AC’s Deborah Lehr and Tess Davis: On Anniversary of Ukraine Invasion, We Must Close Loopholes to Stop Russia from Exploiting the American Art Market

This blog post is authored by Deborah Lehr, Chairman and Founder of the Antiquities Coalition, and Tess Davis, Executive Director.

Today, February 24, marks one year since Russia’s 2022 invasion of Ukraine. 

As Russia continues to attack Ukraine by land, sea, and air, we must remember President Volodymyr Zelensky’s warning that Vladimir Putin is aiming to “erase Ukraine, its history and its peoples”— including his country’s rich cultural heritage. Russia is seeking to achieve this goal through both the intentional, targeted destruction of sites and collections as well as pillage and theft. The latter has the added advantage of providing a potentially lucrative source of financing.

And despite the U.S. government’s efforts to isolate Russia’s economy, a major blind spot remains: the American art market.

In 2020, a Senate report revealed how a pair of Russian tycoons laundered millions through the American art market in a full evasion of U.S. sanctions. The report, and many others, refer to the $28.3 billion American art market as the largest unregulated industry in the U.S. and, arguably, the world.

Headlines of this expose tell you much of what you need to know: 

The pair in the report are Arkady and Boris Rotenberg, two Russian billionaires, who over the years amassed a fortune in contracts and investments tied to the Kremlin due to their childhood friendship with Vladimir Putin. After Russia invaded Ukraine and annexed Crimea in February 2014, the United States quickly followed with sanctions on Putin and his inner circle, including the Rotenbergs.

By July 2020, when the Senate report was published, these sanctions targeted over 700 Russian individuals and entities. The U.S. government generally feels that sanctions are a powerful tool to force behavior change without military action, yet there had been growing concern in Congress that these particular sanctions weren’t working. 

For too long, the American art market has not been subject to the Bank Secrecy Act (BSA), our country’s primary anti-money laundering (AML) law. This weakness is exploited by bad actors, like the Rotenbergs, to evade U.S. sanctions. 

The Rotenberg scheme hinged on the concept of beneficial ownership of both corporations and art, using shell companies and art intermediaries. Shell companies are businesses that exist only on paper, and it’s important to stress they’re not necessarily illegal, but they can certainly be useful tools for illegal acts. These companies make it incredibly difficult, even for U.S. investigators, to determine who funds and profits from them, especially if they are formed in “offshore” jurisdictions with lax reporting requirements. The Senate investigation states that they don’t think they even found all of the Rotenbergs’ shell companies. 

The brothers also used an art intermediary, in this case, an American expatriate in Moscow by the name of Gregory Baltser. Again, this is a common practice that is not illegal, but a role that can be abused. Baltser, or his art agency, would bid on works for the Rotenbergs at auctions or negotiate with private dealers. They would purchase the pieces, using Rotenberg money disguised through the shell companies, and transfer the title to the Rotenbergs or one of their corporations.

From May to November 2014 alone, these shell companies were used to purchase at least $18 million plus worth of art in the United States, potentially giving the Rotenbergs major financial assets in the country.

The BSA requires high-risk individuals and institutions to assist the U.S. government in detecting and preventing financial crimes, however, major auction houses do not have to comply. If Baltser had been buying precious metals, stones, and jewels (or even an automobile, boat, or plane), U.S. law would have required the sellers to confirm the identity of the actual buyer and taken basic steps to ensure the transactions were not covers to launder money. 

The Rotenberg case study shows that this current art market exemption is not working for our national security and economic integrity — and it’s not working for the art market. The European Union, United Kingdom, and Switzerland have all already applied their AML regimes to the art market, why haven’t we?

If the United States doesn’t act, we risk our jurisdiction continuing to be a safe haven for criminals like the Rotenbergs. As we think about the devastation Ukraine has faced and will continue to face, we urge policymakers to consider closing this pathway to protect our shared history, economic integrity, and global security.

AC Discusses the Role of Cultural Heritage Professionals in Protecting Ukraine’s Heritage

February 2023 marks one year since Russian forces invaded Ukraine. Among the many tragedies of war, including the countless lives lost, the communities and cities decimated, and the ruin of the economy, the plunder and destruction of the country’s rich cultural heritage is another devastation.

UNESCO reports that over 230 sites of cultural significance have been damaged or destroyed to date. Last month, it was reported that more than 15,000 pieces of art and artifacts have been pillaged, including a body of Scythian gold and nearly the entire collection of the Kherson Regional Art museum.

Priceless to the Ukrainian people, these treasures have the potential to be a valuable commodity to the cash-strapped Russian State and may greatly undermine the U.S.-led sanctions regime, Deborah Lehr, Chairman and Founder of the Antiquities Coalition, warns.

On February 6, the Antiquities Coalition gathered cultural heritage experts to observe one year of this international crisis and discuss the responsibility the U.S. and all of us have to better support the Ukrainian people and their heritage.

Moderated by Tess Davis, Executive Director of the Antiquities Coalition, the panel of speakers included:

  • Dr. Kate Harrell, an archeologist working in international cultural heritage protection, investigator with the Conflict Observatory, and co-author of a recent policy brief for the AC Think Tank.
  • Dr. Sam Hardy, a cultural property criminologist and Head of Illicit Trade Research at the Heritage Management Organization, working closely with colleagues on the ground in Ukraine.
  • Dr. Chris Jasparro, a geographer and archaeologist specializing in cultural property protection and transnational security issues on the faculty of the U.S. Naval War College. Dr. Jasparro is also the co-author of another Think Thank policy brief.
  • Damian Koropeckyj, a consultant in cultural heritage risk management and co-author of the same policy brief as Dr. Harrell.

Davis emphasized that the American art market, valued at $28 billion and making up 43% of the global market, is likely the end destination for illicit objects looted from Ukraine or other areas of conflict. 

“When faced with similar crises, Washington has closed U.S. borders to suspect cultural material by requiring that at-risk imports have proof of legal export and authorizing law enforcement to seize those that do not,” Davis said. “This simple but effective step has made a major difference in past crises, but it has yet to happen today.”

The panelists shared tangible ways that foreign agencies, including governments and NGOs, and cultural heritage professionals can positively impact heritage preservation in Ukraine or other areas of conflict:

  • Inventory your current collection. There’s a growing reliance on the internet to understand what lives in museum collections, but bad actors like Russia can cut off the internet and eliminate the ability to determine what’s still secure. Specific to Ukraine, Saving Ukrainian Cultural Heritage Online (SUCHO) is an initiative of over 1,500 international volunteers who are collaborating online to digitize and preserve Ukrainian cultural heritage.
  • Cooperation with other international heritage organizations. Rather than offering individual solutions to solve the Ukraine crisis, our panelists say working together on a global solution could achieve more effective results.
  • Employ Ukrainians in Ukraine. Our panel flagged that applications for funding get rejected because of the risk to workers, but Ukrainians desire to support their communities. These individuals will likely continue their work to preserve and protect their heritage, but will they have the support to safely do so?

As global conflicts continue to threaten communities and their unique heritage, the Antiquities Coalition hopes cultural heritage professionals will better understand how to play a role during times of crises to better preserve and protect our shared history. Watch the full webinar here.