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Artwork for Money Laundering

 

In the current climate of economic uncertainty, the investment focus is increasingly shifting towards alternative investments, which allow to diversify the investment portfolio and spread the risk incurred over various types of investments. Alongside traditional asset classes such as bonds, equity securities, real estate, and gold, new types of investments have emerged over the last decades. Accordingly, more and more investors, investment funds, family offices, or high-net-worth individuals decided to invest in more exotic products such as debt investment, venture capital, wine, cars, watches and other luxury goods, or artworks. After the 2008 crisis, most of investors indeed tried to reallocate their resources in safe investments, among which art was perceived as the newcomer.

Until recently, the fine art market fascinated the general public. However, the barriers to entry were high and access to art was reserved to the most upper class. However, through various phenomena such as crisis, globalization, new forms of investment pooling, and access to information, a much larger community has started to invest in art and collectible assets. Fine art markets have been in continuous evolution, expanding to new countries and new customers. This increase of customers can be explained by the increase of ultra-high-net-worth individuals (UHNWI), which are expected to rise 43 percent to 275,740 by 2026, but also by the arrival of new market entrants which is facilitated through new ways of less restrictive investment (e.g. crowdfunding).

 

Let’s have a look at this (not so) “exotic” (anymore) investment, which remains however a very particular asset that continues to inspire passion, and its characteristics.

 

Art as a heterogeneous and physical product. Artworks are unique. Therefore, any damage to an artwork could have a much bigger impact than for other products. The physical and movable nature of such assets also triggers specific risks and costs, as the artworks need to be physically transported from one owner to another, from an exposition to the restoration room, etc. For each transaction, the transport and insurance of the artworks need to be considered carefully, representing costs that can be much higher than for other goods because of their unique feature.

 

In addition, artworks are exposed to incorrect attribution, forgery, fraud and theft. Protecting these assets should therefore be a priority. Thankfully, artworks can be insured against most (if not all) of the above-mentioned risks.

Art is illiquid. Art is an illiquid good. It is sold on a segmented market and does not pay dividends or interests. The selling of other types of assets such as gold, oil, or publicly traded stocks is indeed much easier as it is facilitated by the nature of the asset or the market on which the asset is exchanged.

 

Artworks can be very difficult to sell. Art business is affected or at the mercy of erratic public taste and short-lived trends.

 

Art is volatile. The volatility of artwork is a common perception. Indeed, the price of an artwork can fluctuate over time. The volatility of an artwork is influenced by the rate of the artist, the latter being volatile as well, the number of similar artworks at the same time, marketing expenses linked to the artwork sold, trends, etc. Depending on the art category, volatility could however remain within certain limits. As an example, private banks and asset-based lenders accept certain artworks as collateral for loans, which show that financial institutions are ready to give a minimum value to artwork that should not be undermined.

 

Art is difficult to value. Valuation is one of the most critical points when offering investment products in artworks. In finance, the price of a financial asset is determined by the market, an index or some specific factors. However, there is currently no standardized art valuation methodology.

 

Art is opaque. Art markets have neither self-regulated nor public statutory authority supervised exchange of artworks, which leaves the art market unregulated. No centralized system exists to gather the artwork transactions, and the tracking of data in relation to purchase and sale is much more complex than for regulated investments. However, some jurisdictions have imposed anti-money laundering requirements on art dealers in order to preserve the market from abuse, which allows to gather some data in relation to artwork and its exchange in the art market. Moreover, a group of art market businesses and specialists has formed the Responsible Art Market Initiative (RAM), the first of its kind. RAM seeks to provide art stakeholders with guidelines that aim to raise awareness of a growing number of operational and reputational risks faced by the art industry. Art offers unique values. Art assets offer values that no other investments offer. Among art investors, artworks can sometimes be seen as an investment product that could raise substantial economic benefits. However, in addition to a potential increase in value, artworks can enhance other needs and desires for the investor among which we can count the satisfaction of the investor’s motivations, the aesthetic value of artwork, the passion for collecting, the representation of a social status, a certain prestige, or social responsibility by financing/funding art (e.g. promoting young artists, promoting culture).

 

The knowledge of the general public about artworks and its characteristics have grown among the years. Economics professors at the University of Luxembourg notably observed a low but often slightly positive correlation of art with the broad financial markets, whereas art has a negative downside Beta. Investing in art could serve as a useful function in a diversified portfolio, by hedging against financial market risk. However, investment products offering an exposure to the art market are still very limited.

 

Art can nonetheless represent a significant opportunity in a holistic wealth management approach. Wealth allocated to art assets is increasing and services around wealth protection, monetization, estate planning, and philanthropy are in demand but require substantial knowledge and expertise of the art market ecosystem. Private banks, family offices, and other investors need to build an adequate strategy in order to efficiently serve art assets. We noticed that more financial institutions are actually seeking to develop their knowledge and adapt their services to respond to this asset investment market trends and client demands.

