An examination of illegitimate financial practices in the art market offers valuable insights into how risks within this sector can be identified and mitigated. Money laundering schemes in the art market often exploit gaps in transparency regarding ownership, valuation, and transaction chains.

The risks posed by opaque ownership structures and the use of intermediaries in facilitating hidden beneficial ownership are evident in the behaviour of the Russian oligarchs Arkady, Boris, and Igor Rotenberg after sanctions were imposed on them by the United States (“U.S.”).  The Rotenberg case, outlined in a 2020 U.S. Senate report, demonstrates how their conduct was enabled by “lax money-laundering safeguards in the U.S. art industry.” Rather than withdrawing from the U.S. market after being sanctioned, the Rotenbergs continued to acquire high-value artworks through a web of shell companies. Intermediaries such as art adviser Gregory Baltser and facilitator Mark Omelnitski helped Rotenberg-associated companies engage in approximately USD 91 million in transactions, enabling the purchase of USD 18 millions of art within months of the sanctions being imposed.

Further to the issue of concealed ownership, the case of the former President of the defunct Brazilian bank Banco Santos, Edemar Cid Ferreira (“Ferreira”), demonstrates an alternative laundering strategy centred on the acquisition and offshore storage of artworks as financial assets. Ferreira, who was convicted of money laundering in 2006 and sentenced to 21 years in prison, purchased more than 95 pieces of art using misappropriated funds, including Jean-Michel Basquiat’s ‘The Basquiat’, which was valued at approximately USD 8 million. By manipulating export documentation, titles, and valuations, Ferreria illegally transferred numerous artworks out of Brazil to storage facilities in France, the United Kingdom (“UK”), and the Netherlands.

Similar red flags emerge in cases involving bulk cash payments, a method that further illustrates how illegitimate funds can enter the art market without formal financial oversight. The Financial Action Task Force (“FATF”), an international body that sets global standards on AML, terrorist financing, and proliferation financing, highlights this risk in a documented case involving an African businessman who purchased EUR 3.3 million worth of artwork in Paris, funding 36.5% of the transaction through multiple high-value cash payments despite national limits, thereby enabling suspicious funds to enter the art market outside the visibility of formal financial controls.

Price manipulation adds yet another layer of complexity. In another case, a group of individuals used overvalued contemporary artworks to justify the origin of USD 1.81 million used to acquire a 20% stake in a Russian commercial bank. They claimed the funds derived from art sales were roughly USD 30,000 per painting. However, the records of galleries and artists’ associations showed that the market value of the artworks did not exceed USD 2,000 per piece. By inflating the prices and recycling funds through fabricated art sales, the individuals attempted to convert unlawful proceeds into legitimate investment capital. The scheme ultimately resulted in convictions for money laundering.

The Regulatory Gap

While the scope of regulation in the art market remains contested, an understanding of the domestic and international legal frameworks governing art transactions is increasingly essential for those engaged in due diligence and AML work. Within international law, several conventions exist, including the Hague Convention (1954), the United Nations Educational, Scientific and Cultural Organisation (“UNESCO”) Convention on the Means of Prohibiting and Preventing the Illicit Import, Export, and Transfer of Cultural Property (1970), and the Council of Europe Convention on Offences relating to Cultural Property (2017). Collectively, these agreements encourage states to adopt laws and measures aimed at preventing the unlawful trafficking of art and cultural objects.

Furthermore, the European Union (“EU”) adopted the Fifth Anti-Money Laundering Directive (“Fifth Directive”), implemented in 2020, in response to the 2016 ‘Panama Papers’ revelations, which exposed the widespread use of offshore structures to conceal beneficial ownership and facilitate money laundering. The Fifth Directive marked a turning point in extending financial transparency requirements to the art sector by broadening the scope of the EU’s AML framework beyond traditional financial institutions to include AMPs. Aimed at improving transparency and combating money laundering, the Fifth Directive requires these entities to conduct customer due diligence on both buyers and sellers to verify their identities and beneficial ownership in all transactions. Additionally, it requires AMPs to report suspicious activity to national Financial Intelligence Units (“FIUs)”, maintain comprehensive records of transactions, and apply enhanced due diligence checks where there is a higher potential of money laundering or terrorist financing. Furthermore, in 2025, the EU launched its Anti-Money Laundering Authority (“AMLA”), tasked with overseeing and supporting national supervisors to achieve greater consistency in the application of AML rules throughout the EU.

However, while the fifth directive established a common AML framework, its implementation depends on national transposition into domestic law, resulting in significant variations in application across member states. A 2021 report by the European Court of Auditors (“ECA”) regarding the implementation of AML regulations found that there has been an insufficient and uneven application of AML frameworks at a national level. The report alleges that eight countries notified the EU of fewer than ten implementing measures, whereas seven countries submitted over fifty. The ECA highlighted that this inconsistent approach is due not only to administrative complexity but also to varying levels of political will and resource allocation. These gaps in national implementation create regulatory asymmetries, making the EU-wide AML framework vulnerable to exploitation through cross-border flows.

