- Russian oligarchs have deep roots in the art industry as high-value collectors and patrons.
- Auction houses, museums, and artists are cutting ties with the billionaires in response to sanctions.
- But experts warn that oligarchs could still launder money and evade sanctions through high-end art.
In London, the world’s top auction houses canceled “Russian Art Week,” the go-to art fair for wealthy Russian buyers.
In New York, Russian billionaire Vladimir Potanin resigned from the Guggenheim Museum’s board of trustees.
In Moscow, artists are canceling their exhibits in Garage, the museum founded by Dasha Zhukova, a socialite art collector and ex-wife of sanctioned oligarch Roman Abramovich.
As the world looks to retaliate against sanctioned Russian oligarchs and their “ill-begotten gains,” the notoriously opaque art industry is attempting to cut off decades-long relationships with the foreign tycoons.
But while personal assets like yachts, mansions, and jets are seized in the wake of the Ukraine invasion, experts told Insider the $50 billion art industry faces “gaping holes” when it comes to the question of ownership.
Russian oligarchs have spent millions on artwork purchased through US and UK auction houses and galleries
Mikhail Fridman, who is sanctioned by the EU and UK, bought Andy Warhol’s 1962 “Four Marilyns” for $38.2 million at Phillips in 2013. The next year, he flipped it to a Turkish banker for $44 million.
Roman Abramovich — who is also on the EU and UK sanctions lists — has reportedly purchased works including Lucian Freud’s “Benefits Supervisor Sleeping” for $33.6 million at Christie’s and a Francis Bacon triptych 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 the “the official art dealer to the Russian oligarchy,” according to the New York Post. When asked if Gagosian’s client relationships will change in light of recent sanctions, the gallery said it has “established effective internal controls and undertakes due diligence measures to fully comply with all relevant laws.”
In late February, the US, Canada, and leading Western European countries announced a task force to identify and freeze assets held by Russian power elites in other jurisdictions.
But in order to freeze an asset, you need to prove who it belongs to — a multimillion-dollar question in the art world, where anonymous and concealed purchases are commonplace.
The high-value art market 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 the Terrorism, Transnational Crime and Corruption Center at George Mason University, told Insider.
In 2020, a bipartisan Senate investigation found that art intermediaries bought more than $18 million in high-value art in the US through shell companies linked to Russian oligarchs after the US 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 sanctioned Russian elites.”
The art world’s structure is particularly susceptible to this practice of “washing” illegally obtained money so that it appears to come from legitimate sources.
For starters, it’s often tough to identify the actual buyer, says Dr. Moyara Ruehsen, director of the Financial Crime Management Program at the Middlebury Institute of International Studies at Monterey.
“No one is going to purchase anything under their real name. Even somebody who has nothing to hide, it’s either getting purchased by a trust or a shell company,” Ruehsen told Insider. “Auction houses and art galleries rarely ever meet the person who is selling the artwork or the person who is buying the artwork.”
Secondly, most art is 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 pieces are often stored in free economic zones or large warehouses called freeports, where goods are subject to little or no duties and taxes. Artwork can be bought and sold without ever leaving freeports, allowing it to remain inconspicuous as governments search the assets of sanctioned individuals. Sanctioned elites also can try to shield art from seizure by transferring ownership on paper to a close trusted associate who hasn’t been sanctioned.
Artwork also has the added appeal of having a more subjective market price, allowing private owners to inflate prices by millions of dollars to boost profits.
“It’s really hard to argue over what the true value of the product that we are trading really is,” Ruehsen said. “With other commodities, it’s harder to do that.”
How auction houses are dealing with the problem
For their part, auction houses say they’re prepared to weed out sanctioned individuals from their client lists.
Sotheby’s told Insider that it “conducts business in strict compliance with all applicable laws and regulations, including sanctions” and is “will comply with any regulations put in place.”
Christie’s said it has “immediately taken actions through our strict client identification and screening processes in place as part of our global anti-money laundering and sanctions compliance programmes.”
“We are not permitting individuals or companies who are designated on applicable sanctions lists to transact with us,” the company said. “Politically exposed persons, and those with a connection to a sanctioned or other high risk jurisdictions, are also subject to enhanced due diligence.”
A Phillips spokesperson told Insider the company has “measures in place to ensure that no individual or institution targeted by sanctions are able to do business directly or indirectly through our salerooms.” Phillips is owned by Russian luxury goods company Mercury Group.
Paul Minshull, the COO and CTO at Heritage Auctions, said the company has had anti-money laundering policies in place for several years, which includes a daily check of sanctions lists.
But the galleries only have so much insight themselves.
“Our major problem generally is that we’re not focusing on open records of beneficial ownership,” Shelley said, referencing US property right laws. “That’s a problem in the real estate market, it’s a problem in the art market. It’s a problem in our financial system across the board.”