1MDB Roils Opaque Fine Art Market

22 February 2017

Scandal-engulfed 1MDB has roiled the opaque market for fine art, an $64 billion industry where deals of several hundred thousand dollars can be clinched with no questions asked.

Jho Low allegedly spent millions on a Hollywood film, penthouses, luxury hotels, a recording company – and fine art. Last year, Monet’s «Water Lilies with Reflections of Tall Grass» was seized in a Swiss freeport as part of an investigation into alleged graft at 1MDB.

Freeports, one of the last remaining vestiges of Swiss private banking secrecy, have come under increased scrutiny – as now has the art world.

Loan from Sotheby’s

The Monet’s presumed owner? Low, alleged mastermind behind the opaque international money trail to hide billions pilfered from the Malaysian state fund.

The now-AWOL Malaysia businessman is accused of buying works by Jean-Michel Basquiat, Mark Rothko and Vincent Van Gogh – even taking out a loan from auction house Sotheby’s, using art as collateral.

1MDB isn’t the only high-profile case raising awareness of just how much money is sloshing through the art world.

In a separate case, Geneva art dealer Yves Bouvier and Russian billionaire collector Dmitry Rybolovlev are waging a high-profile legal war after their art dealings soured.

KYC for Art Houses

«The art market is an ideal playing ground for money laundering,» said Thomas Christ, of the non-profit Basel Institute on Governance told the «New York Times». And: «We have to ask for clear transparency, where you got the money from and where it is going.»

Sotheby’s told the newspaper it subjected Low to «extensive due diligence» before granting him a $107 million loan; by that time, Low was busy placating the compliance officers of Swiss banks he dealt with. Auction houses insist they have stiffened their compliance requirements, but a preponderance of scandals would indicate there is still much to do.

Art auctions aren’t subject to the same scrutiny as private banks, though some countries such as Switzerland are more heavily regulating major purchases with cash – including art, luxury goods, and even real estate.

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