- What do the actors, networks, and markets that enable the looting, trafficking, and sale of antiquities look like?
- What data sources can be used to assess the structure and transaction volume of the illicit antiquities market?
- What are the potential strategies and data sources that would guide more-effective enforcement?
The sale of illicit goods provides an important funding source for terrorist organizations, organized crime, and rogue states. Therefore, tracking and disrupting these networks is an important national security goal, but it is often difficult to accomplish because of the clandestine nature of these transactions. ... The illicit antiquities market has become an area of concern for policymakers. It is fueled by a well-documented rise in looting at archaeological sites and a fear that the proceeds of such looting may be financing terrorism or rogue states. Efforts to craft effective policy responses are hindered by the lack of data and evidence on two fronts: the size of the market and the network structure of participants. In lieu of reliable evidence on these two fronts, the conversation has been dominated by speculation and hypotheses and has generated some widely accepted theories of how the illicit antiquities market operates.
In this report, the authors compile evidence from numerous open sources to outline the major policy-relevant characteristics of that market and to propose the way forward for developing policies intended to disrupt illicit networks. The approach uses multiple methods and data sources, with the understanding that no single piece of evidence can provide a complete picture of the market and that only by cross-referencing and triangulating among various sources can salient market characteristics be illuminated.Their key finding are that
The market size is smaller than often reported. Market structure varies widely, but it often appears ad hoc and opportunistic. The West is not the only end market for looted antiquities. Technology used in the looted antiquities trade is mostly unsophisticated. Policy responses should
- address a decentralized network that relies heavily on trust and communications between buyers and sellers who do not have an ongoing personal relationship.
- Increase fear of law enforcement by sharing stories that highlight the risks of illicit trades or accounts of sting operations.
- Increase skepticism about fakes and replicas by highlighting the lack of specialists in the network and noting recent examples of doubt about the authenticity of high-profile antiquities.
We could, of course, hold the major auction houses to their claims about vigilantly opposing illegal traffic in antiquities ... something that is clearly not the case.
- Undermine trust by increasing the perceived threat of surveillance on messaging and transaction platforms. The methods demonstrated in this report should be applied and validated in other research contexts.
The authors state
Our evidence implies that the size and structure of the illicit market is at odds with the conventional wisdom espoused by some journalists and researchers. Commonly quoted estimates of the size of the illicit market range from hundreds of millions to billions of dollars, while news stories frame antiquities trafficking as the domain of well-organized criminal networks. In contrast to these assertions, our research points to a market that looks smaller and is less organized.
• The market size is smaller than often reported. Our data indicate that the illicit market is likely much smaller than the multibillion-dollar claims that are commonly quoted. We find no evidence that illegal sales are occurring in large or even steady quantities on deep web platforms, such as Facebook or Telegram, and we find virtually no evidence of antiquities being traded on the dark web. As for the “visible” market of auction houses, dealers, eBay, and other online outlets, we find that the entire market (looted or not) is not likely to be larger than a few hundred million dollars each year. Even this is likely an overestimate, given that our appraisals contain data with fakes, replicas, and other nonantiquities.
• Market structure varies widely, but it often appears ad hoc and opportunistic. Organized crime actively participates in the illicit antiquities market in some regions, including Bulgaria, Greece, and Italy, but we found a second type of network that involves some activity in Iraq and Turkey. This network is best characterized as an organic, ad hoc system of smugglers, middlemen, and brokers whose trade in antiquities is opportunistic and sometimes sporadic. In addition to characterizing these often-discussed aspects of the market, the report illuminates other characteristics that are relevant for both policymakers and for future research.
• The end market for looted antiquities is not only the West. It is often assumed that the end market for looted antiquities is the Europe and the United States. But our informant interviews suggest that antiquities from the Middle East and Levant are ending up in Iran, Turkey, the Persian Gulf States, and other nearby countries. Furthermore, the prices being paid to middlemen for low- or medium-quality goods are on par with what would be paid in the end market in Europe or North America. These observations are contrary to the assumption that middlemen are paid just a fraction of the final price as they help in moving antiquities to Europe or the United States. The implication of this finding is that it is important to tailor policy responses to the situation if, indeed, the supply chains for certain goods are different from was has been assumed.
• Technology used in the looted antiquities trade is mostly unsophisticated. Studies of other illegal goods suggest that the dark web would be a natural place to sell looted antiquities. However, our analysis of dark web platforms finds virtually no evidence of antiquities sales. On deep web platforms, such as Telegram and Facebook, we also find little evidence of antiquities sales, although other secure messaging applications, such as WhatsApp and Viber, are used to coordinate sales and streamline communications within existing networks. We agree with other researchers who have concluded that the low level of enforcement and the existence of low-risk sales channels reduces the need for dark or deep web sales of antiquities. ...
