Politics Senate report says Russian oligarchs evading U.S. sanctions through big-ticket art purchases

18:51  29 july  2020
18:51  29 july  2020 Source:   thehill.com

The art world has a money laundering problem

  The art world has a money laundering problem Shell companies with hidden owners. Middlemen who shield the identities of buyers and sellers. Inadequate safeguards to keep out shady money. © Stephen Chernin/Getty Images A bidder holds up his bidding sign during an auction at Sotheby's in June 2004 in New York City. (Photo by Stephen Chernin/Getty Images) It's all part of the ultra-secretive art world, according to a bipartisan Senate investigation released Wednesday. And that's why it's susceptible to money laundering and sanctions evasion, the report found.

Russian oligarchs looking to evade U.S. sanctions are exploiting a loophole in the art industry and coming away with tens of millions of dollars, according to a bipartisan Senate investigation published on Wednesday.

Rob Portman, Tom Carper sitting at a table: Senate report says Russian oligarchs evading U.S. sanctions through big-ticket art purchases © Anna Moneymaker Senate report says Russian oligarchs evading U.S. sanctions through big-ticket art purchases

The report, which took two years to complete, calls for more regulation in an industry they say operates on a culture of secrecy and undermines one of the most fundamental tools both Democratic and Republican administrations have used to pressure foreign governments against bad behavior.

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The 150-page report is a case study of activities by one sanctioned Russian family - the Rotenbergs - and how the system, including the use of shell companies, intermediaries and a lack of accountability among art auction houses and private galleries, helped conceal the identities of art buyers and sellers.

The report was spearheaded by staff of the Senate Homeland Security panel's permanent subcommittee on investigations, led by the chairman of the subcommittee, Sen. Rob Portman (R-Ohio), and the ranking Democrat, Sen. Tom Carper (Del.).

"This bipartisan report demonstrates that Russian oligarchs like the Rotenbergs have used the secrecy of the art industry to evade U.S. sanctions," Portman said in a statement.

"As Senator Portman and I have highlighted in this bipartisan report, there are reforms that we know can be put in place to ensure that wealthy bad actors cannot use valuable works of art to evade U.S. sanctions," Carper added.

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The report findings are likely the tip of the iceberg, staff on the subcommittee said, and represent a key area where a lack of regulation threatens U.S. security.

"If the art market in the United States is seen as a place where it's easy to launder dirty money, then it's going to attract criminals and that certainly threatens the security of our financial institutions and markets," one staff investigator said.

Sanctions on the Rotenbergs were first imposed in 2014 by the Obama administration, part of a campaign of restrictions against members of Russian President Vladimir Putin's inner circle, government officials and financial entities ordered in response to Russia's annexation of Ukraine's Crimean peninsula.

The sanctions did not have the intended effect of pressuring Russia to withdraw from Crimea, the subcommittee investigators wrote in their report, and an investigation was launched to understand where there were weaknesses.

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In 2016, the leaked Panama Papers - millions of documents detailing private offshore financial accounts and businesses - provided a tip for investigators into the dealings of the Rotenberg family, with at least nine shell companies found to be involved in high-art purchases.

"This is not just a story about a rich guy buying a painting they like and hanging it on their wall," one committee staffer said. "It's a piece of very wealthy people's investment portfolios."

The Rotenbergs were targeted for U.S. sanctions because of their close ties to Putin. Arkady Rotenberg is a childhood Judo partner of Putin and he and his brother, Boris, have benefited from multimillion- and multibillion-dollar government contracts.

After sanctions went into effect in 2014, Senate investigators homed in on an American art advisor, Gregory Baltser, who worked through a system of companies to buy and sell art for the Rotenbergs while concealing their identities from art houses and private galleries.

The subcommittee report found that Baltser helped the family purchase up to $18 million of art in the months after sanctions were announced, and that shell companies linked to the family participated in $91 million in transactions from 2014 onward.

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Two months after sanctions were imposed, Baltser purchased nearly $6.8 million worth of high-value art on behalf of his clients during an auction at Sotheby's, including a $1.2 million painting by Marc Chagall, Femme et Enfant, and an almost $3 million Georges Braque, titled Pichet et Journal.

Investigators linked financial transactions wired to the art auction houses from Baltser to shell companies owned by the Rotenbergs. They said Baltser declined, through his lawyer, to be interviewed for the investigation and is currently in Moscow with no plans to return to the U.S.

Subcommittee investigators said they are still working through what referrals to make to the Justice Department. Noncompliance with U.S. sanctions can incur fines of several million dollars.

Investigators charged that representatives of the art galleries did not more thoroughly question Baltser on who his clients were.

"When asked about these purchases, the Sotheby's Baltser Account Representative stated she assumed Mr. Baltser was purchasing these lots on behalf of one or more of his clients," the report said. "She recalled hearing Mr. Baltser talking to his client on the phone call during the auction and described 'another Russian male voice in the background.' She did not know, however, with whom Mr. Baltser interacted during the auction."

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Sotheby's said in a statement to The Hill, "Sotheby's takes Anti-Money Laundering and United States sanctions policies extremely seriously and voluntarily participated in the Senate Subcommittee's investigation."

Investigators noted that Sotheby's and other art auction houses identified in the report - Christie's, Phillips and Bonhams - all have voluntary anti-money-laundering (AML) controls in place despite no legal requirement to do so.

The auction houses say they will no longer conduct transactions with Baltser or his company as a result of the subcommittee investigation.

AML regulations, in part, require certain record keeping, identifying customers to make sure they are not sanctioned individuals and reporting suspicious activity.

The European Union and the United Kingdom have in recent months formalized legislation requiring art houses to comply with AML policies.

Christie's Auction House said in a statement that it has zero tolerance for evasion of sanctions and took appropriate and responsible measures to halt transactions with Baltser "once informed of his business dealings with sanctioned entities as well as his efforts to conceal that information."

"Christie's were pleased to cooperate with the [permanent subcommittee on investigations] and thank them for their thorough investigation. The company was not accused of, nor found to have had, any wrongdoing in this matter," the statement continued.

"It is important to note that the international art market is already governed by strict legal frameworks for all its activities. We have a rigorous global AML program designed to prevent dealings with those involved in criminal activities or subject to sanctions, and this has recently been further strengthened in response to EU AML regulation of the art market. Many of the recommendations by the PSI are already in place in the EU, where we were a leading contributor to guidance on the new regulation. Under the EU AML Directive, it is now obligatory to identify the underlying source of funds for transactions," Christie's said.

The statement added, "We welcome the opportunity to work with US legislators on appropriate and enforceable AML guidelines for all tiers of the art trade here."

The Senate subcommittee report made eight recommendations to strengthen policies cracking down on sanctions evasion. This included that Congress should amend the Bank Secrecy Act to include regulations for art houses and high-value art purchases.

The report highlighted that the Treasury Department should have more oversight of whether a sanctioned individual is the ultimate owner of a company or holds a significant share of ownership. The subcommittee report recommended that Treasury routinely sanction individuals' family members to prevent a transfer of wealth and evasion of sanctions.

The subcommittee also recommends that Treasury's Office of Asset Control provide more guidance to art auction houses and private galleries to make sure they are not doing business with sanctioned individuals.

-Updated at 11:37 a.m.

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usr: 3
This is interesting!