WASHINGTON — Powerful Russian oligarchs have allegedly discovered a surprising new tool to evade sanctions: the secretive and largely unregulated U.S. art industry.
The revelation is laid out in a new bipartisan congressional report that was released on Wednesday following a two-year investigation.
The 150-page report, spearheaded by Senators Rob Portman (R-Ohio) and Tom Carper (D-Del.) in their capacity as chair and vice chair of the Permanent Subcommittee on Investigations, details how the committee’s staff says it traced over $18 million in high value art purchases from U.S. auction houses and private sellers back to three shell companies linked to the Russian construction and energy tycoons Arkady and Boris Rotenberg.
The Rotenbergs, who made a fortune through contracts related to the Sochi Olympics, were sanctioned and had their U.S. assets frozen in March 2014 as part of the Obama administration’s decision to punish Russian President Vladimir Putin and his close associates over Russia’s annexation of Crimea. Arkady Rotenberg was later chosen by Putin to direct the construction of a bridge connecting Russia with mainland Crimea.
The pair has found a way to bypass the sanctions, the subcommittee claims, by moving money through shell companies and investing it in high-value artwork. The report cites more than one million documents reviewed, interviews with nearly two dozen individuals, and information requests from the country’s four biggest auction houses.
The art market writ large has been described by experts as “an ideal playing ground for money laundering” given its opaque culture.
And while the Rotenbergs are the only sanctioned individuals the panel says it could confidently determine were benefiting from lax laws governing the U.S. art industry, they are likely “only the tip of the iceberg,” a subcommittee staffer said in a call with reporters on Tuesday.
The art market writ large has been described by experts as “an ideal playing ground for money laundering” given its opaque culture — buyers and sellers often insist on anonymity — and art’s consistently soaring value. The global art market is currently valued at around $64 billion, with the U.S. accounting for 44% of the global market share, according to the Art Basel and UBS Global Art Market Report 2020.
Congressional investigators say they found that the Rotenbergs used three shell companies — Highland Business Group Limited, Highland Ventures Group Limited, and Advantage Alliance — to buy the art after they were sanctioned, and that they “attempted to conceal their participation in the U.S. art market by hiding behind a Moscow-based art adviser and dealer, Gregory Baltser.”
Baltser, a U.S. citizen, himself used a shell company called Steamort Limited to make purchases for the Rotenbergs, the subcommittee alleged. The investigators traced the purchase of at least 16 paintings — including René Magritte’s La Poitrine, bought for $7.5 million in May 2014 — back to the Rotenberg-linked shell companies.
Reached for comment, Baltser’s attorneys categorically denied the allegations, writing in a statement that neither Baltser nor his agency, BALTZER, “has ever, at any time, represented or transacted in any way with Boris or Arkady Rotenberg. Baltzer strongly denies any suggestion to the contrary.”
“Baltzer Limited’s compliance program has relied, and will continue to rely, on the United States Department of Treasury’s own Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals and Blocked Persons List (SDN). According to the OFAC list, Baltzer has acted appropriately and responsibly,” the statement continued, referring to the fact that Highland has not been sanctioned by OFAC.
“The Subcommittee’s Report relies on unverified and unverifiable hearsay in disagreeing with OFAC. Baltzer cannot be faulted for relying in good faith on the executive agency charged with making sanctions determinations. The conflict within the government should have been resolved without scapegoating Baltzer simply for complying with applicable regulations.” They added that they are “deeply disappointed” that the subcommittee has chosen “to make unfair allegations on the basis of information from unconfirmed sources.”
The auction houses told the investigators that they didn’t consider Balter’s purchases unusual — Sotheby’s chief compliance counsel said in an interview that the company viewed Baltser as the principal buyer of the art because he purchased it in his own name and used funds from his own bank account, and noted that Sotheby’s had no legal authority to demand the source of those funds. The general counsel for Christie’s told the panel in a separate briefing that his purchases “fit within” the house’s “understanding of his profile and operations.”
But the subcommittee “traced funds used to purchase art across multiple jurisdictions, accounts, and financial institutions,” the report reads, and found that the Rotenbergs’ funds generally followed the same path pre- and post-sanctions: from their shell company Highland Ventures, to Steamort Limited, to Baltzer’s bank account with Barclay’s in London, and finally to a particular New York auction house.
Baltzer’s agency, BALTZER, would then take title to the art — “so any due diligence was performed only on Mr. Baltser”, the report reads, thus easily satisfying the dealer’s rather lax, and voluntary, anti-money laundering protocols.
In a July 13 letter to the committee that Baltser’s lawyers provided to POLITICO, BALTZER’s general counsel said Baltser was “never involved in, or aware of, any transaction involving Steamort Ltd. that dealt with” either of the Rotenbergs.
The Rotenbergs could not immediately be reached for comment.
Subcommittee staffers said on Tuesday that Senator Portman wanted to investigate this issue “because of his strong support for an independent and democratic Ukraine,” which was invaded by Russia in 2014 in violation of international law. Portman hopes to strengthen deterrents to prevent more bad behavior by Putin and his allies, which now includes homing in on the U.S. art market, said another committee staffer.
“Art is a very significant piece of very wealthy people’s investment portfolios,” he said. “It is a piece of property that these people can use to hide, store, and move money around the world.” He added that “if the art market in the U.S. is seen as a place where it’s easy to launder dirty money, then it will attract criminals.”
For that reason, among the legislative remedies the panel is recommending is for Congress to amend the Bank Secrecy Act to add businesses handling transactions involving high-value art — the art industry is not currently subject to anti-money laundering laws under the Act.
The staffer noted that the E.U. recently imposed fresh anti-money laundering rules requiring businesses handling art transactions over €10,000 to verify the identity of the buyer, seller and ultimate beneficial owner — and called the fact that that the U.S. hasn’t made a similar change “a glaring loophole globally in the effort to combat this kind of crime.”
Another loophole the staffers identified is the gap between the announcement of sanctions and their actual implementation — in the four days between President Barack Obama’s announcement of new sanctions in 2014 and the Treasury Department’s actual imposition of those sanctions on individuals and companies, the Rotenbergs repatriated $122 million to Russia, the panel found.
“The Treasury Department should take necessary actions to both announce and implement sanctions to avoid creating a window of opportunity for individuals to evade sanctions,” the report recommends. They also recommended that the department consider sanctioning a designated individual’s immediate family members — the subcommittee found that Arkady Rotenberg transferred some of his business interests to his son Igor four months after being sanctioned.
The Rotenbergs and Baltser did not make themselves available to the subcommittee for interviews, staffers said. But they may have taken notice of the investigation: In August 2019, as the probe was ongoing, a storage unit in Germany holding the Rotenberg’s art purchases was closed, the staffers said, citing a conversation with the storage facility’s owners. The art was then shipped to Moscow.