The art market has long been associated with criminal activity. Indeed, according to UNESCO, art sits behind only drug and arms trafficking in terms of the volume of illicit activity. To protect businesses, artists and collectors it is necessary to understand the risks surrounding art deals and regulation is tightening worldwide. Latin America is a regulatory melting pot: some comply with international standards, but others remain largely unregulated.
A partner at an art advisory business focused on Latin America commented, “The art market is not well regulated in Latin America. There are some laws regarding export of patrimony, taxes on sales and importation of cultural goods and a few other regulations but that’s it. Mexico is probably the most organised on this front. In our experience, European countries are the most regulated, but in recent years some parts of the US have been delivering notices for the art world to comply with tax laws and anti-money laundering laws.”
“The art market is not well regulated in Latin America. There are some laws regarding export of patrimony, taxes on sales and importation of cultural goods and a few other regulations but that’s it.”
Partner, art advisory firm, focused on Latin America
A renown Colombian artist provided more granularity on the lack of regulation around the art market across the region, “There is no regulation in Colombia, just supply and demand. There are no entities or institutions dedicated to regulating the market, and what happens is that art is used by the drug world to launder money. To make matters worse, there is no reference price, so it is not possible to trace transactions – people can just turn up with briefcases full of cash.”
The EU continues at the forefront of the anti-money laundering regulations with the 2018 approval EU’s 5TH Anti-Money Laundering Directive (“5AMLD”), adopted as law by the UK in 2020. The directive foresees greater transparency making registers for companies publicly available and providing greater powers to the member states’ financial intelligence units, and central bank account registers, among other measures. Latin America shows a much weaker record.
The artist affirmed, “Latin America is years away from a system like they have in Europe. Mexico is more advanced but if you look at Colombia and Brazil, there is no regulation at all.”
“Latin America is years away from a system like they have in Europe. Mexico is more advanced but if you look at Colombia and Brazil, there is no regulation at all.”
In Mexico, the government passed a law in the early 2010s which required information about buyers and price caps on single pieces of art. The implementation of the measure resulted in a 70% drop in sales! We wonder why? But the Mexican precedent stresses the global trend by which due diligence has become an essential part of art transaction.
As a result of increasing international requirements, Uruguay updated its anti-money laundering law in 2018 issuing a decree for free trade zones in the country. Since then, businesses in the free zones are required to follow due diligence on their customers obtaining, updating and keeping information about current and potential clients.
In contrast, Brazil’s booming art market, which dodged the Covid-19 pandemic global industry crisis, remains largely unregulated. Interpol records show that South America and, particularly, Brazil are a common origin and destination of illegally traded artworks. Thus, countries in the region which expect to increase its art trade volume in the current ‘mitigating risks’ approach environment will have to update their regulation of the sector.