A new bipartisan Senate investigation concluded Russian oligarchs have been using the opaque nature of the art industry to dodge U.S. sanctions, purchasing millions of dollars in art in an apparent money laundering scheme.
The 150-page report by the Permanent Subcommittee on Investigations, led by Chairman Rob Portman of Ohio and Vice Chairman Tom Carper of Delaware, detailed a two-year investigation providing a “case study” on how sanctions evasion can happen through the art industry — in this case by two wealthy Russians close to Russian President Vladimir Putin who were sanctioned by the Obama administration in response to Russia’s invasion of Ukraine and its annexation of Crimea.
The Senate investigation scrutinized major auction houses, private New York art dealers, and seven banks. Their report showed “how a lack of regulation allows the art industry to avoid the same anti-money laundering requirements that apply to financial institutions” and found that “the art industry’s secretive nature allowed art intermediaries to purchase more than $18 million in high-value art in the United States through shell companies linked to Russian oligarchs after they were sanctioned” by the United States in 2014.
“This bipartisan report demonstrates that Russian oligarchs like Arkady and Boris Rotenberg have used the secrecy of the art industry to evade U.S. sanctions,” Portman said. “It is shocking that U.S. banking regulations don’t currently apply to multi-million dollar art transactions, and we cannot let that continue. The art industry currently operates under a curtain of secrecy with art advisors representing both the seller and the buyer while masking their identities as well as the source of the funds, making art transactions easy to use to evade sanctions.”
Arkady and Boris Rotenberg, co-owners of the massive Stroygazmontazh construction firm and considered confidants of the Russian president, were able to use the murky art world to skirt the sanctions against them, the senators found, and shell companies linked to the Russian oligarchs were not limited to just art and conducted a massive $91 million in transactions after U.S. sanctions were implemented. The Treasury Department noted in 2014 that the brothers made billions in part by “providing support to Putin’s pet projects by receiving and executing high price contracts for the Sochi Olympic Games and state-controlled Gazprom.” The U.S. eventually hit Arkady’s son, Igor Rotenberg, with sanctions in 2018. Though the sanctions appear to have affected the Rotenberg brothers in some fashion — they reportedly sold their expensive private jet in 2019 — the men used the relative lack of art industry financial regulations to obtain art in the U.S. worth millions of dollars.
The Senate investigation concluded that “the art market is the largest legal, unregulated market in the United States” and lamented that the art industry isn’t subject to the Bank Secrecy Act and thus is not required by law to maintain anti-money laundering or anti-terrorism financing controls when conducting transactions, although all U.S. persons and companies are prohibited by law from doing business with sanctioned individuals such as Rotenbergs.
“While Russia-related sanctions, including those against the Rotenbergs, were set to expire in March 2020, President Trump extended them for another year,” the report said. “The effectiveness of these sanctions, however, is in question. To date, Russia has not withdrawn from Crimea and has even expanded its military operations in surrounding waters. The Subcommittee sought to understand why the sanctions have not been more effective. … If wealthy Russian oligarchs can purchase millions in art for personal investment or enjoyment while under sanction, it follows that their businesses or hidden resources could also continue accessing the U.S. financial system.”
“It is alarming and completely unacceptable that common sense regulations designed to prevent money laundering and the financing of terrorism do not apply if someone is purchasing a multi-million dollar piece of art,” Carper said. “As a result, criminals, terrorists and wealthy Russian oligarchs like the Rotenbergs are able to use an unregulated art industry, as well as real estate and other investments, to hide assets, launder funds, and evade sanctions. Unfortunately, our failure to close these obvious loopholes make U.S. sanctions — an important national security tool — far less effective than they could be.”
The Senate subcommittee offered up a host of recommendations, including that Congress “should amend the Bank Secrecy Act to add businesses handling transactions involving high-value art” and also “require the Treasury Department to collect beneficial ownership information for companies formed or registered to do business in the United States.” The senators also said that the Treasury Department “should consider routinely imposing sanctions on the individual’s immediate family members … when imposing sanctions on an individual” and “should issue comprehensive guidance on the steps auction houses and art dealers should take to ensure they are not doing business with sanctioned individuals or entities.”
The report by Portman and Carper comes the same day that President Trump said he did not raise disputed reports of alleged intelligence about Russian bounties offered to Taliban fighters to kill U.S. soldiers during his recent call with Putin.
Earlier in July, the U.S., the United Kingdom, and Canada jointly accused Russian intelligence of likely attempting to hack into groups conducting COVID-19 vaccine development in all three countries in an effort to steal their research. Last week, the U.S. Intelligence Community warned that Russia, China, and Iran were all attempting to influence the 2020 election.
Special counsel Robert Mueller’s investigation concluded that Russia interfered in 2016 in a “sweeping and systematic fashion” through a Russian military intelligence hacking operation against the DNC and by providing thousands of emails to WikiLeaks for dissemination, but said that the evidence “did not establish” any criminal conspiracy between the Russians and the Trump campaign. Declassified FBI records show British ex-spy Christopher Steele’s dossier may have been compromised by Russian disinformation.