In the absence of reliable statistical data, researchers have relied instead on historical and empirical evidence gathered primarily from field research, interviews,legal records, and government sources. Yet research designs in the field are often poor, producing a fragmented body of case studies and an overreliance on anecdotal data. In particular, five case studies dominate the published research:
• 9/11 attacker Mohammed Atta’s unsuccessful effort in 1999 to sell Afghan relics to raise funds for the attack
• an Irish Republican Army cell’s efforts in the 1990s to trade stolen art for heroin after failed efforts to find an underground buyer
• the 1999 discovery of an international art smuggling ring that sought to trade an estimated $35 million in stolen masterpieces for cocaine
• the discovery of antiquities among insurgent weapon caches captured in Iraq from 2003 to 2007
• the Islamic State’s organized trade in Iraq and Syria.
Although evocative, these cases are frequently presented without sufficient explanation to support the authors’ accompanying assertion that terrorist groups draw significant revenue from antiquities. With the exception of the Islamic State example, the published analysis of these cases can demonstrate only the existence of intermittent or opportunistic efforts to profit from antiquities trafficking, but they and cannot illuminate the frequency, scale, or organization of these illicit transactions.
In the absence of grounded data, journalists, researchers, and policy experts regularly inflate the importance of antiquities trafficking in funding for international terrorism and organized crime. Linking cultural property crimes to these high-profile law enforcement issues offers a means to bring funding and political attention to what has traditionally been an underrecognized issue. However, the facts and figures used to support these arguments are often misinterpreted or overstated. Unsubstantiated claims about the relationship among looting, weapons, drugs, and money laundering are common in both expert and popular publications, and inaccurate or exaggerated estimates of stolen items’ value abound.23 The absence of a comprehensive effort to quantify the trade has also encouraged the spread of misleading or inaccurate statistics. The Guardian’s June 2014 publication of an anonymous intelligence official’s claim that the Islamic State may have plundered $36 million worth of goods—including weapons, equipment, and natural resources—from the al-Nabuk region of Syria has been widely misrepresented as either evidence that the organization pilfered $36 million in antiquities from one site alone or as a low-range estimate of the organization’s total trafficking revenue. Similarly, an unsubstantiated claim that art crime, cultural property trafficking, or the illicit antiquities trade (the variation itself a demonstration of the literature’s definitional challenges) represents the third highest-grossing criminal trade, behind drugs and weapons, has proliferated through popular, governmental, and academic publications. Although INTERPOL issued a rare public disclaimer underscoring that despite the absence of “any figures which would enable [it] to” determine such a ranking, the estimate continues to be “frequently mentioned at international conferences and in the media.”
The fundamental problem, as Deborah Lehr of the Antiquities Coalition has observed, is that, as with most illicit markets, “there’s no real information or statistics on the size of this illegal trade.” However, this lack of data has not diminished the spread of wildly varying estimates about the size of the antiquities market. An article in the Wall Street Journal included estimates from Michael Danti, an archaeologist and academic director of ASOR CHI, placing the value of the Islamic State’s antiquities trafficking in the “low tens of millions” annually, while a French security official placed the figure at $100 million. Lehr, of the Antiquities Coalition, estimated that “[c]oming out of Syria, it is $2 billion” and “[w]ith Egypt, it is probably $3–10 billion, globally it has to be a much more significant number.”
There has been little apparent effort in the field to ground these estimates in data or to understand the size of the market for antiquities. By way of comparison, the volume of all sales of Greek, Roman, and Egyptian antiquities by the major auction houses—Bonham’s, Sotheby’s and Christie’s—in 2015 amounted to $41 million. Among these sales were artifacts whose provenance could be traced back as far as 1732, and only $326,000 of these sales were objects whose provenance could not be established before 2000. Moreover, 25 percent of all the items offered at auction were not sold either because there was no bidder or because the reserve price was not met. This reality that antiquities auctions represent a small market that is not always able to find buyers in well-advertised sales is at odds with the media’s assumption that there is a booming unmet demand for these goods that is capable of supporting a billion-dollar black market.
The US Senate Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs report on The Art Industry and US Policies that Undermines Sanctions gives a fascinating view of AML/CTF.
