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Comment by NetMonkey | Hacker News Reader

I always wondered if the art galleries in my high tax country were used for money laundering.

It seems pretty obvious: Individual A buys a piece of art for, lets says $10,000. A couple of years goes by, and the individual puts it up for sale at an art gallery. Individual B's company buys the painting for $100,000 - Voila, $90,000 laundered completely legally as private sale of art isn't taxed.

All that is required is a small group of friends with companies they control. Why the art gallery - to make it seem more legit that they are facilitating the sale.

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First, I think you're thinking of tax evasion, not money laundering. If company B's money is illicit, it doesn't become less illicit because it's used to buy art.

Second, it's not quite as simple as that. Company B will have to convince their auditors that this painting is indeed worth $100,000, and Mr. A might also be asked to explain how it is that a company that might otherwise owe him roughly $90,000 suddenly became so interested in this particular, and very recently much increased in value, piece of art.

Bottom line, this strategy depends on not getting audited, and there are much simpler strategies that work perfectly well under such circumstances.

> If company B's money is illicit, it doesn't become less illicit because it's used to buy art.

Individual A now has clean money - they successfully speculated in the art market - even if company B's money was dirty.

Also, you can easily roll up a 1 Million dollar painting in China, bring it on an airplane, fly it to Switzerland. Try bringing 1MM in cash out and in...

In the US, individual A would owe taxes on a $90,000 capital gain. Certainly, private sales aren't subject to any mandatory, automatic reporting; but the tax is still due. This could actually be useful for money laundering -- this $90k gain is clean money, if reported correctly; so maybe buy the art with a mix of dirty and clean money, then claim only the clean money as cost basis.

certainly seems plausible to me. do you think there's a reason they do this with art more than cars, homes, watches, jewelry? portability?

Because cars, homes, watches and jewerly don't jump in price as highly as art pieces do. You can't buy some shitty car and sell it for 1 million a few years later. As for selling antique cars and Ferraris and such, those are already expensive to begin with and the margins are low.

But you can artificially inflate some BS artist's work.

These things generally aren't unique, and so it's relatively easy to establish a market price, and flag it if something suddenly sells for a lot more than that.

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