Home Museum institution Art world blacklists Russian oligarchs, fearing billionaires could take advantage of industry’s lack of regulation to evade sanctions

Art world blacklists Russian oligarchs, fearing billionaires could take advantage of industry’s lack of regulation to evade sanctions

  • Russian oligarchies 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.

In London, the best auction houses in the world canceled “Russian Art Week”, the essential art fair for wealthy Russian buyers.

In New York, Russian billionaire Vladimir Potanin resigned of the Board of Trustees of the Guggenheim Museum.

In Moscow, artists are cancel their 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 sanctioned Russia oligarchs and their “ill-gotten gains”, the notoriously opaque art industry is trying to sever decades-long relationships with foreign moguls.

But while personal property like yachts, mansions and jets are seized following the Ukraine invasion, experts told Insider that the $50 billion art industry faces “gaping holes” when it comes to the issue of ownership.

Russian oligarchs have spent millions on artwork purchased from US and UK auction houses and galleries

Roman Abramovich and Dasha Zhukova attend the Spring Exhibition Season Preview at Garage Museum of Contemporary Art on March 9, 2017 in Moscow, Russia.Team Boyko/Getty Images

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 turned it over to a Turkish banker for $44 million.

Roman Abramovich – who is also on the EU and UK sanctions lists – has works that would have been purchased including “Benefits Supervisor Sleeping” by Lucian Freud for $33.6 million at Christie’s and a triptych by Francis Bacon for $86.3 million at Sotheby’s.

Both Fridman and Abramovich purchased their art through the Gagosian Gallery in New York, whose founder has been called “an 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”.

At the end of February, the United States, Canada and the main countries of Western Europe announced a working group 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

Art world blacklists Russian oligarchs, fearing billionaires could take advantage of industry's lack of regulation to evade sanctions
Dmitry Rybolovlev poses in Paris September 24, 2015 in front of two allegedly stolen paintings by Pablo Picasso, ‘Spaniard with a Fan’ (L) and ‘Woman Sewing her Hair’, which he bought from a Swiss art dealer.PATRICK KOVARIK/AFP via Getty Images

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 artwork from the United States through front companies linked to Russian oligarchs after the United States sanctioned them in March 2014 .

And just two weeks ago, the US Treasury Financial Crimes Enforcement Network sent an alert flagging the market for high-value art as “attractive for money laundering by illicit actors, including sanctioned Russian elites”.

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

Art world blacklists Russian oligarchs, fearing billionaires could take advantage of industry's lack of regulation to evade sanctions
A man walks past ‘Untitled’ by Willem De Kooning during a preview of Sotheby’s Impressionist and Modern Art Evening Sale in New York.Thomson Reuters

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.”