ETHNOGRAPHY OF THE CITY
Sotheby's
Sotheby,s is a British international art auction house that was started in 1744 and expanded to New York in 1955[1] It has also set foot in Hong Kong (1973), India(1992), France(2001) and China(2012), but its current headquarters located on the Upper East Side in Manhattan on 72st and York Ave. Sotheby's HQ in NYC holds nearly 100 high profile auctions each year. Over the past three years they have brought in $5.35 Billion Dollars collectively[1][2]. According to the TEFAF : for 2016 the estimated total of the art market was $45Billion, $16.9 Billion coming from auction houses and $27.9 Billion from art dealers alone[3].
Money LAundering 101
Money laundering is a method where anyone who has large sums of illegally made money is trying to reintroduce it into the market without raising suspicious whereabouts from where it came from. Under U.S law depositing more than $10,000 into a bank account in one day must report it over to the IRS, which will then lead to investigating on where you received the money. Individuals who want to deposit large sums into an account without getting flagged by the IRS money launder or just keep it in a well guarded safe at home.
How to Launder Money
How to Launder Money
- Setting up a "shell corporation", a company that exists on paper, empty and sits on shelf taking up space.
- Or opening up various bank accounts and "shortening" making large deposits under $10,000 a day to avoid being flagged
- Layering
- Making "purchases" from companies in order to hide the original location
- Purchasing tradable property such as real estate, cars , paintings etc that can be later sold legaly
- Converting some into different currencies
- Using casinos to legally gamble without the house having to report winnings
- Intergration
- Investing in legal businesses , and writing fake invoices to avoid suspicion
- Creating a phony charity and making yourself president of the board in order to give yourself a giant salary[11]
How To Sell a piece of art
- Choose the piece and or pieces you feel have more monetary value than personal value and want to sell
- Consult with an art dealer
- Have him re-value the work and sell it at an auction or presented at a gallery
- Watch the big money come in (hopefully)
Who succeeds in the galleries and auction houses and why
What are the requirements to properly price a piece of art ? Almost impossible to place the price tag on any piece, if we leave it up to the artist themselves they will most likely calculate supplies and labor cost just like any other service company which on most part be reasonable price. Although it would be hard for the newcomers to succeed in selling art pieces because of their credibility as an artist, if they mark it up too high most people might not even be inclined to buy due to the fact he is still unknown. If the artist undersells themselves it may also leave buyers less inclined to buy because the piece may seem of poor quality and if they do manage to sell it buyers may not want to splurge high prices on similar amount of styles of work that they can get for cheap causing other artist to lower their prices again to meet demand. How do we determine the quality of a piece of art ? For most artists its about the technique, certain techniques are hard to execute well . For other artist its about the message that is being conveyed through the piece. Although most buyers are not well informed about the many processes of a piece, to them its about what they like and don't like. The cost of a piece of art is essentially what your willing to pay for. This lead us to the presence of agents in the world of art. Since its really difficult to properly price a piece of art buyers rely on agents to convince them if a piece is of high quality. Selling a piece comes down to the credibility of the agent as well, this gives the agent too much power because he may choose selected paintings that he feels are of great quality and price them really high so that only those of elite class to buy in order to fill their own pockets with heavy margins from the backs of artists hard work. Galleries and Auction houses are both ran by a board of "experts" who pick selected works of those artist they feel are good and can sell. Galleries are not subjected to show the price tag of the art piece meaning the seller may change the price to whoever is buying it[5]. Ex. charging 5,000 to a friend and 20,000 to its enemy collector. Also choosing to sell to only elites, in order to attract other elites potentially causing the pieces they are selling to be worth more. Back in 2012 actor Daniel Radcliffe well known for being the character of Harry Potter was rejected from buying an art piece from a gallery after the seller told him he is waiting to sell it to a person of higher class [4]. A buyers name and price may be held anonymous for the sale. Auction houses are also susceptible to this kind of high price manipulation. Anonymous bidders may intentionally give a high bid like 3Million to start off to get other buyers to feel inclined that the piece is a worth the money[5]. If buyers have similar have similar pieces form an artist they may also attempt to bid in order for their own personal collection from the same artist grow [5]. There is a clear lack of checks and balances and lack of transparency in the fine art market. Its hard for the government to know who is the piece sold to and for how much. Moreover the origins of the money. Leading to many galleries and sellers to accept illegally made money from criminals and helping them launder money unknowingly and or knowingly[11]
[6]
Making that piece worth it
Where do many of these rich art buyers get their money from ? Many are successful businessmen who have mastered the game, heirs to a large family fortune, or tycoons in natural resources who lawfully make their money every year. This doesn't really matter because fine art market seems to be clean of any crime to those looking from the outside. That is not always the case because anywhere money is involved crime is also susceptible due to fact there is a gain that can be mea sured in monetary value. Monetary value is accepted by almost all societies, because its an almost universal accepted way of trade. As a result the fine art market has been used as a way to launder money but because of its opaqueness and closed barriers from the common citizen its rarely heard from or hard to track[9].
