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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

February 24, 2023

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.