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April 13, 2011

Wednesday, April 13, 2011 - No comments

Part IV of V: The Use of High Value Art and Collectibles to Launder and/or Transfer Capital

by James A. Bond,
ARCA Class of 2011


Corporations with a dominant shareholder have the freedom to use company funds to finance art acquisitions for their personal enjoyment. If the corporations encounter financial difficulties, the artworks are sold to satisfy creditors or they may be expropriated by the dominant shareholder, which happened in the Parmalat bankruptcy in Italy. Mr. Calisto Tanzi, CEO of Permalat, took a small company and grew it into a large corporation. Mr. Tanzi was the dominant shareholders and had a love of art and used his corporations to purchase art. The Parmalat bankruptcy is an extreme example of how family controlled businesses—Mr. Tanzi’s family held controlling interest in Permalat—through expropriating assets can attempt to transfer capital.

When the Parmalat company collapsed under almost $20 billion in debt in 2003 Mr. Tanzi, the company founder, was ask if he had hidden any assets to which he replied:
I don’t have even one lira; I’m not talking about a euro, not even an Italian lira.
This statement was probably true in the sense that Mr. Tanzi had no capital in the form of M2 since both he and his corporation had declared bankruptcy but he was not without capital. Six years later the truth of the matter was revealed when over $130 million in art belonging to Mr. Tanzi was seized from the homes of relatives and friends. Some of the artwork had been offered for sale.


To successfully transfer money in a form other than M2 the medium chosen must have an exchange value and, ideally, a personal value. How easily this conversion takes place, and the value ascribed to the transaction, will be determined by these two characteristics. People collect everything. eBay, the internet auction site, sells or has sold just about any physical object, in exchange for M2. Craigslist in addition to selling items and services for M2 also list objects for objects, objects for services (and vice versa), as well as services and objects for M2. With the internet an international market for anything with an exchange value can be sold, auctioned, or bartered and the higher the personal and exchange value it has the higher will be the redemption value in whatever form chosen. The bringing together of buyers and sellers anonymously has expanded the market for physical items and services and the ability to transfer capital. Recently a rare comic book sold for $1.075 million from an anonymous seller to an anonymous buyer. The seller had purchased the comic book for $100 forty years ago yielding him a 269% average annual return on his investment.

VI. Legal Aspects

The regulations and laws governing the movement of capital vary by country and the type of capital. Capital in the form of M2 is highly regulated because the drug trade and terrorism often utilized this type of capital because of its high exchange value. The laws regulating the movement, sale, or purchase of different forms of high value art, collectibles, or antiquities vary significantly by the type of art and by country. Laws governing high value art in the form of antiquities evolved during the twentieth century as nations and the world came to value the cultural heritage their antiquities represented. Nations that saw their antiquities expropriated, because or war or colonization, enacted laws in response to importing/exporting particularly of antiquities. Restrictions on the movement of high value art and collectible has been dependent upon the nation’s stock of art capital, economic well being, system of governance, and judicial sophistication. In 1970, UNESCO passed the Convention on the means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, which was signed by over 110 nations and ratified by seventy. This document became the locus for other nations to pass new laws as the U.S. did in 1979 with the Archaeological Resources Protection Act of 1979. In 2003 the U.K. passed Dealing in Cultural Objects (Offences) Act of 2003 pertaining to tainted cultural objects. In 1995, 30 countries signed the Unidroit Convention on Stolen or Illegally Exported Cultural Objects. Selling countries-like the U.K., France, Germany, and Italy-recognized the loss of art capital and cultural heritage and attempted to regain some measure of control through import/export restrictions and customs regulations. Italy has done a particularly good job in this regard. Purchasing countries, who were new accumulators due to a robust economy or a paucity of indigenous art, like the U.S., Japan, Russia, and China, or small nations like Switzerland, were happy to see their art capital increase.

It is not within the scope of his paper to define by country the cornucopia of laws and regulations relating to the importing or exporting of antiquities and high value art and collectables for they are too numerous and varied and are often politicized. The result has been the creation of an ever changing and fluid market whose confidentiality code and opaqueness is unique and has served to protect both the customers and dealers. Few industries that have revenues in the billions of dollars operate with as little oversight and accountability. The world art market is virtually unregulated and is thus an ideal venue for anonymous capital movement.