POSTED: 01:30 a.m. HST, May 13, 2013
NEW YORK » According to the air bill slapped on the crate that arrived at Kennedy International Airport from London, an unnamed painting worth $100 was inside. Only later did federal investigators discover that it was by the American artist Jean-Michel Basquiat and worth $8 million.
This painting, known as "Hannibal" after a word scribbled on its surface, was brought into the United States in 2007 as part of a Brazilian embezzler's elaborate effort to launder money, the authorities say. It was later seized at a Manhattan warehouse by federal investigators who are now preparing to return it to Brazil at the behest of law enforcement officials there.
The painting's seizure was a victory in the economy-rattling, billion-dollar fraud and money laundering case of Edemar Cid Ferreira, a former Brazilian banker who converted some of his loot into a 12,000-piece art collection.
Law enforcement officials in the U.S. and abroad say "Hannibal" is just one of thousands of valuable artworks being used by criminals to hide illicit profits and illegally transfer assets around the globe. As other traditional money-laundering techniques have come under closer scrutiny, smugglers, drug traffickers, arms dealers and the like have increasingly turned to the famously opaque art market, officials say.
It is hard to imagine a business more custom-made for money laundering, with million-dollar sales conducted in secrecy and with virtually no oversight. What this means in practical terms is that "you can have a transaction where the seller is listed as ‘private collection' and the buyer is listed as ‘private collection,"' said Sharon Cohen Levin, chief of the asset forfeiture unit of the U.S. attorney's office in Manhattan. "In any other business, no one would be able to get away with this."
Though there are no hard statistics on the amount of laundered money invested in art, law enforcements officials and scholars agree they are seeing more of it. The Basel Institute on Governance, a nonprofit research organization in Switzerland — the site of the world's premier contemporary and modern art show — warned last year of the high volume of illegal and suspicious transactions involving art. But regulation has been scattershot and difficult to coordinate internationally.
In the U.S., federal money laundering statutes apply to nearly every major transaction through which illegal profits are disguised to look legal. Typically, dirty money is laundered through the purchase of, say, a penthouse apartment, or mixed in with the earnings of a legitimate business like a restaurant. When gambling winnings or drug proceeds come out the other end, they appear as a real estate asset or business profit. They look clean.
Most of these industries have checks. Real estate titles and deeds at least require a name. Mortgage brokers, stockbrokers, casinos, banks and Western Union must report suspicious financial activity to the federal Financial Crimes Enforcement Network. Banks must report all transactions of $10,000 or more. Altogether, the network logs more than 15 million currency transactions each year that can be used to track dirty money, said Steve Hudak, a spokesman for the agency. The art market lacks these safeguards. Roll up a canvas and it is easy to stash or move between countries; prices can be raised or lowered by millions of dollars in a heartbeat; and the names of buyers and sellers tend to be guarded zealously, leaving law enforcement to guess who was involved, where the money came from and whether the price was suspicious.
(Although federal prosecutors last month charged the New York art dealer Helly Nahmad with conspiring to launder $100 million in gambling money, the indictment says that bank accounts, not art, were used for laundering.)
Governments around the world have taken steps to bring illegal activity to light. In February, for instance, the European Commission passed rules requiring galleries to report anyone who pays for a work with more than 7,500 euros in cash (about $9,825), and to file suspicious-transaction reports.
The U.S. similarly requires all cash transactions of $10,000 or more to be reported. Still, laundering involving art tends to be handled case by case. Federal prosecutors, who usually discover art-related laundering through suspicious banking activity or illegal transport across borders, have worked closely with other countries and aggressively used their powers under civil law to confiscate art that they can establish is linked to a crime, even in the absence of a criminal conviction.
In a forthcoming book, "Money Laundering Through Art," the Brazilian judge who presided over the Ferreira case, Fausto Martin De Sanctis, argues for more concerted international regulation, saying that if businesses like casinos and gem dealers must report suspicious financial activity to regulators, so should art dealers and auction houses.
But to dealers and their clients, secrecy is a crucial element of the art market's mystique and practice. The Art Dealers Association of America dismissed the idea that using money to launder art was even a problem. "The issue is not an industrywide problem and really does not pertain to us," said Lily Mitchem Pearsall, the association's spokeswoman.
Law enforcement officials complain that dealers are playing down art's role in a criminal underworld.
In Newark, N.J., federal prosecutors in a civil case recently announced the seizure of nearly $16 million in fine art photographs as part of a fraud and money laundering scheme that prosecutors say was engineered by Philip Rivkin, a Texas businessman.
The 2,200 photographs by masters like Alfred Stieglitz, Edward Weston and Edward Steichen — more than could fit into an 18-wheeler — were paid for, court papers say, with some of the $78 million that the authorities say Rivkin got from defrauding oil companies like Shell, Exxon, and Mobil. Rivkin, who has not been charged with any crimes, was last thought to be in Spain and had arranged to have the photos shipped there.
In New York, victims of the fraud and money laundering scams of the disbarred lawyer Marc Dreier are still in court fighting over art he bought with some of the $700 million stolen from hedge funds and investors. At the moment 28 works by artists like Matisse, Warhol, Rothko and Damien Hirst are being stored by the federal government.
"Hannibal" also sits in storage. That 1982 Basquiat work was part of a spectacular collection that Ferreira assembled while he controlled Banco Santos in Brazil. Some of these works had been exhibited at museums like the Guggenheim in New York.
Like most laundering cases involving art in the U.S., this one was uncovered when the work was illegally transported into the country. In 2004 Ferreira's financial empire, built partly on embezzled funds, collapsed, leaving $1 billion in debts. A court in Sao Paulo sentenced him in 2006 to 21 years in prison for bank fraud, tax evasion and money laundering, a conviction he is appealing. Before his arrest, however, more than $30 million of art owned by Ferreira and his wife, Marcia, was smuggled out of Brazil, Judge De Sanctis said.
According to court papers, "Hannibal" was bought for $1 million in 2004 by a Panamanian company called Broadening-Info Enterprises, which later tried to sell the painting for $5 million. It was sent to New York in 2007, passing through the hands of four shipping agents in two countries before landing at Kennedy.
Since merchandise valued at less than $200 may enter the U.S. without customs documentation, duty or tax, "Hannibal," labeled worth $100, was cleared for entry even before the plane landed.
Philip Byler, Broadening's lawyer in New York, said that the inaccurate invoices were merely a shortsighted attempt by the art dealer that Broadening hired to save importation fees. "It was not done with the intention of smuggling," he said. He also challenged the Brazilian authorities' claim, saying that "Hannibal" was legally purchased from a company owned by Ferreira's wife.
Byler said that Broadening intends to appeal the forfeiture.