Money laundering
Concealment of the illicit origin of funds by reintroducing them into the legal economy; the art market is particularly exposed.
Money laundering means concealing the illicit origin of funds by reinjecting them into the legal economy. It is classically described in three phases. Placement introduces the funds into the financial system, layering multiplies transactions to blur the trail, and integration gives them a legitimate appearance. The art market is particularly exposed: works carry high value in a portable form, transactions have long been opaque, intermediaries and shell structures are common, and discreet storage venues such as freeports exist. Several jurisdictions have therefore subjected the art market to due-diligence obligations, such as client identification and suspicious-transaction reporting. An intermediary who fails to meet them is liable. For insurers, these compliance requirements come on top of technical underwriting. Insuring a work now means asking about its provenance and the identity of its holder, and anti-money-laundering has become a full component of the class's legal risk.
Textbook case: a gallery is offered the purchase of a high-value work by an offshore shell company, paid through several split transfers. Due-diligence obligations require it to identify the beneficial owner and, in case of doubt, to report the transaction to the authorities.
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