Skip to content


Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Shruti J. Shah
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Boosted by the pandemic, the online art market remains a KYC and due diligence minefield

In times of global crises and economic hardship, such as the current one, the art market provides a safe haven. Investors tend to distrust financial products and turn to assets that are less affected by market volatility, including in the luxury and art industries. Investing in luxury goods and works of art decrease the risks and ensure value in the future. In the pandemic, this is also an easy solution following physical distancing rules.

During the past few months, the popularity of online art sales kept growing under physical distancing measures. According to a recent report by Art Basel and UBS, collectors holding financial assets worth at least $1 million increased their art purchasing during the ongoing pandemic: “almost all HNW collectors (92 percent) added at least one work of art to their holdings in the first six months of the year, and despite global instability and hits to their stock portfolios, a sixth of collectors (16 percent) spent more than $1 million.” Auction houses and marketplaces swiftly adapted tο virtual solutions, profiting from the current momentum.

The contemporary art gallery Gagosian offered online each week a single work by an artist whose shows were curtailed, postponed, or canceled due to the pandemic. All offered works were sold. Smaller-scale antiquities dealers launched stronger efforts to transact online under confinement, including by promising to donate 20 percent of the object’s value to charities. 

Increased online art sales entail high fraud and money laundering risks. Fraud may be committed in online auctions through sales of inauthentic works of art, including forgeries and misattributions. A 2011 study found that 91 percent of works by Henry Moore for sale on eBay were fake. EBay’s live auction platform has partnered with Sotheby’s for the past four years. Moreover, money laundering risks in the famously opaque art market remain to be addressed. As the FATF has warned, art and antiquities are particularly vulnerable to money laundering.

The art market provides a safe haven to criminals looking for million-dollar transactions conducted in secrecy with no or limited oversight. As prices in sales can be raised or lowered easily, defining what would be a suspicious price is complicated. Moreover, buyers’ and sellers’ names can be confidential, thus rendering identification of the contracting parties even harder. In practical terms this means that law enforcement officials “can have a transaction where the seller is listed as private collection and the buyer is listed as private collection. […] In any other business, no one would be able to get away with this.

Fraud committed through online art sales or laundering illicit funds during the ongoing economic crisis calls for distinct remedies. In the case of fraud, a work of art is inauthentic. In the case of money laundering, whether authentic or not, the work of art is used as a vehicle to launder illicit funds. Due diligence in the first case would consist of checking the authenticity of the work of art. In the second case, due diligence would focus on the buyer’s identity and other participants in the online transaction. 

Proving the authenticity of the purchase object and building trust between buyers and sellers in an entirely online transaction entails major challenges. The pre-existing systems of proof of authenticity and due diligence procedures will now have to deal with a much higher number of transactions. Global megabrands, such as Christie’s and Sotheby’s, Gagosian and Hauser & Wirth, may address these needs.

This may not be the case for lower-tier auction houses and digital marketplaces, which do not necessarily dispose of the due diligence resources and necessary expertise. According to art insurance experts, “[a] lot of the smaller online auction houses don’t even have possession of the items. They will ask a dealer what they’ve got, they’ll get some pictures and put them on their website. When they sell the item, they’ll send the dealer a box and ask them to pack the item and ship it“, allowing potential forgery and fraud. 

Art market institutions are new to the anti-corruption and compliance world. As Dr. Thomas Christ noted in a post for the FCPA Blog, the international art market’s interest in developing and implementing good governance principles and due diligence best practices has been relatively recent. Art Basel, which launched online viewing rooms in March 2020, only developed its Art Market Principles and Best Practices in 2018. The document outlines Art Basel’s compliance process in case of “perceived potential criminal conduct” related to exhibitors’ professional art-market activities. However, no explicit reference is made to a, partially or entirely, virtual compliance process.

Moreover, the mechanism is only triggered by a criminal conviction, non-trial resolution, other finding or admission of guilt, or evidence provided by law enforcement authorities. These detection sources only cover corruption cases already processed by the authorities. Corruption allegations (including fraud and money laundering) reported by media, investigative journalists, or whistleblowers are not covered. 

Given the transnational nature and complexity of fraud and money laundering cases, an investigation by the authorities might take much longer than the sale of the work of art. In the recent gang fraud and money laundering case against French dealer Christophe Kunichi, the accused was charged in 2020 for the sale of an allegedly stolen sarcophagus to the Metropolitan Museum of Art in 2017. Naturally, an investigation had been launched after the sale. In the 1MDB case, Christie’s prohibited Jho Low’s participation in sales only after an investigation was launched.

The good news is that the shift of transactions in the online art market may present an opportunity for both art market institutions and national authorities. Online transactions leave a digital trail, allowing law enforcement authorities to detect criminals selling fake pieces or seeking to launder illicit funds. Although new legislation does not eliminate the existing risks, it provides remedies to mitigate them and better detect them. In Europe, the incorporation of the Fifth-EU Anti-Money Laundering Directive into national law by EU countries and its adaptability to emergencies and global crises like the current one is crucial.

For an overview of these regulations, you may refer to a recent, enlightening analysis on the FCPA Blog by Anant Modi and Shaf Sohail. Hopefully, the responsibility to “know your customer” and obligations for art galleries and auction houses to look into a client’s background and discern the purpose of large, unusually complex, or secretive transactions amounting to at least €10,000 ($11,800) will limit anonymity and secrecy. The current momentum could accelerate the adoption of similar regulations in other jurisdictions, such as the Coordinating Oversight, Upgrading and Innovating Technology and Examiner Reform Act, currently under consideration by the U.S. Senate since October 2019. 

The opinions expressed and arguments employed in this post are those of the author and should not be reported as representing the official views of the OECD or of its member countries. 

Share this post


Comments are closed for this article!