(MENAFN- The Peninsula) For more than three decades, Guillermo Zajarias has watched local painters become international stars, new galleries proliferate, and Mexico's reputation soar as a hothouse for hip contemporary art.
"The art in Mexico is marvellous. It is superb," Zajarias, the owner of Aura gallery, said. "The market should be growing. But it has totally frozen."
Zajarias and other art dealers here blame their recent troubles on a new law intended to uncover the hidden profits in the lucrative world of Mexican drug trafficking. The government is now demanding more information from a wide range of businesses about who their customers are and how much they are spending. The new anti-money-laundering regulations have many supporters among those who fear the turbulence of an economy awash in narco dollars.
But gallery owners and auction-house directors here say they have become collateral damage. Since the law went into effect last year, Zajarias estimates that sales at his gallery in the posh Lomas de Chapultepec neighbourhood have fallen by 30 percent, a figure echoed by other gallery owners.
"And it's 100 percent related to this law," he said. "This is fiscal terrorism and it is not fair."
At its core, the anti-money-laundering law, which passed in 2012, does two things: limits the use of cash and requires businesses to give more information to the government about their customers. The rules apply to a wide range of "vulnerable" industries that are presumably attractive destinations for ill-gotten gains: pawn shops, jewellery stores, armoured car dealerships and art galleries.
More broadly, what makes the new rules disruptive is that they point toward an ambitious and difficult social change: In Mexico, despite its hyper-developed pockets, vast portions of the population still reside in the "informal" economy, the cash-based world of unlicensed vendors, undeclared income, unpaid taxes. The reform goes against that grain and also asks businesses and their customers to share information with a government often distrusted by its own people.
Mexican cartels earn billions each year through their drug, extortion, kidnapping and other rackets, money that enters the licit economy in many avenues. Earlier this month, US federal law enforcement agents raided Los Angeles fashion district businesses and netted about $100m of alleged narco money. In Mexico, cartels buy up beach-front hotels, stocks and bonds; they run front-company construction firms, steakhouses and night clubs. Plus the more obvious bling: mansions, private jets, gold-plated pistols.
And yet Ernesto Carrasco - a former head of the Mexico office of Kroll, a New York-based corporate investigations firm - wrote that between January 2007 and July 2012, only 83 people were convicted of money laundering in the country, "a tiny number given the size and extent of the problem."
"In Mexico, clandestine business operations of the drug cartels have permeated the entire economy," Carrasco wrote.
The Morton auction house - which sells art, books, and antiques, often to other dealers - published a hard-cover book on how to comply with the anti-money-laundering law and has met with legislators to voice its complaints about the restrictive rules. The auction house also has seen a loss of 25 to 30 percent of its business.
"This has obviously affected the sales. Because there are people who are afraid and they say, 'I'm going to wait' or 'I don't want to buy,' " said its director, Luis
C Lopez Morton. "They feel uncomfortable. They feel that the government is watching them."
Gallery owners said some clients are worried about their safety. They fear corrupt officials within the government might leak or sell their information, that it could be dangerous if the government knows you spent $1m on a painting.
"It's simply because we don't have the confidence that their information will be protected," said Oscar Roman, owner of an eponymous gallery in the Polanco neighbourhood. For those capable of buying on the international art market, "it's easier to go to the US and nobody will ask me absolutely anything."
"We are at a great disadvantage," Roman said. "There is nobody who is protecting art in Mexico."
The 15 vulnerable industries or activities outlined in the law include about 35,000 businesses or individuals, who sent about half a million reports to the federal government in the first few months of the law, Alberto Elias Beltran, a Finance Ministry official in charge of implementing the new law, said in an interview earlier this year. To handle the flood of information, the ministry's financial intelligence unit has grown from nearly 100 people to about 160, he said, and received technology and advice from the US.
"There is a great enthusiasm" to comply with the law, he said.
Galleries beg to differ. To comply with the new paperwork - both for customers and his artists - Zajarias said he had to buy new PC computers because the governments' forms weren't compatible with his galleries' Macs. His artists, some of whom live outside Mexico, have to file their invoices, at the latest, on the same day as the sale. "You have to pay an artist before selling a painting," he said. "We have our hands tied. We can't work with this system."
Those in the gallery world also dispute the premise that drug lords buy art. When they get arrested and their houses turn up on TV, "they have posters on the wall. You don't see a single piece of art," Roman said.
Mexico City's vibrant museum and gallery scene offers far more than its most famous couple: the Frida Kahlo self-portraits and Diego Rivera murals that still attract thousands of tourists. The Jumex museum, opened last year by the heir of a fruit-juice empire, houses one of the most important collections of contemporary art in Latin America. The museum is located across the street from the shimmering Soumaya museum, where billionaire telecom baron Carlos Slim displays his personal collection.
On any night, patrons crowd in to see high-concept abstractions in studio apartment-sized gallery nooks or soaring exhibition spaces. At an opening at the highly hip Kurimanzutto gallery last week, throngs of young Mexicans drank out of coconuts, played ping pong and lounged in a giant hammock that spanned the converted lumber mill.
Raul Zorrilla, the gallery's executive director, said that the anti-money-laundering law is necessary, given the scope of the problem, but that it could be refined because the regulations are "confusing" and "difficult to manage."
There is too much burden on the business to report its clients' personal information.
"You can't convert art galleries into policemen," he said.
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