The report states
The United States government imposes economic sanctions on foreign adversaries in attempt to change their behavior. In theory, sanctions are simple. U.S. persons and companies are prohibited from doing business with sanctioned persons and entities. This prohibition should bar access to the world’s largest economy. The United States imposes sanctions for a wide range of reasons. For example, the United States has imposed sanctions on Russia for election interference, human rights abuses, providing support to Venezuela and Syria, but mainly in response to Russia’s invasion of Ukraine.
This report focuses, in particular, on a case study documenting how certain Russian oligarchs appear to have used transactions involving high-value art to evade sanctions imposed on them by the United States on March 20, 2014 in response to Russia’s invasion of Ukraine and annexation of Crimea.
Specifically, the Subcommittee traced purchases of high-value art back to anonymous shell companies linked to sanctioned individuals Arkady and Boris Rotenberg, two Russian oligarchs, and Arkady’s son, Igor. It appears the Rotenbergs continued actively participating in the U.S. art market by purchasing over $18 million in art in the months following the imposition of sanctions on March 20, 2014. Shell companies linked to the Rotenbergs also transferred over $120 million to Russia during a four-day window between President Obama’s March 16, 2014 executive order stating that the U.S. would be sanctioning certain Russian individuals and the Treasury Department specifically naming the Rotenbergs as sanctioned on March 20, 2014. In addition, certain Rotenberg-linked shell companies continued transacting in the U.S. financial system long after Arkady and Boris Rotenberg were sanctioned. The Subcommittee determined these Rotenberg- linked shell companies engaged in over $91 million in transactions post-sanctions. While Russia-related sanctions, including those against the Rotenbergs, were set to expire in March 2020, President Trump extended them for another year. 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 and, after reviewing a number of suspect transactions, launched a narrow investigation into high-value art. 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.
The Subcommittee’s investigation uncovered a complex set of facts involving shell companies with hidden owners, intermediaries who mask purchasers and sellers, and lax money laundering safeguards in the U.S. art industry.
The art industry is largely unregulated. The art industry is considered the largest, legal unregulated industry in the United States. Unlike financial institutions, the art industry is not subject to Bank Secrecy Act’s (“BSA”) requirements, which mandate detailed procedures to prevent money laundering and to verify a customer’s identity. While the BSA does not apply to art transactions by art dealers and auction houses, sanctions do. No U.S. person or entity is allowed to do business with a sanctioned individual or entity.
The art industry has been enjoying a boom. According to the 2019 Art Basel and UBS Global Art Market Report, world-wide art sales hit $64.1 billion in 2019. That report found the United States was the world’s largest art market comprising 44 percent of global sales, or around $28.3 billion. The art industry is generally divided into sales at public auctions and by private dealers. In 2019, sales at auction houses made up 42 percent of total art sales, while the remaining 58 percent of sales were through private dealers. The four biggest auction houses by sales—Sotheby’s, Christie’s, Phillips, and Bonhams—are selling art for sizeable amounts. In November 2017, Leonardo da Vinci’s Salvator Mundi sold at auction at Christie’s in New York for over $450 million. In May 2019, Christie’s New York sold Jeff Koon’s Rabbit for over $91 million, the highest price ever paid for a piece by a living artist. Even during the COVID-19 pandemic, an online auction at Sotheby’s brought in $234.9 million in total sales, including $84.55 million for Triptych Inspired by the Oresteia of Aeschylus by Francis Bacon. In turn, the auction houses report large annual sale numbers. Sotheby’s reported $4.8 billion in sales for 2019, while Christie’s reported $2.8 billion in sales for just the first six months of 2019.
Investors have taken notice. Deloitte’s 2019 Art and Finance Report noted that “artnet’s Index for Top 100 Artists produced an 8 percent Compound Annual Growth Rate between 2000 and 2018, compared with 3 percent for the S andP 500.” For example, Banksy’s Devolved Parliament sold at Sotheby’s in London on October 3, 2019 for around $12.2 million; the artist’s previous record for a painting sold at auction was $1.87 million for Keep It Spotless in 2008.
Secrecy is pervasive in the art industry. While the art market is not regulated by the BSA, it is governed by unwritten rules. A large number of art sales happen through intermediaries referred to as “art advisors” who can represent both purchasers and sellers. In a typical transaction, a purchaser may not ask who owns the piece of art they are purchasing; the seller may not ask for whom it is being purchased or the origin of the money. And in general an art advisor would be reluctant to reveal the identity of their client for fear of being cut out of the deal and losing the business.
