The minister for Indigenous Australians, Ken Wyatt, says he intends to take stronger sanctions against private art dealers or “carpetbaggers” who are exploiting vulnerable and elderly Aboriginal artists in central Australia.

Speaking on ABC radio in Alice Springs on Wednesday, Wyatt said he thought the current system, under which dealers voluntarily join the Indigenous Art Code (IAC), was not working.

“The Indigenous art code was put into place [in 2009],” Wyatt said. “We made assumptions that would work but it hasn’t, and we’re seeing this carpetbagging.”

Wyatt was responding to allegations raised this week that a private dealer in Alice Springs had taken at least three elderly Indigenous artists from their communities, and at least one was being forced to pay off tens of thousands of dollars loaned to her son by making new artworks.

The ongoing practice, which appears to be re-intensifying as the Indigenous art market grows, has been described as “modern day slavery”.

Under the IAC, sanctions can be imposed on dealer members who have acted unethically but it has no power to regulate private dealers who are not members.

“I’d like to see stronger sanctions,” Wyatt said. “And I am talking with my colleagues about how to do this.

“In my own state, I’ve had experiences where people were … misled. The state government and commonwealth intervened then; we’re going to do that with this one.”

Wyatt said he did not think it was the case that Aboriginal artists were choosing to seek better economic opportunities in working for private dealers.

“Carpetbagging is to the advantage of the art dealer,” he said. “I’ve often seen artists who’ve sold at a much lesser price, and then [their work] has incredible mark-ups overseas.”

In its letter to the minister, the APY artists’ collective called for the “understaffed and under-resourced” IAC to be housed within the Australian Competition and Consumer Commission (ACCC) and given more support to regulate the industry, demand dealer transparency and end “carpetbagger sweatshops”.

Vivien Anderson, a Melbourne-based gallerist and director of the IAC, said when the code was established they sought to engage bodies like the ACCC to support its action.

APY senior female artists Paniny Mick and Wawiriya Burton in front of a painting of the seven sisters story – the largest piece to be auctioned to raise funds for the Purple House dialysis clinics. Photograph: Tjala Arts

“But it became clear that we were not going to be funded to perform the task,” Anderson told Guardian Australia.

Anderson said police should be brought in for such exploitation cases but this was not an isolated incident “and it’s been going on for a while”.

“Public awareness is growing and I think all credit to the IAC,” she said. “But it still shocks me that these individuals are able to move with such stealth, and their objective is to make money. There’s not much else in it, really. It’s highly opportunistic behaviour.”

She said the IAC successfully used its limited funds to focus on public awareness and education of consumers and artists, but it needed much more to have “the kind of weaponry, if you like, to be proactive in this [exploitation] space”.

In the meantime the IAC had tightened the application process, including “stringent” transparency requirements, for private dealers who want to be members of the code.

“You also have to look at who is a fit and proper person to be working in the industry and under the circumstances this is an alarming situation. I can imagine the family is devastated.”

The federal minister for communications, Paul Fletcher, said the incident was a serious matter, and he welcomed the South Australian premier’s referral to police and the attorney general.

“My office met with minister Wyatt’s office yesterday to discuss appropriate action and government is waiting on urgent advice.”

Fletcher said he was aware that carpetbagging had been a “recurring issue” and was a problem for Indigenous artists, particularly when the market was strong.

He said the code was set up to address such issues and he had met with IAC a number of times to discuss further action.

APY artists have been instrumental in fund-raising for the Purple House, an Aboriginal community-controlled health service which provides dialysis in remote communities.

The Purple House began in 2000 with an auction of paintings at the Art Gallery of NSW, which raised $1m in one night to set up the first clinic in Alice Springs.

Community controlled art centres are a very important part of the Purple House story, said CEO Sarah Brown.

“It is absolutely vital that senior people are able to stay on country, to paint and pass on culture. We absolutely support the community-controlled arts sector and strongly encourage anyone who is buying art to ask serious questions about sourcing. If it feels dodgy, don’t buy it.”

The Art Gallery of South Australia, which hosts significant Indigenous art exhibitions and events, joined calls for action.

AGSA director Rhana Devenport said more than 3,800 artists had exhibited at the gallery and affiliated events, and almost 1,000 had been supported to come to Adelaide for openings, workshops and collaborations.

“During this time, AGSA has worked closely with the APY Art Collective, art centres, artists and their galleries and we support the call to address any unethical practices in the industry.”

A spokeswoman for the South Australian government did not provide details of the intervention flagged by Wyatt, but reiterated SA police were aware of the allegations.

“We will continue to work with the federal government on implementing strategies to prevent Aboriginal artists being exploited,” she said.