Regulation is needed in the global art market because it is vulnerable to money laundering, tax evasion, trading on inside information and price manipulation – as reported by the Financial Times blog after an FT Weekend lunch in Davos. It is indeed not much of an exaggeration to state that the art world is the most unregulated industry after the drugs industry – the illegal one that is. Now it seems finally, scrutiny is being focused on the industry, at long last, with calls for change, and with good reason.
Nouriel Roubini, who is an economist at New York University’s Stern School, has stated that the art market had to regulate itself, or be subjected to external regulation, because it had weaknesses that would not be allowed in other kinds of financial markets, such as equities.
“Whether we like it or not, art is used for tax avoidance and evasion,” said Prof Roubini, himself an art collector. “It can be used for money laundering. You can buy something for half a million, not show a passport, and ship it. Plenty of people are using it for laundering.”
Martin Roth, director of the Victoria and Albert Museum in London, added that the art market was distinct from the world of museums. “It is a camouflage thing that is called the arts, but it is money laundering. In the end it is just a business and a global currency, not really related to the art world,” the director stated.
Professor Roubini continued with his argument that the art market had a series of characteristics that needed regulation. “While art looks as if it is all about beauty, as a business it is full of shady stuff – we should correct it or it will be undermined over time.”
Roubini concluded that these weaknesses included routine trading on inside information, price manipulation through guarantees offered by dealers on auctioned work, and tax avoidance by the transfer of paintings within families. One reason why the art market was so strong in the US was favourable tax treatment, the professor speculated.