Eli5 How do people launder money with art?


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.