As the fallout from Russia’s tragic invasion of Ukraine continues to unfold and the list of oligarchs slapped with sanctions grows by the day, many in the art world are wondering how to navigate this constantly evolving terrain without landing in legal hot water themselves.
To help shed light on the complex and often misunderstood topic of legal sanctions, we have answered a sampling of the most common questions we have received from clients and others in the U.S. and around the world.
I run a gallery in Chelsea and believe that one of our biggest Russian buyers may be put on the OFAC sanctions list. What does that mean?
Good question. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces sanctions against individuals, companies, and even countries in accordance with U.S. foreign policy goals. These sanctions programs vary in scope, and in the case of Russia include not just specific oligarchs but entities they may own or control. The bottom line is that doing business with a sanctioned party is against the law and punishable by substantial fines and even imprisonment.
How long has OFAC been around?
OFAC is a successor to a department of the U.S. Treasury that was formed after World War II, but the Treasury Department has been using sanctions as a foreign policy tool since as far back as the War of 1812. Clearly, the U.S. government has extensive experience deploying this economic weapon against people it deems to be bad actors.
I am a European art advisor working with a wealthy Russian client living in Monaco. If he ends up on the OFAC sanctions list, I won’t have a problem with the U.S. government if I continue to work with him, right?
Not so fast. OFAC’s regulations are very broad and, we believe, deliberately vaguely worded to permit the U.S. government wide latitude in enforcement. They apply to all U.S. citizens (regardless of where they are located), anyone living or doing business in the U.S., and all U.S. companies and their foreign branches. Even though you aren’t American, U.S. sanctions could affect any business you do on behalf of your client that has any connection with American companies or individuals.
That means you would not be legally permitted to, say, purchase a painting for your client from a U.S. gallery at a European art fair, sell a sculpture on his behalf at an American auction house’s Hong Kong branch, or possibly even receive payment from him in U.S. dollars, since dollar wires flow through the U.S. banking system. And because any U.S. company doing business with you for the benefit of your sanctioned client risks its own serious legal trouble, you might have trouble finding insurance for his works or engaging a shipper with ties to the U.S.
The other issue to bear in mind is that different countries and entities around the world maintain their own separate sanctions lists. So even if your client doesn’t appear on the OFAC list, he might appear on the U.K. sanctions list, the E.U. sanctions list, or any one of a number of other lists.
How about working with a company owned by an individual sanctioned by the U.S.?
That’s a non-starter. OFAC has a rule that prohibits transactions with any company in which a sanctioned individual or group of individuals has a cumulative stake of 50 percent or more. U.K. regulations are even stricter, and prohibit transactions with entities controlled by sanctioned parties, no matter what percentage they own.
How the heck could I know if a sanctioned party owns 50 percent or more of XYZ Corp? The company definitely won’t put that information on its website.
Great question. We tell our U.S. clients to do an initial search of the entity and anyone they know who is connected with it through the publicly accessible (and free) the OFAC online database. You won’t get an email notification or Google alert if your client is added to the list, so you’ll have to search manually and keep an eye on the papers. If there are any red flags—and in the case of Russians, we mean that literally and figuratively—we advise clients to go to the next level and use a broader, paid database such as World-Check or RiskScreen. And given the situation, we might also suggest contacting a firm dedicated to compliance in this area, such as Corinth Consulting in London.
Our Chicago gallery just received a terrific antique armoire on consignment that would be perfect for a Russian collector. The dealer we would like to send it to is in Belarus and definitely isn’t on any sanctions lists here in the U.S. or anywhere else. Can we ship it to her?
Nyet. On March 11, 2022, the U.S. Department of Commerce restricted the transfer of all U.S.-origin luxury goods, including antiques, to Russia and Belarus. The same ban applies to jewelry, vehicles, and other shiny objects favored by oligarchs.
I am a New York based art consultant. I know I can’t sell Picassos to Putin, but could I partner with a Beijing-based consultant to handle the collection of a Russian mining magnate sanctioned by the U.S.? The Chinese aren’t sanctioning anyone yet.
Not a chance. OFAC specifically prohibits people from doing indirectly—such as through an intermediary—what they can’t legally do directly, so this type of workaround would definitely lead to legal problems for you. You need to be careful not even to facilitate a transaction with a sanctioned individual.
I have a follow-up question. If we get paid in crypto in China by the sanctioned Russian collector, the U.S. government would never know about my involvement—so no harm, no foul. What do you think?
China has banned crypto—but even so, we aren’t in the business of helping people evade the law. If you send us your address, we might send you some socks if you end up in prison.
So I really can’t do any business with anyone on the OFAC sanctions list?
Have you been paying no attention here whatsoever?
Don’t answer a question with a question. Practically speaking, what do I do if my collector client ends up on the sanctions list?
You must stop doing business with him, or directly or indirectly acting for him or an entity he owns or controls. Full stop. Don’t finish doing a deal with him. Don’t take any funds from him or send any funds to him or to a third party for his benefit. Don’t even engage in business-related e-mail correspondence with him or third parties concerning his affairs.
So what’s the takeaway here?
We basically advise our clients to think of sanctioned parties as functionally dead to the world. And when in doubt, we tell clients not to proceed. The risks of running afoul of the constantly changing regulations in this area just aren’t worth it.
This article is by Thomas C. Danziger, Esq. with Joan Gmora, Esq., attorneys in the New York firm Danziger, Danziger & Muro, LLP, specializing in art law. Some facts have been altered for reasons of client confidentiality or have been made up out of whole cloth. Nothing in this article is intended to provide specific legal advice.
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