The art world has a money laundering problem

The art world has a money laundering problem

“This is just the tip of the iceberg,” a statement to reporters told reporters at the standing subcommittee on investigations. According to Senate research, the art world is considered the largest unregulated legal industry in the United States.

As in other auction houses, Christie’s and Sotheby’s, who are not charged with violations, have anti-money laundering policies in place, although they are not legally required to do so. The Senate investigation described these safeguards as “lax” and found they were “easily circumvented.”

“Secrecy, anonymity and lack of regulation create a mature environment for money laundering and circumventing sanctions,” the report found.

Christie told CNN Business he has “zero tolerance” for evasion of sanctions and thanked the Senate subcommittee for its investigation, with which the auction house collaborated. Christie’s also said it welcomes the opportunity to work with U.S. lawmakers on “appropriate and enforceable” anti-money laundering guidelines for the art trade.

Sotheby’s, which last summer came to the A $ 3.7 billion contract that will be made private by billionaire Patrick Drahi, told CNN Business in a statement: “Sotheby’s takes sanctions policies against money laundering and the United States extremely seriously and voluntarily participated in the Senate subcommittee investigation.”

“Prepare money laundering”

In a dazzling example, the investigation spanned more than $ 18 million in expensive art purchases through auction houses and private dealerships to joint-stock companies that appeared to be linked to Arkady and Boris Rotenberg, sanctioned Russian oligarchs.

The Rotenbergs were sanctioned in March 2014 by President Barack Obama in response to Russia’s annexation of Crimea. The investigation also found that shipping companies spent more than $ 91 million on the overall operations of the financial system after the imposition of these.

“If wealthy Russian oligarchs can acquire millions of art for personal investment or enjoyment while under sanction, it follows that their businesses or hidden resources could also continue to access the U.S. financial system,” the Senate investigation said. .

Representatives of Russian companies owned by the Rotenbergs did not respond to requests for comment.

Money laundering gap?

Rotenberg’s example and many other details of the investigation highlight the fact that, unlike selling shares or making routine bank transfers, art sales through auction houses are not subject to anti-money laundering provisions. money in the Bank Secrecy Act. When selling art, according to the report, sellers are not required to confirm the identity of the buyer or make sure the artwork is not used to launder dirty money.

The report calls on Congress to pass legislation that would force auction houses like Christie’s and Sotheby’s to comply with anti-money laundering laws. The UK and the European Union have has taken similar measures in recent years.

Auction houses told Senate researchers they rely on financial institutions to ensure the integrity of funds intended to buy works of art. Public auction house auctions accounted for 42% of sales last year.

Most sales are made away from public control through private dealers, who are not subject to anti-money laundering requirements.

For example, the Senate report interviewed a New York-based private art dealer who had no written AML policies and “instead relied on his gut.” He also said he “relies on the advice of lawyers with experience in AML and related areas and seeks possible red flags in transactions.”

Moscow art dealer

In the example of the Russian oligarchs, the researchers found that most Rotenberg-related art purchases were facilitated by Gregory Baltser, a U.S. citizen with an art business in Moscow called BALTZER. Baltser personally brought the title to the technique, assuring that due diligence was done only on him, not on the final buyers, the report said.

A lawyer representing Baltser and his art business denied the allegation of masking purchases made by Russian oligarchs.

In a separate statement to CNN Business, Christie’s said it took “appropriate and responsible action” to stop transactions with Baltser “once informed of its business with sanctioned entities, as well as its efforts to conceal that information.”

In 2014, Baltser signed an agreement with Christie’s that allowed him to bid at auctions by his clients, whom he undertook to conduct money laundering and penalty reviews, according to researchers. A London lawyer certified to Christie’s in late 2014 that although BALTZER had a “significant number of Russian clients there were no transactions” falling under recent sanctions against Russia, the report said.

But the London lawyer did not provide a similar certification for the next three years, and in 2018 Christie renegotiated his agreement with BALTZER to require due diligence documents from the client after each art sale, according to the investigation.

It calls for added transparency to the art world

Investigators told reporters Baltser refused to cooperate and said he has no plans to return to the United States.

Investigators asked if any laws were broken, and investigators said Baltser must comply with U.S. sanctions. Investigators said they continue to “work” through potential criminal referrals to law enforcement.

“Baltzer can confirm that neither he nor Gregory Baltser have represented, nor at any time, nor transacted in any way with Boris or Arkady Rotenberg,” David Vicinanzo, Nixon Peabody’s attorney, told CNN Business.

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“Baltzer had asked the Subcommittee not to file unfair and unreliable allegations on the basis of information from unconfirmed sources and is deeply disappointed that the Subcommittee has decided to do so,” the statement said.

The bipartisan investigation called for a number of changes, including: adding companies that handle high-end art transactions to the Bank Secrecy Act; issue comprehensive guidance by the Treasury Department’s Office of Oversight Control to auction houses and art dealers on how to avoid doing business with sanctioned individuals; and require treasury to collect proprietary information beneficial to companies formed or registered to do business in the United States.

“Given the intrinsic secrecy of the art industry,” the report concluded, “it is clear that change is needed in this multimillion-dollar industry.”

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