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How does one launder money using art work?

Published September 6th, 2018 by Salesadmin

Typically, dirty money is laundered through the purchase of, say, a penthouse apartment, or mixed in with the earnings of a legitimate business like a restaurant. When gambling winnings or drug proceeds come out the other end, they appear as a real estate asset or business profit. They look clean.

When you sell your home the paperwork details the sale, including your name, and the title search lists the names of the people who owned the property before you. But when someone sells an artwork at auction — even something worth $100 million, much more than your house — the identity is typically concealed.

Oh, the paperwork might identify the work as coming from “a European collection.” But the buyer usually has no clue with whom he or she is really dealing. Sometimes, surprisingly, even the auction house may not know who the seller is.

Secrecy has long been central to the art world. Anonymity protects privacy, adds mystique and cuts the taint of crass commerce from such transactions. But some experts are now saying this sort of discretion — one founded in a simpler time, when only a few wealthy collectors took part in the art market — is not only quaint but also reckless when art is traded like a commodity and increasingly suspected in money laundering.

“The art market is an ideal playing ground for money laundering,” said Thomas Christ, a board member of the Basel Institute on Governance, a Swiss nonprofit that has studied the issue. “We have to ask for clear transparency, where you got the money from and where it is going.”

The debate about anonymity in the art world has intensified over the past year, fed in part by the release of the so-called Panama Papers, which detailed the use of corporate veils to conceal ownership, dodge taxes and enable crime, its authors say. Now various expert groups, like the Basel Institute, are coming forward with ways for dealers and auction houses to curb secrecy and combat money laundering. In a significant change, Christie’s said last week it has strengthened its policy in recent months and now requires agents looking to sell a work through the auction house to tell it the name of the owner they represent.

“Where it has concerns, Christie’s declines the transaction,” the company said in a statement.

The stakes have risen alongside the soaring value of art, with an estimated $63.8 billion worth of sales in 2015.

In one current money-laundering case, United States authorities have accused Malaysian officials and associates in a civil complaint of converting billions of dollars of embezzled public funds into investments like real estate and art. Masterworks by Basquiat, Rothko, Van Gogh and others were purchased, many at Christie’s, according to a complaint filed by federal prosecutors. Later, a Cayman Island company owned by one of the accused launderers took out a $107 million loan from Sotheby’s in 2014 using some of those artworks as collateral, authorities say.

Another recent dispute seems to reveal that auction houses themselves do not always know whose art they are selling. In this instance a collector has accused Sotheby’s of selling his $16 million painting by Henri Toulouse-Lautrec without knowing who actually owned it.

The Toulouse-Lautrec work, “Au Lit: Le Baiser,” consigned for sale at Sotheby’s in London in 2015, depicts two women embracing on a bed. The Swiss dealer who brought the work to Sotheby’s, Yves Bouvier, signed the standard paperwork surrounding such a sale, which requires the consignor to indicate he or she either owns the painting or is authorized to sell it. After the sale, he was given the proceeds.

But the real owner was a trust controlled by Dmitry E. Rybolovlev, a Russian billionaire who had been using Mr. Bouvier as his art adviser. Mr. Rybolovlev agrees he had authorized the sale but says Sotheby’s should have checked who the real owner was before turning over the money.

“It is extraordinary that such a rare and high-value work could have been sold at auction without the auction house knowing the identity of the true owner,” Tetiana Bersheda, a lawyer for the Rybolovlev family office, said in a statement.

Actually, experts said, it’s not that rare. “Do auction houses know who the principal is?” asked Amelia K. Brankov, a lawyer who specializes in the art market. “I don’t think they always do.”

Mr. Rybolovlev, who himself has used offshore shell companies that obscured his ownership of art, is now engaged in a sprawling legal battle in several courts with Mr. Bouvier, over matters that include the money from the Sotheby’s sale.

(Mr. Bouvier, who is also a leader in the international art storage business, said he has not turned over the money because, he said, Mr. Rybolovlev had told him to keep it to partially settle a debt from another transaction.)

Sotheby’s declined to comment on whether it believed Mr. Bouvier to be the owner. But it says it knew him very well as a customer and that he had represented to them that he had the legal right to sell the property. As to its policy of learning the identity of ultimate owners, Sotheby’s said it takes a risk-based approach — sometimes requiring disclosure depending on the specific facts and circumstances of each situation.


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