Auction houses have voluntary AML polices. Because the art industry is not subject to BSA requirements, when a piece of art is sold, there is no legal requirement for the selling party to confirm the identity of the buyer or that the buyer is not laundering money through the purchase. While the four biggest auction houses have voluntary anti-money laundering (“AML”) programs, the employees who facilitated art purchases in the Subcommittee’s case study said they never asked the art advisor the identity of his client. Instead, the auction houses considered the art advisor the principal purchaser and performed any due diligence on the art advisor, even when it was well-known that the ultimate owner was someone else. With regard to the funds used to purchase art, the auction houses told the Subcommittee they rely on financial institutions to ensure the integrity of the funds, even though the auction houses interact directly with the buyer. But these voluntary AML policies are just for sales through the auction houses. As stated above, the majority of art sales are private transactions. A private dealer interviewed by the Subcommittee stated she had no written AML policies, tries to work with people she knows and trusts, looks for red flags, and relies on her gut. She also explained that her practices have significantly changed over the years and that she also relies on advice from AML lawyers.
Secrecy, anonymity, and a lack of regulation create an environment ripe for laundering money and evading sanctions. Tracing the ownership of anonymous shell companies, including those involved in high-value art transactions, is difficult. That difficulty continues even though corporate secrecy suffered a blow in the spring of 2016 when the International Consortium of Investigative Journalists (“ICIJ”) shocked the world by releasing information on 214,488 offshore entities from the Panamanian law firm Mossack Fonseca (the “Panama Papers”). One email chain included among the Panama Papers and made public described links between nine offshore companies to the Rotenbergs. The email chain listed Boris Rotenberg as the ultimate beneficial owner (“UBO”) of Highland Ventures Group Limited (“Highland Ventures”) and Arkady Rotenberg’s son Igor as the UBO of Highland Business Group Limited (“Highland Business”). The email copied London-based attorney Mark Omelnitski, who used his firm the Markom Group to establish and maintain shell companies for the Rotenberg family.
The true ownership of the listed shell companies was not, however, as straightforward as the Panama Papers email chain suggested. For example, based on financial information reviewed by the Subcommittee during its investigation, Arkady Rotenberg appeared to be the UBO of Highland Ventures, not his brother Boris. That information included non-public wire transfers showing multi-million dollar transfers from a company owned by Arkady Rotenberg to Highland Ventures. In 2012 and 2013, that company—Milasi Engineering—transferred over $124 million marked as annual dividends to Highland Ventures. The December 31, 2014 Financial Report for Milasi Engineering listed Arkady Rotenberg as its UBO, making it clear that Highland Ventures received its funding from a company owned by an individual the U.S. would later sanction. Milasi Engineering also held shares in Stroygazmontazh, a gas pipeline company sanctioned in April 2014 by the United States due to its ownership by Arkady Rotenberg. Arkady Rotenberg transferred his business interests to his son, Igor. In July 2014, four months after the United States sanctioned Arkady, Mr. Omelnitski’s firm, the Markom Group, executed paperwork that appeared to transfer Arkady’s interest in Milasi Engineering to his son, Igor, who was not sanctioned at the time. Milasi Engineering was owned by two other holding companies. The Markom Group transferred the ownership of those two companies to Highland Ventures, which it asserted had always been owned by Igor. Therefore, from July 2014 to April 2018, when Igor was finally sanctioned by the United States, Milasi Engineering was owned on paper by an unsanctioned individual. A report by a bank investigator produced to the Subcommittee determined the transfer of Milasi Engineering from Arkady to Igor was done solely to evade sanctions, and the Markom Group “intentionally structured [the ownership of these shell companies] to be opaque in order to hide the identities of true beneficiaries.” In response, the bank closed all accounts associated with the Markom Group. This included accounts held by art advisor Gregory Baltser. Mr. Baltser is a U.S. citizen, who must comply with U.S. sanctions laws.
Intermediaries played a central role in the Rotenbergs’ art purchases in the United States. As previously explained, Mr. Omelnitski and his company, the Markom Group, established and maintained shell companies for the Rotenbergs to mask their identities. The Rotenbergs also employed art advisor Gregory Baltser, who facilitated the purchase and sale of high-value art both before and after sanctions without disclosing the names of his clients. Mr Baltser's business is based in Moscow. Prior to sanctions, funds Mr. Baltser used to purchase art linked to the Rotenbergs followed a unique and recognizable financial path: Mr. Baltser bid on specific artworks at auction, purchased the art, and then assigned the title to the art to a Belize company named Steamort Limited (“Steamort”). Steamort paid for the art using funds the Subcommittee traced back to Highland Business. Mr. Baltser, however, was not the owner of Steamort; he had a contract with Steamort to serve as a consultant to purchase art on behalf of the company. A copy of that contract was produced to the Subcommittee by Christie’s. Both the contract and financial records showed that Steamort paid Mr. Baltser $9,500 a month for his services.
