Before you read on: Join us for an essential free webinar exploring anti-money laundering compliance in the global art market, featuring insights from Noor Kadhim, Founder and Managing Director of Kadhims. This webinar will examine the unique characteristics that create heightened AML risks in the art ecosystem and provide practical guidance for dealers, galleries, auction houses, and legal professionals navigating this evolving compliance landscape. Sign up here.
The art market has long been viewed as vulnerable to money laundering and sanctions evasion. From a legal and practical standpoint, what specific characteristics of the art ecosystem create this heightened risk profile?
The most significant risk factor is the lack of transparency regarding Ultimate Beneficial Owners (UBOs). The art market often uses intermediaries and agents acting for the real buyers whose identities are undisclosed, making it extremely difficult to trace, through the ownership chain in transactions.
In many jurisdictions, it is perfectly legal for a bill of sale to list ‘Private Collection’ as the buyer or seller. This allows high-net-worth individuals, including sanctioned entities, to move wealth without triggering public or regulatory alarms.
The second characteristic is lack of standardisation or fixed prices, as unlike commodities like gold or oil, which have a transparent market price, art is worth whatever a buyer is willing to pay. This creates the potential for money laundering, as people can transfer high sums of cash over seemingly legitimate transactions whose value cannot objectively be questioned.
A third factor is lack of regulatory oversight in a centralised system, unlike for property, or insurance or finance, regulated by homogenised international standards. Until recently, the art market was largely excluded from Anti-Money Laundering (AML) regulations.
Confidentiality and discretion are core values in the art market; however, galleries, dealers and auction houses are increasingly expected to perform customer due diligence and risk assessments. How can AML requirements for transparency, beneficial ownership and source-of-funds checks be reconciled with long-standing norms of privacy without undermining market trust?
The art market is advised to transition from total anonymity to a trust-based model of partial disclosure and gatekeeping. High-level compliance without eroding market trust can be achieved by implementing a Fiduciary ‘Gatekeeper’ model.
The identity of the UBO should be disclosed to the dealer – fulfilling legal KYC/AML obligations – but remain shielded from the counterparty and the public. This ensures the regulator is satisfied while the client’s privacy is preserved.
To minimise friction between dealers and long-standing clients, specialised compliance and escrow firms can act as neutral intermediaries. These firms conduct forensic checks on fund sources and provide the gallery with a ‘Compliance Certificate’. This allows the client to share sensitive financial data with a regulated professional rather than a commercial dealer who may lack secure data infrastructure.
Emerging technologies like Blockchain and Zero-Knowledge Proofs (ZKPs) also allow for ‘verification without disclosure’. A collector can prove their funds have passed AML screening through a secure digital ‘hash’ without ever handing over bank statements or revealing their identity to the gallery’s staff. This creates a permanent, encrypted audit trail that satisfies sanctions-evasion monitoring while keeping the owner’s profile private.
Finally, adopting global protocols, such as those from the Responsible Art Market (RAM) Initiative, turns KYC into a routine administrative step rather than a personal affront. When compliance becomes a standardised market ‘utility’, it ceases to be a barrier to entry for high-net-worth individuals.
Art transactions frequently span multiple jurisdictions and intermediaries. What legal and AML risks arise from this cross-border complexity, and how should market participants navigate differing regulatory regimes and enforcement standards across countries?
The fragmented nature of the global market allows for regulatory arbitrage, where illicit actors exploit the weakest link in a transaction chain. Intermediaries can also be obfuscated. ‘Travel Rule’ (FATF Recommendation 16) is increasingly applied to high-value goods. However, fragmented payment chains often truncate data. If, e.g., a Dubai-based gallery sells to a London-domiciled trust via a Swiss intermediary, the UBO can be obscured behind three layers of legal ‘curtains’.
There is also a sanctions-bypassing problem. In May 2025, the UK and EU expanded reporting requirements to include high-value dealers and all Art Market Participants (AMPs) in their sanctions-evasion frameworks. A dealer can now be held liable for ‘indirectly’ facilitating a transaction if a sanctioned person (DP) retains any degree of control over the asset, even if they aren’t the named buyer.
To manage this the art market should, in cross-border deals, dealers should include AML Representations and Warranties in their contracts. Each party warrants that they have performed KYC to the ‘standard of their home jurisdiction’ and agree to provide ‘anonymised compliance certificates’ upon request. This creates an inter-linked chain of responsibility that can be used as a defence during a regulatory audit.
Others have said that a ‘lowest common denominator’ approach should be taken, too, which means that instead of adjusting checks for every country, firms should adopt the most stringent regulation (currently the EU/UK 5AMLD/6AMLD standards) as their global baseline.
However, in my view these requirements are unrealistic because they apply a very low threshold value for the universal KYC trigger at €10,000. The requirement that independently verifiable Source of Wealth (SoW) be obtained for any transaction involving a “High-Risk Third Country” as defined by the European Commission’s 2026 lists is also problematic as it assumes that the European Commission is the arbiter of high-risk countries and that will lead to subjectivism and discrimination.
Freeports and long-term storage facilities have attracted particular regulatory attention. From an AML standpoint, what risks do these structures pose, and how should oversight and due diligence be strengthened without stifling legitimate use?
