Terrorisim and Money Laundering in the Art World

NEW YORK, NY.- Earlier this year, a Lebanese art collector was accused of money laundering and violating terrorism-related sanctions in a federal indictment that focused attention on the reported beneficiary of some of his activities: the militant group Hezbollah.

The collector, Nazem Ahmad, had been identified by U.S. authorities as a top financier of Hezbollah, the Lebanon-based group that the U.S. government has designated a terrorist organization. The indictment, in April, charged Ahmad with evading U.S. sanctions imposed on him in 2019, by using a network of businesses to conceal millions of dollars in transactions involving art and diamonds. Eight others were also charged.

The indictment led to headlines around the world. But less discussed has been the extent to which it detailed, with example after example, how the art market had, by the government’s accounting, played a significant role in Ahmad’s scheme.

More than a dozen galleries and artists had abetted what investigators characterized as Ahmad’s evasive tactics, the indictment asserted. Though the galleries or artists were not charged with wrongdoing, or accused of having knowingly helped Ahmad, the indictment depicted the art market as a ready vehicle for money laundering and sanctions evasion.

For example, more than a year after Ahmad had been identified as a financial resource for Hezbollah, and business with him or entities he controlled had been banned, a New York artist agreed, apparently unwittingly, to sell him artwork, according to the indictment. The government said Ahmad asked the artist, who was not named in the indictment, not to mention his name to the artist’s gallery because he preferred to remain anonymous. In 2021, the gallery, also unnamed, sold six of that artist’s works to a “Sierra Leone-based entity” described by investigators as a front for Ahmad, according to the indictment.

In another instance, the indictment said, an unnamed Chicago gallery sold 21 works to a company that Ahmad had long used to buy art. The March 2022 sale came more than two years after the sanctions were imposed prohibiting him from such transactions. The shipment to a company in Lebanon was identified as containing “wooden baby cribs,” not works of art, the legal documents said.

U.S. officials have said that Ahmad used his art to convert and shelter proceeds from his diamond trading, which ultimately was a source of funding for Hezbollah.

“Since 2012, Nazem Said Ahmad has acquired over $54 million in works of art from major auction houses, galleries, and exhibitions, or even directly from artists’ studios, often concealing his beneficial ownership by having official invoices drawn up using cover companies, family members, or business associates as the owners,” the indictment said.

Nazem Ahmad could not be reached for comment, but he has previously denied any role in money laundering or in financing Hezbollah.

U.S. regulators have long complained that art transactions happen in such secrecy — with the true parties seldom being publicly identified — that the market has become ripe for money laundering and tax evasion.

Art dealers and auction houses argue that the threats have been exaggerated and the abuses are few. Some auction houses say they have programs to ensure they possess a firm understanding of the underlying customers involved in transactions. Other, often smaller galleries and individual artists say it’s unreasonable to expect them to perform extensive background checks of clients, especially if they have taken measures to obscure their identity.

Eric Allouche, for example, confirmed that his Allouche Gallery had been one of the unnamed businesses mentioned in the indictment as having done business with Ahmad. But he said he had no clue he was dealing with an entity that the government contends was affiliated with Ahmad. He said his gallery dealt with a representative of that entity who he knew to be someone who had bought art previously from artists he handles and that the transaction “didn’t seem suspicious at all.”

“We had an address, and we got paid and shipped,” Allouche said. He noted it would remain difficult for galleries to research shell companies and check government databases for every sale “unless we are given easy tools to do so.”

So far the U.S. government has refrained from adopting regulations like those enacted recently in Europe that require art dealers to verify not only the identities of their clients but also the sources of their wealth. Nicholas O’Donnell, an art market lawyer in Boston who has been involved with efforts to get the industry to police itself without government regulation, said in the Ahmad case the market could have done a better job of reviewing its clients.

“When it comes to dealing with sanctioned persons, ignorance is no excuse,” he said, adding: “It’s not that hard to do this kind of due diligence with the publicly available database.”

He meant the searchable online database of sanctioned individuals that is maintained by the U.S. Office of Foreign Assets Control. When Ahmad was cited, the government issued a news release, and his name and those of companies he was known to trade under were published on the database. Galleries can also sign up for alerts from that office, which is involved in the leveling sanctions.