In total, between March 2010 and October 2018, financial records show Mr. Baltser received $1,116,000 in fees for his consulting services under the Steamort Agreement. Company documents obtained by the Subcommittee listed Steamort’s only director and shareholder as Jason Hughes. According to a report by ICIJ, Mr. Hughes was associated with over 200 other companies as a nominee director—an individual who masks the true UBO of a shell company. The owner of Steamort remains unknown. In 2012, Christie’s questioned Mr. Baltser about who owned Steamort, and asserted that Mr. Baltser could no longer bid at auctions until he provided Steamort’s UBO. Initially, Mr. Baltser responded that he did not know who owned Steamort. When pressed and threatened with missing the opportunity to bid at an upcoming auction, Mr. Baltser verbally told Christie’s that Steamort was owned by “Luisa Brown.” Christie’s accepted this verbal assertion, conducted AML checks on Ms. Brown, found no derogatory information, and cleared Mr. Baltser to continue bidding at auctions. Mr. Baltser never provided any documentary evidence of Steamort’s ownership by Ms. Brown. The Subcommittee was unable to confirm if an individual named Luisa Brown was the UBO for Steamort, or if she even existed at all.
Mr. Baltser opened an auction agency and club in Moscow. In late 2012, Mr. Baltser announced he was planning to open BALTZER Auction Agency and Club. The agency would be located in Moscow and its members would be “the leading Moscow and Russian collectors – the active participants of auction biddings at many world marketplaces.” Mr. Baltser proposed to partner with both Christie’s and Sotheby’s. As part of the proposed agreement, Mr. Baltser stated that he would bid at auctions on behalf of his clients under an account in the name of BALTZER.
This allowed Mr. Baltser to guarantee on his website that “we can give you complete anonymity.” Under the proposed agreement, Mr. Baltser pledged to conduct all AML and sanctions checks on his clients and provide an annual certification to the auction houses that no member of BALTZER was engaged in money laundering. Mr. Omelnitski served as BALTZER’s chief AML officer and represented Mr. Baltser in contract negotiations with the two auction houses. To be clear, Mr. Baltser put the same attorney who established and maintained shell companies to mask the Rotenbergs’ ownership in charge of his new venture’s AML compliance.
Christie’s partnered with BALTZER. Christie’s accepted Mr. Baltser’s proposal and signed the agreement with BALTZER on February 4, 2014. At the end of 2014, Mr. Omelnitski certified to Christie’s that “despite BALTZER having a significant number of Russian clients there were no transactions, which fall under recent sanctions against Russia.” Mr. Omelnitski failed to provide another such certification for the next three years, despite repeated requests from Christie’s to provide the annual certificate promised in the agreement. In 2018, Christie’s renegotiated its agreement with BALTZER to require client due diligence documents after each purchase.
A Sotheby’s employee identified Arkady and Boris Rotenberg as Mr. Baltser’s clients. Sotheby’s also considered Mr. Baltser’s business proposal, but ultimately declined. During negotiations, a Sotheby’s employee represented to Sotheby’s management that Mr. Baltser had told her that his clients included Russian oligarchs. In fact, she told Sotheby’s management that Mr. Baltser had identified Arkady and Boris Rotenberg as two of his clients (five months prior to U.S. sanctions). During her Subcommittee interview, however, the same Sotheby’s employee said Mr. Baltser had never told her that Arkady and Boris Rotenberg were his clients. Instead, she asserted she fabricated this information in an effort to convince Sotheby’s to accept BALTZER’s proposal. Despite declining the proposal, Sotheby’s continued to conduct business as usual with Mr. Baltser and his new company, BALTZER, and never questioned whether Arkady and Boris Rotenberg were his clients. The Subcommittee independently traced post-sanction purchases by BALTZER to shell companies linked to the Rotenbergs, suggesting the Sotheby’s employee was not truthful in her Subcommittee interview. Mr. Baltser continued to purchase art with funds linked to the Rotenbergs even after March 2014 sanctions. Following the imposition of sanctions by the United States on Arkady and Boris Rotenberg in March 2014, the funds Mr. Baltser used to purchase works of art at auction houses continued to follow the same general financial path as before sanctions. By this time, BALTZER provided another layer of anonymity for the funds used to purchase art. After Mr. Baltser successfully bid at auction, funds were wired from Highland Ventures to Steamort, just as they had arrived from Highland Business before sanctions. Steamort then wired funds to BALTZER, which paid the auction house and took title of the purchase. All four auction houses considered Mr. Baltser the principal purchaser, rather than an agent for a buyer, and never asked for whom he was purchasing the art. Any client due diligence was performed only on Mr. Baltser and not his undisclosed clients, satisfying the voluntary AML policies at the auction houses.
