“This is just the tip of the iceberg,” investigators from the Permanent Subcommittee on Investigations told reporters in a call. According to Senate research, the art world is considered to be the largest unregulated legal industry in the United States.
Like other auction houses, Christie’s and Sotheby’s, which were not charged with wrongdoing, have anti-money laundering policies, although they are not legally required to do so. The Senate investigation described those safeguards as “lax” and found that they were “easily circumvented.”
“Secrecy, anonymity and lack of regulation create an environment conducive to money laundering and evading sanctions,” according to the report.
Christie’s told CNN Business that it has “zero tolerance” for sanctions evasion and thanked the Senate subcommittee for its investigation, with which the auction house cooperated. Christie’s also said it welcomes the opportunity to work with US lawmakers on appropriate and applicable “anti-money laundering” guidelines “for the art trade.
‘Ripe to launder money’
In a dazzling example, the investigation traced more than $ 18 million in expensive art purchases through auction houses and private merchants to anonymous shell companies that appeared to be linked to Arkady and Boris Rotenberg, sanctioned the 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 those shell companies participated in more than $ 91 million of general transactions in the financial system after those penalties were imposed.
“If wealthy Russian oligarchs can buy millions in art for personal investment or enjoyment while under sanction, it follows that their businesses or hidden resources could also continue to access the financial system of the United States,” the Senate investigation said.
Representatives of Russian companies owned by the Rotenbergs did not respond to requests for comment.
Loophole for money laundering?
Rotenberg’s example and many other investigative details highlight the fact that, unlike selling stocks or making routine bank transfers, art sales through auction houses are not subject to the anti-money laundering provisions of the Bank Secrecy Act. When art is sold, according to the report, sellers are not required to confirm the identity of the buyer or to ensure that the artwork is not used to launder dirty money.
Auction houses told Senate investigators that they trust financial institutions to guarantee the integrity of the funds used to buy works of art. Public auctions at auction houses accounted for about 42% of sales last year.
Most sales are made away from public scrutiny through private distributors, who are not subject to the 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 trusted his instincts.” He also said that “he relies on the advice of lawyers with experience in AML and related areas and looks for possible red flags in transactions.”
Moscow art dealer
In the example of the Russian oligarchs, the researchers found that most of the Rotenberg-linked art purchases were facilitated by Gregory Baltser, a US citizen with an art business in Moscow called BALTZER. Baltser personally took the title of the art, ensuring that due diligence was done only to him, not to final buyers, according to the report.
A lawyer representing Baltser and his art business denied the allegations of covert purchases made by Russian oligarchs.
In a separate statement to CNN Business, Christie’s said it took “appropriate and responsible measures” to stop transactions with Baltser “after being informed of its business dealings with sanctioned entities, as well as of its efforts to conceal that information.”
In 2014, Baltser signed an agreement with Christie’s that allowed him to bid at auctions on behalf of his clients, whom he promised to carry out money laundering and sanction control, according to investigators. A London lawyer certified Christie’s in late 2014 that despite BALTZER having “a significant number of Russian clients, there were no transactions” that fall under recent sanctions against Russia, according to the report.
But the London attorney was unable to provide a similar certification for the next three years, and in 2018 Christie’s renegotiated its agreement with BALTZER to require client due diligence documents after each art sale, according to the investigation.
Called to add transparency to the art world
Investigators told reporters that Baltser refused to cooperate and stated that he has no plans to return to the United States.
When asked if the laws were violated, investigators said that, as a US citizen, Baltser must comply with US sanctions. Investigators said they are still “working” on possible criminal references to law enforcement.
“Baltzer can confirm that neither he nor Gregory Baltser has, at any time, represented or transacted with Boris or Arkady Rotenberg in any way,” David Vicinanzo, an attorney for Nixon Peabody, said in a statement to CNN Business.
“Baltzer had urged the Subcommittee not to make unfair and unreliable allegations based on information from unconfirmed sources, and is deeply disappointed that the Subcommittee has chosen to do exactly that,” the statement said.
The bipartisan investigation called for a number of changes, including: adding companies handling transactions involving high-end art to the Bank Secrecy Act; issue comprehensive guidance from the Treasury Department’s Office of Foreign Asset Controls to auction houses and art dealers on how to avoid doing business with sanctioned individuals; and require the Treasury to collect information on the beneficial owner of 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 a change is needed in this multi-billion dollar industry.”
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