How the Art Industry Weeds Out Sanctioned Russian Oligarchs
- Russian oligarchs have deep roots in the art industry as valuable collectors and patrons.
- Auction houses, museums and artists are cutting ties with billionaires in response to sanctions.
- But experts warn that the oligarchs could still launder money and evade punishment through high-end art.
In London, the world’s biggest auction houses have canceled “Russian Art Week”, the go-to art fair for wealthy Russian buyers.
In New York, Russian billionaire Vladimir Potanin has resigned from the board of directors of the Guggenheim Museum.
In Moscow, artists are canceling exhibitions at Garage, the museum founded by Dasha Zhukova, a socialite art collector and ex-wife of sanctioned oligarch Roman Abramovich.
As the world seeks to retaliate against the sanctioned Russian oligarchs and their “ill-begotten gains”, the notoriously opaque art industry is trying to sever decades-old relationships with foreign moguls.
But as personal property like yachts, mansions and jets are seized following the invasion of Ukraine, experts tell Insider the $50 billion art industry is coping to “gaping holes” with regard to the question of ownership.
Russian oligarchs have spent millions on artwork purchased from US and UK auction houses and galleries
EU and UK sanctioned Mikhail Fridman bought Andy Warhol’s ‘Four Marilyns’ in 1962 for $38.2 million at Phillips in 2013. The following year he flipped it to a Turkish banker for $44 million.
Roman Abramovich – who is also on EU and UK sanctions lists – is said to have bought works such as Lucian Freud’s ‘Benefits Supervisor Sleeping’ for $33.6m at Christie’s and a triptych by Francis Bacon for $86.3 million at Sotheby’s.
Fridman and Abramovich purchased their art through the Gagosian Gallery in New York, whose founder has been called “the official art dealer of the Russian oligarchy”, according to the New York Post. When asked if Gagosian’s client relationships would change in light of the recent sanctions, the gallery said it had “implemented effective internal controls and taken due diligence steps to fully comply. all applicable laws”.
In late February, the United States, Canada and major Western European countries announced the creation of a task force to identify and freeze assets held by Russian ruling elites in other jurisdictions.
But to freeze an asset, you need to prove who owns it – a multi-million dollar issue in the art world, where anonymous and covert purchases are commonplace.
The market for high-value art is particularly vulnerable to illicit trade
The global art market is “one of the least transparent parts of the financial system,” Dr. Louise Shelley, director of Terrorism, George Mason University’s Transnational Crime and Corruption Center, told Insider.
In 2020, a bipartisan Senate investigation found that art middlemen purchased more than $18 million worth of high-value art in the United States through front companies linked to Russian oligarchs after states United States sanctioned them in March 2014.
And just two weeks ago, the US Treasury’s Financial Crimes Enforcement Network sent out an alert flagging the high-value art market as “attractive for money laundering by illicit actors, including Russian elites.” sanctioned”.
The structure of the art world is particularly sensitive to this practice of “washing” illegally obtained money so that it appears to come from legitimate sources.
For starters, it’s often difficult to identify the actual buyer, says Dr. Moyara Ruehsen, director of the financial crime management program at the Middlebury Institute of International Studies in Monterey.
“Nobody is going to buy anything under their real name. Even someone who has nothing to hide, it’s either bought by a trust or a shell company,” Ruehsen told Insider. “Auction houses and art galleries rarely meet the person selling the artwork or the person buying the artwork.”
Second, most works of art are easier to transport and hide than other assets, like yachts and private jets, many of which have been seized from Russian oligarchs in recent weeks.
High-end parts are often stored in free economic zones or large warehouses called free ports, where the goods are subject to little or no duties and taxes. Works of art can be bought and sold without ever leaving freeports, allowing them to remain inconspicuous while governments search the assets of sanctioned individuals. Sanctioned elites may also try to protect the art from seizure by transferring ownership on paper to a trusted close associate who has not been sanctioned.
Artworks also have the added attraction of having a more subjective market price, allowing private owners to inflate prices by millions of dollars to increase their profits.
“It’s really hard to argue the true value of the product we’re marketing,” Ruehsen said. “With other raw materials, it’s harder to do.”
How auction houses are handling the problem
For their part, the auction houses say they are ready to eliminate the sanctioned people from their customer lists.
Sotheby’s told Insider that it “conducts its business in strict compliance with all applicable laws and regulations, including sanctions” and that it “will comply with any regulations put in place.”
Christie’s said it had “immediately taken action through our strict customer identification and screening processes in place as part of our global anti-money laundering and sanctions compliance programs”.
“We do not authorize persons or companies named on applicable sanctions lists to transact with us,” the company said. “Politically exposed persons and those with a connection to a sanctioned jurisdiction or other high-risk jurisdictions are also subject to enhanced due diligence.”
A Phillips spokesperson told Insider that the company has “measures in place to ensure that no sanctioned person or institution can conduct business directly or indirectly through our salesrooms.” Phillips is owned by Russian luxury goods company Mercury Group.
Paul Minshull, COO and CTO at Heritage Auctions, said the company had anti-money laundering policies in place for several years, which include daily checking of sanctions lists.
But the galleries themselves have little insight.
“Our biggest problem is that we generally don’t focus on open beneficial ownership registries,” Shelley said, referring to US property rights laws. “It’s a problem in the real estate market, it’s a problem in the art market. It’s a problem in our financial system at every level.”