Highland Ventures purchased a painting through a private art dealer. The funds used to purchase René Magritte’s La Poitrine for $7.5 million in May 2014 through a private art dealer followed a different path. In this transaction, Highland Ventures took title to the painting and was listed on the invoice as the buyer. Anna Wilkes, an employee of Mr. Omelnitski’s Markom Group, signed on behalf of Highland Ventures as its Director. The funds used to pay for the painting were wired to the private dealer from a company named Advantage Alliance. The Subcommittee traced those funds to a company called Senton Holdings. An investigation by a financial institution–produced to the Subcommittee–determined Senton Holdings was owned by Arkady Rotenberg, linking him through the chain of wire transfers to the purchase of the painting.
Art was shipped to Germany for storage. La Poitrine, like much of the art traced to companies linked to the Rotenbergs, was shipped to a storage facility in Germany called Hasenkamp. The Subcommittee contacted Hasenkamp and was told the art was originally stored there under the name Highland Business; no individual was named. Later, a company named Taide Connoisseur Selection took over the contract to store the art at Hasenkamp. The only individual named on Taide Connoisseur Selection’s website was Mr. Omelnitski. In August 2019, during the course of the Subcommittee’s investigation, the Taide Connoisseur Selection account at Hasenkamp was closed and all art stored under the account was shipped to Moscow. Art purchases linked to the Rotenberg shell companies totaled millions of dollars. In total, the Subcommittee traced funds for over $18 million in art purchased in the United States from March 2014 to November 2014, both at auction houses and through private sales back to shell companies that appeared to be funded or owned by the Rotenbergs. Sotheby’s agreed to sell Brucke II for Mr. Baltser during the Subcommittee’s investigation. Mr. Baltser also sold paintings owned by his clients. In late 2018, he attempted to sell Lyonel Feininger’s Brucke II. Brucke II was originally purchased through Mr. Baltser on February 4, 2014 at an auction at Christie’s in London. The painting later appeared on a list of 31 paintings sent to Christie’s by a BALTZER employee, who stated that the list represented the collection of one of Mr. Baltser’s clients. The Subcommittee traced 16 paintings on the list purchased in the United States back to suspected Rotenberg shell companies. This suggests that all 31 paintings were owned by the Rotenbergs.
When Mr. Baltser attempted to sell Brucke II in late 2018, both Christie’s and Sotheby’s expressed interest in having the painting at their auctions. Ultimately, Mr. Baltser’s client chose Sotheby’s to sell Brucke II at auction in February 2019. At the time, the Subcommittee was actively investigating the auction house and Mr. Baltser. Sotheby’s requested Mr. Baltser provide the name of the UBO of the painting, including whether that individual was currently sanctioned.
Mr. Baltser said Brucke II had been resold since it was purchased at Christie’s in February 2014 and now belonged to a company incorporated in the Marshall Islands and provided a Russian passport for the company’s UBO. The Subcommittee asked Sotheby’s to request the name of the February 2014 purchaser of the painting; Mr. Baltser declined to disclose the name of that purchaser due to a non-disclosure agreement. Sotheby’s ultimately pulled the painting from the 2019 auction due to a lack of interest.
The Subcommittee asked to interview Mr. Baltser, but through his attorney, he declined the request and stated he was in Moscow and had no plans to return to the United States. Through his attorney, Mr. Baltser stated that: he has never represented or transacted with Arkady or Boris Rotenberg; Highland Business and Highland Ventures were not listed as sanctioned by the Treasury Department; and he did not have access to the Panama Papers.
A delay between the 2014 announcement and imposition of sanctions created a window to send U.S. dollars to Russia. On March 16, 2014, President Obama signed an executive order authorizing the Treasury Department to impose sanctions on individuals for Russia’s annexation of Crimea. But the Treasury Department did not name the specific individuals sanctioned under the executive order until March 20, 2014. During this four-day window, Rotenberg-linked shell companies transferred over $120 million through the United States to Russia. On March 18, 2014, Highland Ventures transferred over $39.5 million from its account at The Pictet Group in Switzerland through the U.S. financial system to its account at Gazprombank in Moscow. That same day, Culloden Properties transferred over $82 million from its Pictet Group account in Switzerland through the U.S. financial system to its account in Moscow at the Gazprombank. Both the Panama Papers and documents produced to a financial institution by the Markom Group—and subsequently provided to the Subcommittee—identify Boris Rotenberg as the owner of Culloden Properties. Rotenberg-linked shell companies transacted in U.S. dollars post-sanctions. Shell companies linked to the Rotenbergs continued conducting transactions through the U.S. financial system even after the imposition of sanctions in March 2014. For example, including its art purchases, Highland Ventures was involved in transactions worth over $16 million. Advantage Alliance was involved in transactions worth over $29 million. And while the UBO of Steamort remains hidden, the company served as an intermediary between Rotenberg-linked shell companies and BALTZER in the purchase of art. Following the imposition of sanctions in March 2014, Steamort was a part of transactions totaling over $22 million. In total, the Subcommittee identified over $91 million in transactions by Rotenberg-linked shell companies after sanctions were imposed on the Rotenbergs in March 2014.
