The Art of Money Laundering

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by financeoptimum

$450 million.

Who would pay so much for a piece of art?

At the time, it was unclear who the mystery buyer was.

There was speculation it could be Jeff Bezos, maybe hedge fund billionaire Ken Griffin, was it a Chinese Billionaire?

Well, no…

It turns out it was one of the Saudis.

Specifically, a relatively little-known member of the Saudi royal family, Prince Bader bin Abdullah bin Mohammed bin Farhan al-Saud, the Minister of Culture of Saudi Arabia.

He is also a close friend of Saudi Crown Prince Mohammed bin Salman.

In fact, the artwork has reportedly been installed on Saudi Crown Prince Mohammed bin Salman’s superyacht, which is worth around half a billion dollars itself. Quite the flex…

According to a joint report by UBS and art fair organizer Art Basel, global sales of art and antiques reached an estimated $64.1 billion in 2019.

The US, UK and China accounted for 82% of the value of global sales in 2019.

The US was the largest market worldwide, accounting for 44% of global sales by value.

In second place, the UK accounted for 20% of the global sales by value.

China accounted for 18% of the global sales by value.

Clearly, there is a lot of money flying about in the art world.

But this discussion isn’t about Saudi trillionaires and their billionaire friends paying half a B for a painting, this is about cleaning dirty laundry…

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Let’s begin…

Step 1: John Doe is an art dealer. He persuades his friends Alice and Bob to buy works by an up and coming young artist, for $2 million each, on the understanding that they will be a good investment.

Step 2: Over the next few years, John Doe uses his position to hype the artist. He hires people to write about the artist in academic journals, organises exhibitions, helps the artist to ‘win’ prizes, etc.

Step 3: John Doe puts some of the artist’s works into auctions, and bids the prices up with the help of friends. As he is ultimately buying from himself, the only cost is the auctioneer’s commission.

Step 4: Ten years later, Alice and Bob own works that are worth, on paper at least, $10 million.

Step 5: In the meantime, Alice has just pulled off the real estate deal of a lifetime, and made a huge profit. Unfortunately, she now owes the IRS $10 million.

Step 6: She decides to donate the painting to her local modern art museum. The trustees are happy to state it’s value at $10 million. The IRS accepts the valuation and allows Alice to write of her $10 million tax bill. She is now a noted philanthropist, and she gets a wing of the museum named after her.

Step 7: Bob, on the other hand, isn’t doing so well. He needs cash quick, but he can’t sell his painting on the open market – because it isn’t worth very much without John Doe manipulating the price.

Step 8: Bob goes to his bank and asks for a loan, using the painting as collateral. However, the bank wants an independent assessment of its value, so they ask a world expert on this particular artist – John Doe. John Doe confirms that, based on previous auction prices, it’s worth $10 million.

Step 9: The bank agrees to lend Bob 70% of the value – $7 million.

Step 10: So Alice has saved herself $10 million in taxes from an initial outlay of $2 million. And Bob has got himself $7 million to play with from an initial outlay of $2 million.

At the end of the day,

Art is like fiat currency.

Paint a bunch of pieces of paper green and claim they’re worth as much as a house, or a mansion, or even a super-yacht.


Disclaimer: This is a guest post and it doesn’t necessarily represent the views of IWB.


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