Former Brazilian Banker Edmar Cid Ferreria owns a collection of 12,000 paintings form various artists one being "Hannibal" from the renowned Carribean-American artist Jean-Michel Basquiat. Hannibal is worth 8million dollars but in 2007 the painting arrived and seized at Kennedy International Airport in New York City unnamed and labeled as worth $100 [8]. Merchandise labeled $200 or less "can enter the U.S without customs documentation, duty and tax [8]'. How can a $8Million painting pass as $200 ? One was is just by stating it but through legal means owners of a painting can hire their own professionals to determine the value of the piece and found a loophole where they can low ball it in order to get past customs to avoid paying taxes. They may also over value it when donating it to a museum or organization in order to get a higher tax credit possibly covering anything they owe to the IRS and having to pay anything else from their pocket [7]. in 2004 Edmar was convicted of embezzeling funds for his corporation thus collapsing and leaving about $1 Billion in debts. Before his arrest and trial in 2006 Edmar managed to smuggle about $30Million worth of art outta Brazil and into the U.S [8]. Back in 2004 Hannibal was bought for $1Million by a Panamanian Company called "Broadening-Info Enterprises" owned by his wife and attempted to sell in 2007 for $5 Million to an American buyer[8]. Selling it to his wifes company and successfully selling it to someone outside the family was going to net him profits and cause the government to suspect nothing of the origins of his money because the sale was done legally. in 2006 Mr.Ferreria was sentenced to 21 years in prison by a court in Sao Paulo for tax evasion, bank fraud and money laundering but is working to appeal the case to the court. About a year ago Sotheby's sold "Hannibal" in its UK auction house on October 7, 2017 for 10.5 Million GDP to an undisclosed buyer [13].
Marc Drier a lawyer is facing trial in NYC for his suspecting of purchasing $700 Million worth of art by stealing money from investors and hedge funds[8].
On April 8 2003 teo New York art dealers were indicted in an attempt to launder money scheme through the sale of a painting and selling two paints worth a total of $4.1 Million in cash. Shirley D. Sack of 74 years old and Arnold K. Katzen of 63 years old were caught by an undercover FBI agent posing as a drug dealer. One of the paintings was "Amedeo Midigliani, Jeaune Femme Aux Yeux Bleus" [15] worth around $2.5 Million at the time and "Edgar Degas, La Coiffure" [14] worth around $1.6 Million at the time. Sack and Katzen promoted themselves as "capable of selling various works...money earned through illegal trafficking[10], back by a situation in where Sack was looking for a buyer to a $12million, Raphael painting and, "didn't care if the money was drug money, Russian organized crime or mafia money"[10]. As for the sale of Amedeo and Degas paintings both Sack and Katzen offered to "resell overseas any works of art first sold by them"[10]. The invoice was to be made to a straw company and transferring the proceeds resale to an offshore account. These three pieces of evidence show that money laundering was taking place as part of the sales and previous sales besides this one. When sealing the deal at the Ritz Carlton in Boston both of the paintings shown to the undercover agent and after counting $300K in cash both Sack and Katzen were arrested and the paintings were seized. Both faced a maximum of twenty years in prison and $250K in fines [15], but were only charged for "conspiring to fail to pay estimated taxes ... of fine art"[17], as part of a plea agreement where they were to hand over both paintings to the U.S Government, with the Degas painting being handled civilly or administrated by the U.S Government, as for the Amedeo painting set up for sale [17]. In exchange they were both handed 3yrs of probation. On May 4, 2005 auction house Christies in New York sold Degas, "La Coiffure" for a total of $800,000 lower than that of the given price Sack and Katzen[16]. The buyers name remains undisclosed. There is no info about the possible sale of Amedeo,, Jeaune Femme Aux Yeux Bleus".