The Subcommittee’s Investigation
The Subcommittee initiated its investigation after reviewing a number of suspicious transactions that appeared to involve art purchased through auction houses and private dealers. Funds used in these transactions originated at entities linked to the Rotenberg family through the Panama Papers and other public information. As part of its investigation, the Subcommittee reviewed over one million documents from the four major auction houses, a private art dealer, an independent public gallery, and seven financial institutions. The Subcommittee interviewed current and former employees of Sotheby’s, Christie’s, Phillips, and Bonhams. The Subcommittee also interviewed a private dealer based in New York and two art advisors located overseas who were all involved in the same multi- million dollar transaction. All entities cooperated with the Subcommittee’s requests, except for Mr. Baltser. Through his attorney, Mr. Baltser declined to be interviewed by the Subcommittee and stated he was in Moscow with no plans to return to the United States.
Findings of Fact
(1) The art market is the largest legal, unregulated market in the United States. The art industry is not subject to the BSA and is not required under U.S. law to maintain AML and anti-terrorism financing controls for transactions. However, all U.S. persons and entities are prohibited from transacting with sanctioned individuals or entities as determined by the U.S. Treasury Department Office of Foreign Asset Control (“OFAC”).
(2) Sotheby’s, Christie’s, Phillips, and Bonhams all have voluntary AML controls in place. Despite no legal requirement to do so, the four auction houses reviewed by the Subcommittee had established voluntary AML policies.
(3) Private art dealers are not subject to AML requirements. One private dealer told the Subcommittee she had no written AML or sanctions policies and instead relied on her gut and worked with people she knew. She also explained that questioning the identity of the buyer and the source of funds in an art transaction was not done in the art industry, nor would the dealer for the purchaser want to provide that information. During an interview with the Subcommittee, she explained that her practices have changed over the years and that she relies on the advice of lawyers with expertise in AML and related areas and looks for potential red flags in transactions.
(4) The auction houses treated an art agent or dealer as the principal purchaser of art, even if they had reason to believe they were working with an undisclosed client. This practice enables the auction house to perform due diligence on the art agent or dealer instead of identifying and evaluating the undisclosed client, creating a significant AML vulnerability.
(5) The United States sanctioned members of the Rotenberg family in March 2014. On March 16, 2014, President Obama signed Executive Order 13661 imposing sanctions on Russia due to its annexation of Crimea. Arkady and Boris Rotenberg were among the Russian citizens specifically sanctioned on March 20, 2014 due to their close ties to Russian President Vladimir Putin, which included awards of large government contracts to companies they owned. The U.S. Treasury Department later sanctioned specific Rotenberg-owned companies (on April 28, 2014), Boris Rotenberg’s son Roman (on June 30, 2016), and Arkady Rotenberg’s son Igor (on April 6, 2018). Both Roman and Igor Rotenberg were sanctioned due to their financial ties to their sanctioned fathers.
(6) Information released in 2016 from the law firm of Mossack Fonseca— known as the “Panama Papers”—linked the Rotenbergs to certain shell companies involved in high-value art purchases reviewed by the Subcommittee. The Panama Papers included an email chain made public that listed nine shell companies in the British Virgin Islands (“BVI”) linked to Arkady, Boris, and Igor Rotenberg. That email copied attorney Mark Omelnitski and identified Igor Rotenberg as the UBO for Highland Business Group Limited (“Highland Business”) and Boris Rotenberg as the UBO for Highland Ventures Group Limited (“Highland Ventures”).
(7) Mark Omelnitski is a London-based attorney linked to the Rotenbergs and art advisor Gregory Baltser. Mr. Omelnitski—through his company the Markom Group—assisted the Rotenbergs in establishing and maintaining shell companies. He also assisted art advisor Gregory Baltser in establishing his art agency BALTZER in Moscow. In discussions Mr. Baltser had with Sotheby’s and Christie’s about partnering with BALTZER, Mr. Omelnitski served as Mr. Baltser’s attorney and also represented that he administered Mr. Baltser’s AML and sanctions policies as his Money Laundering Reporting Officer.