 

The remaining mystery and fog surrounding the art market—which is not as well-known as other sectors—on top of the individual considerations proper to each complex transaction, thus require a deeper understanding and a closer cooperation between the financial and art business actors. Building a bridge between these two traditionally separate universes would allow to create synergies which should be beneficial and allow to share each other’s expertise. In this respect and for 10 years now, 

The Remora Principle
The CEO at Patrium Intelligence (one of our appointed Private Intelligence Agencies) recently coined the term "The Remora Principle" and how it describes a method of operating within Secret Intelligence globally.  The phrase to 'operate within the shadows' is often used, however the Remora Principle outlines in specific detail how effective intelligence gathering is achieved by not only staying within the shadows of a larger, more distracting element, but to move with it.  It provides key steps Intelligence Agents should take to ensure effective information gathering and reporting to officers, and focuses more on modern technological advancement.  By following the steps outlined within the Remora Principle, one is able to then tailor specific actions that are applicable to individual operations.
Q: Can we induce an event which leads to a material and significant change in a person’s ability or behaviour which would be useful to an organisation such as MI6?

Straps yourselves in for a little bit of a wild ride, so if extreme sports of the academic or indeed philosophical kind are not your thing, then please unbuckle now and leave the park. The four terms used in the title would appear at first glance to be connected, but for the purposes of this article, are not.  There is a distinct, and key difference in that they refer to a journey of sorts.  The journey of the mind and neural functionality that eventually leads to a change which has been caused by an ‘event’. Each term describes a condition.  A condition of the brain at a point in the journey. 

Where did my Taxi Driver and my money go?”

 

Whenever there is a radical and rapid development in Technology, the voices of those who fear the human effects of such developments sing loud.  Of course, debate is ultimately a healthy proposition when conducted in the correct manner i.e a respectful exchange of ideas, evidence and facts to determine the truth or at least the likelihood of why ‘something’ happens.  The problem is that as we venture further up the emotional curve and hit the raw nerve of public consciousness, a healthy debate, absent of extreme views, is less and less likely.   This is quite possibly the stage we are at now when it comes to the vast changes of technological development at exponential rates of growth.  If one then throws into the mix a subject such as Artificial Intelligence, which has been the subject of many a doomsday prophecy, especially in the fictional world, then the prediction of likely effects  becomes distorted.  There are a vast number of capillaceous issues branching out from each topic within AI and on a scale which precludes us from analysis in this article due to time.  However, there are rarely more topics as emotive as a person's job and their ability to generate income in order to survive...so will driverless cars render the taxi driver extinct and will money even be necessary in any form? Read More. 13.08.19

Dark Web

An Opportunity or Threat?

Perceived wisdom suggests the Dark Web is synonymous with illegal activities involving weapons, drugs and pedophiia.  The assumption has been that if you use it, then you have something sinister to hide.  To be fair, closure of drug giants like "Silk Road" did nothing to change those perceptions.  However, in the big brother world of surveillance, the search for privacy is demanded by the majority and will be found in some way or another.  Furthermore, in a society where people are being increasingly attracted to the fringes of life,  the shift to increasing usage of the Dark Web is a given.  That does not mean it is wrong however, and as we often witness, it is people from the 'fringes' who sometimes operate outside of social norms, who provide the greatest sources of innovation.  We firmly believe the dark web will undergo an upgrade of sorts and although usual, non-secured browser based sites will attract some attention, their days are numbered.  The really exciting proposition is to predict Dark Web 2.0, 3.0 and so on. Rather ironically, but understandably, it is the law enforcement and intelligence agencies who are spending more and more resources on hiding within the shadows of the Dark Web.  It has been the most effective way so far.  However, as it grows, it will it continue to be the safe haven of the criminal or will some form of regulation (such as was with the legalisation of drugs etc), prevent the extreme offenders?  Take the example of Silk Road. It is not only possible, it is probable.  Whether you are in favour of legalisation generally or not,  in many cases it is a safer option.  Many of the sites that offered Marijuana were ran as slick commercial organisations where consumer satisfaction was paramount.  The product was therefore of superior quality (apparently) and it was offered within the relative safety of the internet and not some dark street corner.  Maybe that one is for the liberals out there.  For our purposes however, it shows that the deep dark web does actually have a USP which can be monetized, namely privacy.  Looking further head therefore, the real drug that will sell well in our 'Orwellian' future, is anonymity.  That will undoubtedly be the most precious of commodities.

 

As it stands now however, people and the societies they live in tend to display tendencies to self-regulate and yes, whilst there is always potential for abuse, the masses will (or should) drive the market to some degree of parity.  There are certainly huge opportunities around the corner.  A secured 'blockchain'esque' physical depository for parcel delivery is bound to happen on a large scale and accompany the growth of the Dark Web.  That is because the only chink in its armour at the moment is complete anonymity with delivery of items. Imagine a secure facility where parcels (aka Data) entering from one side, is subjected to 'scrambling' (aka 'Encryption') and leave the other side to be collected by a seemingly unconnected party (aka 'You').  Now multiply that across every City in the UK.  You then have what one can REALLY call an encrypted, secure, supply chain that would be undetectable to all agencies and, most importantly, legal  Read More.

Innovation, technology and the military are inextricably linked, and throughout history whenever there is a technological breakthrough, one of the first beneficiaries is invariably the military.  Whether it is recent developments such as GPS, or much later, Galileo selling telescopes to Italian monasteries to see enemy ships approaching, the human desire to conquer or defend is paramount. With the 'genie' firmly out of the bottle, Artifical Intelligence will become a 'game changer' in the Military world as for many, the upsides are simply too strong to worry about potentially disastrous consequences.  Here we take a look at the detail and the precise areas of growth just around the corner.Read More

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