How to combat Money Laundering in The Fine Art market
The fine art market lack of transparency and exclusiveness to wealthy elites has helped garner money laundering within it. With little government oversight the market becomes a den for anyone with the right amount of money to purchase a genuinely good piece of art or assist with washing their illegal money. Lack of oversight also allows them to control a giant billion dollar industry that tends to legally avoid taxation through the purchase and or transportation of their art piece. Moreover since the fine art market heavily relies on the word of agent and anonymity of selling the piece, we are susceptible to being scammed. The counterfeiters have managed to circulate their counterfeit pieces in the market and pass as the original along with a giant price tag. Not so long ago in 2011 famous fine arts gallery 'Knodler Gallery' located on the Upper East Side, Manhattan sitting on 70st and 5th Ave closed down after 165 years of service because a dealer working in there sold around $80Million in fake masterpieces to many buyers causing them to sue the gallery and a loss for the gallery. These fakes were later reveled to be done by a Chinese immigrant living quietly in Flushing, Queens who was commissioned by the agent in the gallery into forging these fakes from the back for his garage[5]. In order to combat money laundering and counterfeit in the fine art market is to register regulation numbers for the pieces in order to keep track of where the piece is traveling and avoid tax evasion by understating the value of your piece with customs when sending them overseas. Finally making it mandatory for the buyers name to be present on the sale similar to when anyone hoes out and buys a car, house, receives a mortgage and or buying real estate.
Resources
[1]http://www.sothebys.com/en/inside/locations-worldwide/new-york/overview.html
[2]http://www.sothebys.com/en/news-video/blogs/all-blogs/sothebys/2017/02/about-us.html
[3]http://made2measure.org/tefaf/amr2017/market#americas
[4]http://observer.com/2012/02/harry-potter-and-the-boring-art-fair-story/
[5] http://www.nytimes.com/2013/01/28/arts/design/as-art-market-rise-so-do-questions-of-oversight.html
[6]https://qz.com/103091/high-end-art-is-one-of-the-most-manipulated-markets-in-the-world/
[7]http://www.latimes.com/local/la-me-irs2mar02-story.html
[8]http://www.nytimes.com/2013/05/13/arts/design/art-proves-attractive-refuge-for-money-launderers.html
[9]https://www.nytimes.com/2017/02/19/arts/design/has-the-art-market-become-an-unwitting-partner-in-crime.html?module=ArrowsNav&contentCollection=Art%20%26%20Design&action=keypress®ion=FixedLeft&pgtype=article
[10]https://www.forbes.com/2003/04/08/cx_0408hot.html#59ff3b0866fc
[11]http://www.businessinsider.com/beginners-guide-to-money-laundering-2014-10
[12]http://www.artnet.com/WebServices/images/ll00022lldDRFJFgneECfDrCWvaHBOcnRvE/jean-michel-basquiat-hannibal.jpg
[13]http://www.sothebys.com/en/auctions/ecatalogue/2016/contemporary-art-evening-auction-l16024/lot.25.html
[14]https://www.nationalgallery.org.uk/paintings/hilaire-germain-edgar-degas-combing-the-hair-la-coiffure
[15]http://www.panoramadelart.com/femmeyeuxbleusmodigliani
[16]http://www.christies.com/lotfinder/Lot/edgar-degas-1834-1917-la-coiffure-4488047-details.aspx
[17]https://www.justice.gov/archive/tax/usaopress/2004/txdv04Katzen-Arnold-plea.htm
[2]http://www.sothebys.com/en/news-video/blogs/all-blogs/sothebys/2017/02/about-us.html
[3]http://made2measure.org/tefaf/amr2017/market#americas
[4]http://observer.com/2012/02/harry-potter-and-the-boring-art-fair-story/
[5] http://www.nytimes.com/2013/01/28/arts/design/as-art-market-rise-so-do-questions-of-oversight.html
[6]https://qz.com/103091/high-end-art-is-one-of-the-most-manipulated-markets-in-the-world/
[7]http://www.latimes.com/local/la-me-irs2mar02-story.html
[8]http://www.nytimes.com/2013/05/13/arts/design/art-proves-attractive-refuge-for-money-launderers.html
[9]https://www.nytimes.com/2017/02/19/arts/design/has-the-art-market-become-an-unwitting-partner-in-crime.html?module=ArrowsNav&contentCollection=Art%20%26%20Design&action=keypress®ion=FixedLeft&pgtype=article
[10]https://www.forbes.com/2003/04/08/cx_0408hot.html#59ff3b0866fc
[11]http://www.businessinsider.com/beginners-guide-to-money-laundering-2014-10
[12]http://www.artnet.com/WebServices/images/ll00022lldDRFJFgneECfDrCWvaHBOcnRvE/jean-michel-basquiat-hannibal.jpg
[13]http://www.sothebys.com/en/auctions/ecatalogue/2016/contemporary-art-evening-auction-l16024/lot.25.html
[14]https://www.nationalgallery.org.uk/paintings/hilaire-germain-edgar-degas-combing-the-hair-la-coiffure
[15]http://www.panoramadelart.com/femmeyeuxbleusmodigliani
[16]http://www.christies.com/lotfinder/Lot/edgar-degas-1834-1917-la-coiffure-4488047-details.aspx
[17]https://www.justice.gov/archive/tax/usaopress/2004/txdv04Katzen-Arnold-plea.htm