Eli5 How do people launder money with art?

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Why do people buy huge canvases with a few dots on from an arts unheard of for millions? I know it’s commonly used to launder money. Can someone explain how the process works?

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In a basic way, a lot of it is like this – say I sell you a painting for 10m, then you go one to sell that painting again (for really any price) – so the money I used to buy it is now “legal” as it was a legit business deal. When asked where I got 10 million, its that I sold the painting

People don’t buy the art for millions. There are a few different things people do. To launder money they sell the art for a few thousand, but tell them IRS they sold if for millions, and use illegal money to make up the difference. Another thing they can do is tax evasion. If they buy art for a few thousand, then an art appraiser says it’s worth millions, they can donate the art to some charity and get that fake value in tax deductions.

A bad guy (let’s call him Mr. Burns) wants to pay you $10 million to do something illegal.

If Mr. Burns writes you a check for $10 million, the banking and tax people might say, “Why’s Mr. Burns paying this random dude $10 million? We should investigate both of you.”

On the other hand, if you buy a painting somewhere for $1 million, then sell it to Mr. Burns for $11 million, on paper it’s simply a profitable investment. There’s no accounting formula that will tell you what the painting’s truly worth, that Mr. Burns vastly overpaid you. Beauty is in the eye of the beholder.

So Im going to give a broader perspective of what have being said, laundering money means “move through legal transctions ilegal money” so laundering per se its not that hard, you sell drugs and go buy to Walmart and you are succesfuly laundering money.

So that answers your question but I suspect you were going to another direction, more about “why is so often used for laundering” rather than laundering itself, and that is a really good topic.

You see often times governments have some mechanism that allow goods to have some price limits or at least some price references i.e. real state in most countries need a certification that says your property is *around* some range of price, so any transaction lower and higher than that price seems really suspect for the governement (which they can or can not take action on it). The thing is, that for ages, art has being conceived as the maximum subjective economical good in the human kind history, this means that while of course there are official art appraisals, there is a lot (A LOT) of room for a subjective appraisal (the most common example being a blank canvas going for millions) and somehow governments have been satisfied by this systems.

So generally money launders actually buy at high prices (thats when news report stupidly high prices) and then quietly sell at lower ones (not necesarelly) just to launder money quickly.

As others have pointed out, the value of art is so subjective that you can easily agree an arbitrary price with other parties without raising much suspicion. Say you owe someone $5 million for a cocaine shipment – simply transferring the money might attract attention from the authorities, because they’ll want to know what it was for, but if you instead agree to buy a random painting from them for its expected sale price + $5 million, then it looks less suspicious.

But another big factor is that art is very easy to move around and smuggle. A painting can be worth far more than the equivalent volume or weight of gold or cash, and even if someone notices it they won’t necessarily suspect that it’s particularly valuable. Lots of people have cheap paintings hung on their walls, and lots of people buy paintings as holiday souvenirs and transport them home on the plane. You really have to know a lot about art to be able to pick out the rare super-expensive pieces from the rest.

> Why do people buy huge canvases with a few dots on from an arts unheard of for millions?

That isn’t *necessarily* money laundering though. Lots of wealthy people enjoy collecting pieces of art as status symbols. They might get into bidding wars over pieces by particularly sought-after artists, and when it comes to status symbols things can be considered valuable *because* they cost a lot of money. In other words, they may not even particularly like the art itself, they just like being able to say they bought it for millions.

Also the artists and art dealers themselves obviously benefit from inflating the price of artworks.

Having said that, lots of people legitimately enjoy contemporary art that can be reductively described as “a few dots”. It’s weird that people spend millions on it, but it’s not necessarily weird that people like it.

You can launder money all sorts of different ways with anything that is expected to trade hands at high prices. Like art, collectible cars, etc. My friend has to launder all his income bc he sells weed legally in a state where it’s legal, but federally it’s illegal so he can’t report that income as taxable or put the money in a bank because both are federally governed. He does things like:

Have a friend he knows in the car industry write him a loan for a collectible car, something like $100,000. He pays the guy cash so the loan is bogus. After a few years, he sells the car for whatever, say $120000. Now that money goes in the bank, and he reports a $20,000 gain and pays taxes on that. If anyone looks around a bit, they see he bought the car, had a valid title and financing, “made payments” and sold it legally. Clean purchase and sale, doesn’t raise suspicions at the bank for why he’s getting wired $120,000.

Same with art. He buys a painting for $10,000. Sells it a year later to a friend for 100,000, but in reality gives him the 100,000 cash and the painting. Friend wires him 100,000 back. Friend gets a painting, he gets 100,000 cleanly wired into his account with a bill of sale, and 90,000 “profit” so he can pay some taxes.

In reality, if anyone looked around under the hood, they would immediately know he is laundering money. The point is to just pass the basic sanity check test, and no one really gives a fuck.

There’s no good way to value most pieces of art. Some art is sold at very inflated prices as a means of transferring or laundering money.

You pay an artist to paint you a great painting. Lets say you pay 20 000$.

Then your “friend” appraises it and says its worth 1 million dollars. Then you donate this painting and write it off as tax deductions. It was at most worth around 20 000$ but it is “valued” at a million

Fraud investigator here, this is why the government can always charge you with money laundering. Money laundering is “converting illegal value into another form.” Examples include, steal a car and trade it for drugs = money laundering. Rob a liquor store and then use the money to buy anything = money laundering. Period. Once you get over a arguable value of $10,000 it becomes its own felony. I say it that way because prosecutors will find a way to argue a higher value to get a felony. Let’s say you steal a car and sell it for $5k, if they say the car was worth $10k then it’s a felony. Pay someone to kill someone, it’s also money laundering etc.

