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ID Verification for Art Dealerships – Ramping Up the Fight Against Crimes

Artworks have multiple factors associated with them. For some, paintings are a source to awaken their imagination and enhance positivity. However, others see them as their ticket to enter into elite-class groups. Expensive artworks also serve as a safe haven for money launderers. Similarly, high-profile criminals easily conceal their illicit funds or use costly painting for corruption and bribery. 

The global art industry experienced tremendous growth in 2022 reaching $448.92 billion. Considering this the regulators fear that this sector will soon become a major target of money launderers. Higher the value of art pieces, the more chances of money laundering. This article discusses how identity verification helps collectors, buyers, and sellers mitigate criminal risks while staying compliant. 

The Art Industry and Emerging Criminal Cases

Concerning anonymity, secrecy, and fewer regulations, the art industry has been a major victim of all types of financial crimes. Criminals see high-value crafts as their source to perform illicit activities from money laundering, bribery, wash trading, and tax evasion to terror funding. With an increase in fraud, legal bodies are also putting more effort to place necessary restrictions on the art industry. In wake of this, regulators have made identity verification a liability for collectors and sellers. 

Various jurisdictions made certain amendments such as the one to the Money Laundering, Transfer of Funds, and Terrorist Financing Regulations 2017 (the MLRs). While synthetic identity fraud prevails across the art sector, businesses need to enhance their IDV mechanisms. The next section entails the top notorious activities that took place in 2022. 

German Authorities Seized $5 Million Worth of Art Collection

As reported by the German newspaper Süddeutsche Zeitung on November 07, 2022, thirty paintings worth €5 million were seized from Alisher Usmanov. Due to his ties with Kremlin and Russian President Vladimir Putin, the European Union (UN) enforced restrictions on him in response to the invasion of Ukraine. The art pieces were displayed on Usmanov’s yacht, Dilbar. However, upon renovation, they were moved elsewhere. Considering this the German authorities raided his properties and confiscated the art collection. 

UK Businessman Held Captive for Attempting to Move Artworks Out of US

Earlier in October 2022 US authorities arrested a UK businessman who had ties with a sanctioned Russian oligarch. In his attempt to move art pieces out of the jurisdiction, the man underwent massive legal repercussions. The three-count criminal indictment charged him with evading US sanctions, violating International Emergency Economic Powers Act, and wire transfer fraud. The businessman was further accused of moving million in form of high-value transactions through art pieces purchases. 

Identity Theft Protection and AML Laws for the Art Industry 

With crimes increasing across the art industry, companies require robust ID verification solutions. In order to validate buyers and sellers, integrating identity authentication has become a liability. While criminals take hold of third-party dealers, payment providers, and shell companies, validating their true identities is the art companies’ trick to counter malicious activities. 

The art market is subject to various regulations including general anti-money laundering and identity theft protection within the Proceeds of Crime Act (POCA) 2002, EU’s Directives, and FATF’s Guidelines. However, the emerging fraud trends are forcing regulators to bring in amendments such as the one made on 10 January 2020. As per the guidelines, POCA increases obligations for Art Market Participants (AMPs). Similarly, identity verification is another liability set for sellers to ensure they are not facilitating criminals. 

The Fifth Anti-Money Laundering Directive (5AMLD)

5AMLD came into force in January 2020 with implications for art collectors, sellers, auction houses, and galleries. As per the guidelines, craft companies should keep track of transactions, especially those exceeding €10,000. Furthermore, they should perform ID verification and due diligence to obtain risk scores for combating money laundering. 

Changes within the Sixth Anti-Money Laundering Directive (6AMLD)

In order to strengthen the provision of existing identity theft prevention and anti-money laundering laws, the EU came up with another directive in 2021. 6AMLD proposes more tough fines, imprisonment, and sanctions for violators. In case art companies’ inadequate identity authentication lead to money laundering, sellers, collectors, and owners will experience bans from accessing financial services. 

Bringing the Facets Together 

The art industry is continuously bumping into security and money laundering threats. Therefore, companies require advanced biometric identity verification systems to authenticate buyers. With facial verification and real-time identification, art companies can not only cross-check sources of income but also screen customers across global watchlists. Hence, identity verification services enable craft businesses to track, monitor and analyze trading activities more efficiently.

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