The indictment cited relatives and associates of Ahmad who it said had helped him buy art in violation of sanctions and often dealt directly with the artists or galleries. Among these was Ahmad’s daughter, Hind Ahmad, who ran the now-shuttered Artual Gallery and Four You Gallery in Lebanon.

She has denied the accusations, saying in an interview in April that her father was not a financier of Hezbollah and that her galleries had never been used to launder money.

Nazem Ahmad, who was born into a wealthy family of diamond traders, remains at large outside the United States, authorities have said. The State Department has put out a video offering a reward of up to $10 million for information about him and his financial network. The video shows a man it identifies as Ahmad firing a shoulder-launched rocket, in what the government presents as evidence of his connections to Hezbollah.

In Beirut, Ahmad, 58, was known as a lover of contemporary art. An article in Architectural Digest Middle East in 2018 showed the walls of his penthouse there lined with paintings and sculptures; U.S. officials said his collection was worth tens of millions of dollars and included works by Pablo Picasso and Andy Warhol.

In an interview published in 2021 with Daraj, an Arabic news site, Ahmad said his passion for art was real, not a front for money laundering, and he described the charges against him as politically inspired.

He has been publicly associated with Hezbollah since at least 2011. In articles that year, he was said to have taken part in a property transaction in Lebanon connected to Hezbollah, an armed movement and a political party that is supported by Iran. He described the deal as an ordinary business transaction that had nothing to do with the organization.

American officials have said they are particularly interested in money he amassed from what they describe as the smuggling of “blood diamonds,” gems used to finance armed conflict. They said he personally donated funds to Hezbollah’s leader, Hassan Nasrallah, and laundered the group’s money through his companies.

The sanctions announced in December 2019 were designed to isolate Ahmad from the U.S. financial system and stop his doing business with any U.S. entities. Those who did business with him could also face sanctions.

The court papers say that despite the ban, he or his companies continued to ship hundreds of diamonds to the U.S. for grading, the process of evaluating their quality. One stone alone was valued at $80 million, according to the indictment.

In total, federal prosecutors for the Eastern District of New York in the Brooklyn borough of New York City reported uncovering about $400 million worth of imports and exports, primarily of artwork and diamonds, to and from the United States by entities connected to Ahmad after the sanctions were imposed. Of this, more than $1 million worth of contemporary art was acquired from the United States or from American nationals abroad — though the art was often undervalued to avoid tariffs, the indictment said.

“The art market remains particularly vulnerable to abuse, but the scale of the problem is difficult to ascertain,” said Natasha Degen, professor of art market studies at the Fashion Institute of Technology.

“Shell companies are more likely to be used to purchase art tax-free than to purchase art for a sanctioned individual,” she said. “Money laundering and tax evasion, of course, can go hand in hand (as in the Ahmad case). And it’s the same vulnerabilities that make both possible in the art market.”

The indictment cites several instances in which galleries and artists went out of their way to meet the demands of Ahmad and his associates. According to the court documents, the Chicago gallery allowed “entities controlled or operated for the benefit” of Ahmad to pay part of a $241,000 bill indirectly, via a third party, in increments below $10,000, which avoided U.S. financial reporting requirements and obscured his role in the sale.

Some galleries and artists also accommodated requests to undervalue sales receipts and export documents so he could avoid foreign tax, according to the indictment.

Wyatt Mills, a California-based artist who is referred to but not named in the indictment, said he had no idea Ahmad was under sanctions or accused of being affiliated with Hezbollah when he sold him four works in 2021. He said a gallery he had worked with in the past alerted him to the fact that Ahmad had posted several of Mills’ paintings on Instagram and suggested he get in touch with him.

“They said he got in some trouble, something about the IRS or something,” Mills recalled, but he said he was told by the same gallery that Ahmad had not been found guilty of anything and that he seemed like a “legit collector.”

“He had Picassos and Basquiats, and all of these big galleries followed him” on Instagram, he said.

Nothing seemed amiss, Mills said, until federal agents visited his home earlier this year.

Looking back, Mills said he believed that artists are even less equipped than auction houses or galleries to carry out the level of due diligence some now expect of them.

“My job isn’t to do a criminal-background check on anyone buying a painting,” he said. “They definitely don’t teach you this stuff in art school.”

This article originally appeared in The New York Times. https://artdaily.cc/news/161892/Hezbollah-sanctions-case-highlights-frailties-in-the-art-market