[esperent]

> art holds its value because there is exactly one of each painting, and the human hoarding impulse nurtures a sense of reverence towards originality.

A huge amount of art holds value because someone needed to launder money. NFTs merely provide a simpler way for people to do that.

[drannex]

That is the clearest explanation I have heard so far. Lots to think about there.

[akudha]

How does one launder money through art? Don’t you have to still show where the money came from (and pay taxes etc) in the first place?

[tomatotomato37]

I don't know about money laundering but I've heard of a tax fraud trick involving art.

Basically, a sketchy businessman buys a bunch of art from some random unknown artist for pennies. He then gets his art world friends to start praising that artist and thus appraise the art at a stupidly high value. Come tax season, sketchy business man turns philanthropist and donates said art to some random museum. That donation is written off as a tax credit at that stupidly high value and now some museum is left holding crappy art. Alternatives strategies involve using the over-valued art as collateral for a loan or something in case cash is needed instead.

It's sorta like a pump-and-dump, except the intent is to fool some bureaucracy rather than the public.

[tylerhou]

Any evidence that this happens regularly? Often FMV of non liquid assets has to be evaluated by auction.

[vlovich123]

Evaluated by whomever you pay to have it evaluated. Watch dirty money. They explain the malincentives pretty well.

[mynegation]

How does that work, mathematically? If you bought an asset and it appreciated you are liable for a tax on capital gains. If you donate this asset that simply eliminates the gain and the associated tax. But this is obviously a thing. Where am I wrong?

[xur17]

> If you bought an asset and it appreciated you are liable for a tax on capital gains. If you donate this asset that simply eliminates the gain and the associated tax. But this is obviously a thing.

If you donate an asset it eliminates the gain and the associated tax in addition to giving you a tax deduction in the amount of the donation. This is why people like to donate highly appreciated assets rather than selling the asset and donating the resulting funds.

[ceejayoz]

The gain is fake. The tax benefit from the donation that is based on that fake gain is not.

It’s like making a million dollars in counterfeit money, then donating that to charity. You reduce taxes by $370,000, and are out $0.

[DanBC]

Here are two links with lots of information:

https://www.riskscreen.com/kyc360/news/art-in-the-frame-for-...

https://www.imf.org/external/pubs/ft/fandd/2019/09/the-art-o...

> But in late 2017, US prosecutors say, Green fell in with the owners of a Mauritius-based investment company, Beaufort Securities, that engaged in fraud, stock manipulation, and money laundering. For Beaufort’s owners, duping investors into buying worthless securities was the easy part. The hard part was making the ill-gotten profit appear legitimate to regulators. Beaufort had done so in the past by depositing money under false names in offshore banks, then slipping it into the global banking system little by little. The company had also used the time-tested trick of buying real estate and quickly selling it off, often at a loss, to convert illegal proceeds into assets that could be accounted for as the fruit of a property deal.

> Now, money launderers like Beaufort were searching for less obvious ways to scrub their cash, and Matthew Green knew how to trade in multimillion-dollar works of art. Approached in late 2017 by the Beaufort conspirators—one of whom was in fact an undercover US federal agent who had infiltrated Beaufort—Green allegedly said he would accept £6.7 million (about $9 million at the time) in what he knew to be the yield of securities fraud in exchange for a 1965 Picasso, Personnages. Green would draw up phony ownership papers saying the work had been sold, all the while keeping the Picasso stored away. Down the road he would pretend to buy it back from his coconspirators at a lower price, keeping 5 to 10 percent of the laundered cash for himself.

> “Art is a very attractive vehicle to launder money,” says Peter D. Hardy, a former US prosecutor who now advises corporations and industries on compliance with anti-money-laundering requirements. “It can be hidden or smuggled, transactions often are private, and prices can be subjective and manipulated—and extremely high.”

[IdontRememberIt]

If you are dealing with common goods, it is easy to detect if buy or sell prices are not standard. Also, IRS can detect easily if a company needs investigation when ratios do not match its industry.

With art, buy and sell prices have no comparison points and margins are very high.

[NoOneNew]

Dealer: "I want to buy my 14th $120k car even though I dont have a job or legal business that generates the money to do so. The IRS is going to catch on that I'm buying these things through nefarious means."

Buyer: "I want 120k bucks worth of cocaine. How should I send you the money?"

Dealer: "I'm going to duct tape a banana to a wall and call it art. You buy the art. I drop off the coke."

Buyer: "Who the fuck would buy something like that?"

Dealer: "You, because you're actually buying the coke, not the banana or duct tape. But to the government, you look like a fucking idiot and I'm just a capitalist opportunist. They then dont question my questionable purchasing decisions because I'm an arteest."

I left out some details, but that's the broad brush strokes.

Edit: just thought about it. This is also a nice extra layer of plausible deniability for the buyer.

"I'm not sending money to acquire drugs/illegal weapons, I'm sending money for a... painting."

Cops: "It looks like a toddler drank paint and had projectile diarrhea."

"High class taste in sophisticated art cant be explained to simpletons like you."

[akudha]

hahaha, that was a hilarious read. Thank you for taking the time to write something funny while also explaining.

I watched this documentary on Netflix called Made You Look. There was a painting in it that sold for crap ton of money - it was literally two rectangles (not perfect rectangles, but close enough. And no, I am not making this up) in different colors. I paused the video and looked at it for a couple of minutes and thought, my 7 year old niece can draw this. What is special about this painting?

So yeah, I guess I am a simpleton who can't understand art ...

[zerocrates]

By your description I'm assuming it was supposed to be a Rothko.

[akudha]

This one, I think https://www.moma.org/collection/works/80566

[morelisp]

I would suggest you don't try to evaluate 3x3m piece of art on canvas based on a screenshot on your 13" LED laptop screen.

[NoOneNew]

True but theres also a difference for a wall sized "painting" of paint splatter/gradient rectangles and a Salvador Dali. I had the benefit of visiting the Dali museum in St Pete FL. Seeing his work in photos and on a computer screen is, "Meh, that's cool". Seeing the exact same pieces tower above you in person is a borderline religious experience that cant be described with words.

[NoOneNew]

To be fair, I do like some abstract art. Those rectangle ones you're talking about can look good as generic decor. Multiple thousands of dollars type of good? Hell no. $20 poster? Yea. A good textured giclee print, 50-100 tops.

In truth, it's just like bitcoin. The black market got involved and drove up prices. The naive market observed without understanding and jumped in.

[nmfisher]

I assume it looks like this:

- get a business that operates mostly on anonymous/untraceable cash (laundromat)

- put drug money through it and pay taxes

- business use "clean" money to buy a piece of art for $1 million from a corporation owned by the criminal boss (that was bought for $1k).

Voila, clean money in the hands of the head honcho.

Pure speculation on my part, though.

[im3w1l]

Let's say Alice wants to send money to Bob on the downlow. Maybe as a bribe. Maybe as payment for a large shipment of drugs. Who knows. Anyway she wants to send him money. Bob's nephew Charlie is an artist. Alice buys a painting from Charlie for $10 mil.

[Infinitesimus]

This Planet Money episode can also be a useful resource to learn more: https://www.npr.org/sections/money/2018/02/09/584555705/epis...

[sgt]

You can buy art from upcoming artists for next to nothing and 10 years later inflate the price as much as you want, citing market value.

[khazhoux]

Do both sides have to be in on a money laundering exchange, though?

I still for the life of my figure out how Grimes made millions off her shitty videos last week. It was way more than "ha, ha this is hilarious and I'm going to spend some money on the joke".

[elevenoh]

Launder, or tax optimize.