Regulation is needed in the global art market because it is vulnerable to money laundering, tax evasion, trading on inside information and price manipulation, an FT Weekend lunch in Davos was told.
Nouriel Roubini, an economist at New York University’s Stern School, said the market had to regulate itself or be subjected to external regulation because it had weaknesses that would not be allowed in other kinds of financial markets, such as equities.
“Whether we like it or not, art is used for tax avoidance and evasion,” said Prof Roubini, himself an art collector. “It can be used for money laundering. You can buy something for half a million, not show a passport, and ship it. Plenty of people are using it for laundering.”
Martin Roth, director of the Victoria and Albert Museum in London, said that the art market was distinct from the world of museums. “It is a camouflage thing that is called the arts, but it is money laundering. In the end it is just a business and a global currency, not really related to the art world,” he said.
Prof Roubini argued that the art market had a series of characteristics that needed regulation. “While art looks as if it is all about beauty, as a business it is full of shady stuff,” he said. “We should correct it or it will be undermined over time.”
He said these weaknesses included routine trading on inside information, price manipulation through guarantees offered by dealers on auctioned work, and tax avoidance by the transfer of paintings within families. One reason why the art market was so strong in the US was favourable tax treatment, he said.
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