The UK has been widely regarded as one of the most developed and enforceable AML frameworks for the art sector globally. Following the UK’s exit from the EU, the country established a regulatory framework similar to the EU’s Fifth Directive, building upon existing 2017 regulations. The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 require art dealers and auction houses to adhere to similar obligations. UK art dealers and auctioneers are required to register with HM Revenue and Customs, implement robust customer due diligence procedures, and maintain extensive records, among other regulations. As a result, the UK’s regulations significantly narrow the opportunities for anonymous or high-risk transactions, creating a markedly different risk profile from less-regulated markets.

In contrast, the U.S., despite accounting for 44% of global art market sales, has yet to implement equivalent AML requirements and instead relies on voluntary self-policing. Art transactions remain exempt from the Bank Secrecy Act (“BSA”), meaning art dealers are not subject to the same AML obligations as financial institutions. However, growing regulatory attention, particularly following the U.S. Senate’s 2020 report examining the Rotenberg case, has prompted calls for reform. In 2018, the Illicit Art and Antiquities Trafficking Prevention Act was proposed, which would have extended BSA requirements to art dealers and galleries; however, it faced opposition from the art industry and consequently was not passed. Similarly, the ENABLERS Act was proposed in 2022 and would have extended AML requirements to art dealers and auction houses; however, it was also rejected. Therefore, the U.S. art market remains largely unregulated for AML purposes. These regulatory gaps underscore the need for greater global alignment, an issue increasingly emphasised by international bodies.

At the international level, organisations such as the FATF and the UNODC have encouraged governments to strengthen controls over the art and cultural property markets. The FATF has repeatedly highlighted the sector’s vulnerability to money laundering and terrorist financing, noting that the art trade’s reliance on anonymity, intermediaries, and subjective pricing creates conditions in which illegal finance can be disguised as legitimate financial transactions. The UNODC has echoed these concerns, warning that the same features that make art valuable, its portability and potential for rapid appreciation, also make it an attractive vehicle for money laundering and sanctions evasion. Both organisations have called for enhanced due diligence, transparency in beneficial ownership and international information-sharing mechanisms to prevent criminals from exploiting jurisdictional loopholes.

Collectively, these developments demonstrate a growing international recognition that the art market can no longer operate in a regulatory grey zone. While the EU and UK have moved toward more comprehensive oversight, the U.S. lack of comparable measures and the uneven implementation of EU AML directives across member states create a patchwork of standards that criminals can exploit through cross-border transactions. For those conducting due diligence, this disparity means that risk exposure is highly jurisdiction-dependent, and the same transaction may present very different compliance challenges depending on where it occurs.

The Importance of Due Diligence within the Art Sector

The analysis of regulation in the art sphere underscores the importance of due diligence regarding the credibility and backgrounds of the individuals or entities involved in transactions. As the case studies and analysis of AML regulation illustrate, money laundering in the art market often exploits the very features that make the sector unique: anonymity, mobility, subjective pricing, and fragmented oversight. Effective due diligence is therefore one of the strongest defences against financial crime and sanctions evasion, enabling market participants to identify inconsistencies before they become regulatory breaches or financial losses. For AMPs, early warning signs often emerge from inconsistencies across ownership records, valuation trends, provenance documentation, or the degree of intermediation. Background checks, financial assessments, and clear verification of beneficial ownership are essential to safeguarding high-value art transactions.

The need for due diligence is becoming even more pronounced as digital assets reshape the market. Non-fungible tokens, in particular, operate in a market where regulatory oversight remains limited across jurisdictions, enabling transactions through platforms that may not apply robust AML rules. Their ease of transfer and reliance on pseudonymous wallets enable rapid ownership shifts with minimal visibility. Therefore, the expansion of digital art markets has introduced new vulnerabilities. Weaknesses in smart contracts, price-distorting practices such as wash-trading, and the growing role of virtual asset service providers have collectively created a more complex risk environment. In this environment, where values can fluctuate dramatically, and provenance may be challenging to verify, thorough due diligence is often the only reliable means of distinguishing legitimate digital art transactions from those intended to obscure illegitimate financial movement.

In this environment, rigorous buyer and seller profiling, sanctions and politically exposed person screening, and source of funds assessments provide essential visibility into AMPs. Complementary art-specific checks, such as verifying provenance, consulting databases of stolen art, and assessing compliance practices, further mitigate exposure in transactions where reputational or regulatory risk is significant.

Ultimately, as regulation continues to tighten and criminal methodologies evolve, due diligence serves as the most reliable mechanism for preventing exposure to illegal financial activity in the art market.

This analysis is a contribution made by Maria Andrade, Analyst at SET Advisory, and Imogen Sykes, SET Advisory’s associate.