What is the point? Three main reasons, one: charges like this will be used to bump state crimes up to Federal crimes, two, they can be used to increase sentences or pleas when bundled with other crimes, three, it it really hard to be found not guilty of money laundering because it is so basic, so if you get aquitted of other charges, they still got something to put you in jail on.

Also, if you declare assets to in any way being involved in money laundering then you can seize all of the assets, so you can seize assets, sometimes only for the purpose of putting more pressure on people.

TLDR: It’s a catch all like tax evasion or postal mail fraud, they can almost always find a way to tie in a charge.

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You don’t really “launder” money with art. You exchange art + dirty for clean money and the laundering is done afterwards.

The buyer of the art is the launderer. He has legitimate 10m in the bank.

You have drug money in 12m cash. You need clean money to spend because you can’t deposit 12m in the bank and you can’t spend the 12m in cash in any way to satisfy your drug lord lifestyle. You can’t buy property, (expensive) cars, boats, etc.

You go to the launderer and sell him an art for 10m. The launderer gives you a bill of sale and make it official. Under the table, you hand him 12m in bags of cash (he keeps 2m for his efforts).

You now have 10m legal, traced money to spend on whatever you like. You are out of the equation now.

Now, the launderer take the 12m cash and launder it into clean money. He can do many different tricks like casino, car wash, restaurant, etc. For example, he buys a car wash (with legitimate money) for 500k. Then he magically makes 5x of the previous owner but it’s cash payments with receipt. Of course there’s no actual cars being washed but on paper, cars are coming in and out and paying in cash. Now he has clean legal money from his legitimate car wash business. Now he can do it all again for another drug lord.

Edit: didn’t really talk about art but that’s the topic. Art is used because it has no defined value. One piece of art is worth $10 and 10m at the same time depending on the buyer. Therefore, the launderer selling an art for 10m isn’t out of ordinary.

Remember, the point is to turn this money into taxable income. I run an art studio and could claim art sales on a Schedule C. Boom. Clean income.

Wait until you hear how rich people do taxes! “I’ll pay you $10k to do a painting”…”hey art valuation expert friend of mine, don’t you agree this painting is worth $10m?”…”excuse me art gallery i would like to make a generous charitable donation of this expensive artwork”…”hello IRS, i made $10m in charitable donations this year so I’ll write that off against my tax bill and oops now i owe you nothing”

Everyone seems to have some schemey way of explaining how this is done, but it’s really quite simple as this article explains:

https://www.nytimes.com/2017/02/19/arts/design/has-the-art-market-become-an-unwitting-partner-in-crime.html

They basically take advantage of the art world because there is no record-keeping.

Example: I’m a criminal, I have $10,000,000 in drug money. I buy fine art (from a legitimate seller) that others agree is worth $10,000,000. I now have a $10,000,000 piece of art. Nobody needs to say who bought or sold it – the art gallery just processes the anonymous transaction.

Now I can either sell my new art for a profit down the road (for clean money) or take loans against it as collateral (banks accept art as assets). Loans are great because they are not taxable, and you only pay a small interest. Clean, tax-free drug money.

This is actually far harder, and less common than people make out. There is anti money legislation that tracks transactions over a certain value which includes artwork purchases. Additionally there are clear steps for valuing art works, both on the primary (direct from artist) and secondary markets (has passed through multiple hands). Value is based on previous sales for the most part and there is a lot of publicly available info such as auction records to help assess what an artwork is worth. It definitely used to be prevalent.

Let’s say you are a politician in a high office. Someone wants to pay you a bribe, but they can’t just hand you cash. What you do is have a relative, like a son, paint some ridiculous artwork. Then the person that wants to bribe you can pay millions for the artwork. Then later the son can share the money with you.

Let me explain in a modern, 2021, terms

Corrupt person A: Hey corrupt country government official, if you sign and buy this covid vaccine batch from my company for 100million I will give you 10million on the side

Corrupt country official: Thats great but the IRS will get me because I wont be able to explain where this 10million came from

Corrupt Person A: Well, can you by any case paint three dots in a huge canvas? I am really into those and would buy it for 10million

Corrupt country official: My son is an artist, I will send you the address of his gallery, I think he had a few paintings with dots in there for sale and one of them costs exactly 10million. Oh, and your company just won the contract despite having better and cheaper options suddenly I chose you.

1 year later

IRS: Hey, how did you get 10million in one year if you are unnemployed

Corrupt Offspring: hey Man, I made this huge sale of one of my paintings, it was a white canvas with 3 dots that took me 10 minutes to make

IRS: What the heck, that doesnt sound legit, how did that sell for 10million?

Corrupt Offspring: chill out man, art is in the eye of who sees it, the value is in our heart.

Art sellers are not financiers. Certain art are in the millions, and some disreputable art dealers take cash from anonymous buyers. So long as the cash is real, art dealers don’t care where it came from. Let’s say another form of dealer has tons of cash accumulated illegally but can’t use them because law enforcement are looking out for transactions involving cash. So Shady dealer then buys high priced art (anonymously in cash) then later sells that art in the open market and *Presto* now the money is legit. It’s clean money now which is why they call the money “laundered”.

The movie Mickey Blue Eyes starring Hugh Grant is sort of based on this concept. Not an exceptional movie by any means, but decent and entertaining.

Same concept as car wash, nail salon, hair salon, anything that ends in salon or spa or massage parlor, laundromat, or similar legitimate business. Any service provided by a business that will make you clean. Or will clean your possessions. Can also clean your money. Many comments in this thread explain the rest of the details. But basically cash in-cash out. Pay cash for something legal with illegal money. Business accounts for it. Edit: just had to add that this can be done quicker and easier with fewer transactions of higher value.