Strategic storage hubs, like those in Geneva, Luxembourg, or Singapore, allow art to be traded ‘in bond’. Work can be sold from one offshore owner to another without ever leaving the warehouse, bypassing VAT, customs duties, and the standard reporting requirements associated with physical import/export.
Many freeports operate as extraterritorial zones where the identity of the storer is shielded from local tax authorities. This can be problematic in terms of creating a discriminatory regulatory landscape; not everyone has access to freeports – often there are barriers such as monetary or physical barriers to entry.
Art presents particular challenges for AML due to its subjective valuation and reliance on historical ownership records. From a compliance perspective, what transaction-level red flags – relating to price, transaction structure, or provenance – should professionals be alert to, and how should these concerns be assessed and documented?
The lack of standardisation or fixed prices creates an AML problem, unlike commodities like gold or oil, which have a transparent market price, art is worth whatever a buyer is willing to pay. This creates the potential for money laundering, as people can transfer high sums of cash over seemingly legitimate transactions whose value cannot objectively be questioned.
Red flags to note are if an artwork doesn’t have a ready market or track history – for example at auction – but is being sold for high value all of a sudden. Or if the prices for the works have historically been low, and suddenly they have shot up overnight, or concern an artist who is relatively unknown.
Lack of accompanying documents also trigger red flags, provenance documents that can be cross corroborated by contemporaneous sources or reliable institutions, such as artist estates, but which sell easily and for high value without question. The possibility of fakes – especially for older works where experts to verify do not exist – is also high, and in money laundering schemes, reputable entities such as galleries and auction houses can sometimes unwittingly end up being part of nefarious schemes if they do not do their due diligence.
Legal professionals advising on art transactions often act as trusted gatekeepers. How should lawyers navigate their role in identifying suspicious activity while maintaining client privilege, professional ethics, and commercial relationships?
Lawyers should not be afraid to ask questions of their clients. For example, if the direct client is an agent or dealer, the legal professional should ensure that the source of funds can be verified, if necessary, using a trusted financial intermediary. While privacy is normal in art, a client’s refusal to provide UBO documentation to the lawyer – even under the seal of professional secrecy – is a primary ethical trigger.
In terms of other red flags, there are two others:
- Subjective value discrepancies: If a client insists on purchasing an artwork at a price significantly higher or lower than its documented appraisal without a clear commercial reason, this gives cause for concern.
- Unusual payment structures: Requests to pay via multiple offshore accounts, third-party ‘loan’ arrangements from obscure shell companies, or payments in cryptocurrency that lack a clear ‘on-ramp’ audit trail. Due diligence should be done on every corporate entity and its governance structure at every step of the chain.
In terms of privilege, the most critical step is distinguishing between legal advice (protected by privilege) and transactional facilitation (often not protected).
There have been a number of regulatory actions, enforcement cases, and judicial decisions touching on AML obligations in the art market. What lessons can be drawn from recent case law and enforcement activity, and how should these developments influence compliance approaches in practice?
Since 2022, the hunt for sanctioned Russian assets has turned art into a primary target. Agencies like OFAC (US) and OFSI (UK) have moved beyond fines and into asset forfeiture. When a $50 million painting is seized from a warehouse, the market notices it more than a small administrative fine.
In the US, the anonymity of the art world was dealt a death blow by the Corporate Transparency Act 2024. FinCEN is now actively auditing beneficial ownership registries. Failure to disclose the “person behind the shell” now carries criminal penalties, and we have seen the first wave of prosecutions for wilful failure to report.
In the UK, HMRC has shifted from merely educating AMPs to conducting unannounced spot-checks. Such as the Edward Burdett Gallery. In 2024 and 2025, several high-profile London galleries were issued public censure and heavy financial penalties for systemic KYC failures, signalling that the grace period for the art market is officially over.
In March 2025, HMRC published a list of nearly 50 art businesses penalised for compliance failures. While many were for late registration, the spot check fear often stems from being included on this public list, which can lead to de-banking. As such, AMPs should be vigilant, in every area that they operate, given that penalties can now be given and actively enforced in situations of a failure to act, and not just in cases where there is wilful disregard of the law.
Looking ahead, how do you see AML expectations evolving for the global art market? What should art businesses and legal advisors be doing now to prepare for increased scrutiny, data sharing, and regulatory alignment?
It is impossible to predict the future in specific terms, but in general the AML requirements are only going to get stricter and with digital verification methods becoming more sophisticated and developed, the ability to crack down on more compliance breaches increases. As such the only advice is to stay vigilant and on top of legislative developments and enforcement cases globally on a regular basis.
Noor Kadhim is a Solicitor Advocate of the English Courts, with over 17 years’ experience in dispute resolution. She speaks Arabic, French and Italian and is learning Russian. Noor established her consultancy, Kadhims, in 2022. She has global clients on matters ranging from representing individuals and companies to States and State entities, in the fields of investor-State and commercial arbitration, and art law, which are her specialty. She is a regular guest lecturer at universities; and a contributor to legal conferences and publications, and has authored chapters on Iraq arbitration law, art law, and public international law, amongst other writings. She is a member of the Board of Advisors for the New York Center for Art Law and contributed to its annual handbook on Global AML and Compliance in Art.
