jobs is to search for buyers. They need to advertise broadly, so social media and messaging apps come into the picture.

Despite the mistaken myth that dark web, deep web forums and Telegram channels facilitate the communications of traffickers, more-open technology has been employed. Traffickers use secure communication apps — including WhatsApp and Viber — to coordinate sales. Facebook is a prominent hub for discussing antiquities, which normalizes looting and online trafficking in Arabic-language groups. The side effect is the creation of a large supply of cultural goods, even when market demand does not call for such a need. Adding salt to the wound is the difficulty in proving the illegality of antiquity advertised.

The Subcommittee acknowledges the insufficiency of the auction houses’ voluntary programs and declares ‘Secrecy, anonymity, and a lack of regulation create an environment ripe for laundering money and evading sanctions.’. This conclusion is arrived after going through over a million of documents from auction houses and obtaining testimonies from one private dealer, one independent public gallery and seven financial institutions. Is this truly representative when the same report found private dealers occupy nearly 60% of the market share and only one dealer had been interviewed? Has any study been conducted on the extent of centralization of trafficking networks? Why does the law enforcement place a lower priority on illicit antiquities than drugs and weapons?

Art real deal

RAND recommended that policy responses should align with the market characteristics in order to achieve effectiveness. Through open-source qualitative and quantitative data, it can be observed the art market is multifaceted and more decentralized with more-fragmented supply chain. The market being geographically dispersed is actually smaller in scale. Hence, disruption tactics should be broader-based and network-specific at the same time.

Based on the characteristics of illicit markets, policies can be tailored around how goods are advertised to consumers. Factors include the legality and openness of the market. The structure of the supply chain is characteristic of trafficking networks. In organized networks, secretive transactions crossing internationally face constant law-enforcement action at every stage of processing. The trafficking structure is different in the local market in the Middle East, where goods quickly transition from closed networks to more-open direct structures. The transition of trafficking relationships from preexisting relationships built on ties of friendship, kinship, or prior transactions to a low-trust environment is a key element to be leveraged on. Development of on-the-ground network of contacts is recommended to provide market intelligence.

Much low-cost effort can be done on the social media front. Starting with undermining interpersonal trust among illicit actors, strategies can work to increase fear of law enforcement and counterfeits. Then to instill fear of law enforcement surveillance through messaging campaigns to undermine trust in the technologies employed.

Looking carefully at the supply chain would not be hard to notice a large portion of antiquities from systematic lootings and excavations in the Middle East conflict zones has not entered into the art market. Future research directions include the market structures in the Americas, Asia, Africa; the online sales in Asia; and surely the extent of illicit cultural goods entering the supply chain. With these concrete issues to tackle at hand, will subjecting the art market to the requirements of Bank Secrecy Act and AML regulations seriously do the job?

Sources:

United States Senate Permanent Subcommittee on Investigations, The Art Industry and U.S. Policies that Undermine Sanctions, Staff Report, 2020

Sargent, Matthew, James V. Marrone, Alexandra T. Evans, Bilyana Lilly, Erik Nemeth, and Stephen Dalzell, Tracking and Disrupting the Illicit Antiquities Trade with Open Source Data. Homeland Security Operational Analysis Center operated by the RAND Corporation, 2020. https://www.rand.org/pubs/research_reports/RR2706.html

Footnote:

This article is first published in the Winter 2020 issue of the American Bar Association Section of International Law’s Art & Cultural Heritage Law Committee’s newsletter.

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