(8) Both Highland Business and Highland Ventures received funding from companies linked to Arkady Rotenberg. Highland Business received funding from Advantage Alliance Ltd (“Advantage Alliance”), which an internal bank investigation linked to Arkady Rotenberg. Highland Ventures received over $124 million in funding from Milasi Engineering Limited. The 2014 Milasi Engineering Financial Statement listed Arkady Rotenberg as the ultimate beneficial owner of the company.
(9) Gregory Baltser is a Moscow-based art advisor who facilitated art purchases linked to the Rotenbergs. Mr. Baltser purchased art in the United States with funds that the Subcommittee traced back to Highland Business and Highland Ventures.
(10) Prior to the implementation of sanctions on Arkady and Boris Rotenberg in March 2014, the funds Mr. Baltser used to purchase certain art followed a pattern: Highland Business wired the funds to purchase the art to Steamort Ltd (“Steamort”). Steamort then wired the funds from its bank account in Estonia to the auction house and took title to the art. Steamort’s UBO remains unknown. In 2012, Christie’s questioned Mr. Baltser about the ownership of Steamort, a company formed in Belize. Mr. Baltser told Christie’s that he did not know and could not provide the name of the owner. After Christie’s threatened Mr. Baltser would be unable to bid at an auction unless he identified the owner of Steamort, Mr. Baltser told Christie’s the UBO for Steamort was “Luisa Brown.” Christie’s accepted this verbal assertion and cleared Mr. Baltser to bid in the auction. Mr. Baltser never provided any documentation that Luisa Brown was the owner of Steamort. The Subcommittee was unable to determine Steamort’s UBO or if Ms. Brown existed. (11) Mr. Baltser established a private art agency and club called BALTZER in Moscow in 2013. Mr. Baltser used BALTZER to take title and purchase art for his clients. This change altered the payment pattern outlined above to include BALTZER as the entity paying the auction houses for art Mr. Baltser purchased. In addition, following the imposition of sanctions on the Rotenbergs by the United States in March 2014, the Subcommittee traced funds to purchase art to Highland Ventures. Highland Ventures would wire the funds to Steamort; Steamort would wire the funds to BALTZER; and BALTZER would wire funds to the auction house and take title for the art.
(12) Christie’s partnered with BALTZER, including allowing Mr. Omelnitski to conduct AML and sanctions checks on BALTZER clients. In the February 2014 agreement, Christie’s agreed to rely on BALTZER to conduct due diligence on clients and provide an annual AML compliance certification. Mr. Omelnitski provided the first AML compliance report in December 2014 and confirmed that no BALTZER clients were sanctioned. Mr. Omelnitski did not provide another report until October 2017 when he emailed the amounts associated with BALTZER art purchases; he provided no certification regarding AML or sanctions compliance. Christie’s renegotiated the agreement in March 2018 and required BALTZER to produce customer due diligence to the auction house within 10 days of every purchase.
(13) Sotheby’s declined the BALTZER proposal, but continued business as usual. While considering Mr. Baltser’s proposal, the Sotheby’s Baltser Account Representative told Sotheby’s management that Mr. Baltser’s clients included Russian oligarchs, specifically Arkady and Boris Rotenberg before they were sanctioned by the United States. During her Subcommittee interview, the Baltser Account Representative stated that Mr. Baltser never told her that Arkady and Boris Rotenberg were his clients. Instead, she fabricated this information to convince Sotheby’s to agree to the proposal with BALTZER.
(14) Despite having voluntary AML and sanctions policies, auction houses failed to ask basic questions of Mr. Baltser, including for whom he purchased art. This allowed Mr. Baltser to continue to purchase art despite the imposition of sanctions by the United States on the Rotenbergs, completely undermining any action taken by the auction houses to block transactions by sanctioned individuals.
(15) Mr. Baltser purchased over $18 million in art from May to November 2014 using funds traced to Rotenberg-linked shell companies. These transactions included a $7.5 million private sale of René Magritte’s La Poitrine in which Highland Ventures took title to the painting, and Advantage Alliance wired the purchasing funds. The Subcommittee traced those funds from Advantage Alliance to Senton Holdings Ltd, which one financial institution determined was owned by Arkady Rotenberg. An employee of Mr. Omelnitski’s signed the contract for sale on behalf of Highland Ventures. Mr. Baltser sought to sell art linked to the Rotenbergs. In August 2015, an employee of BALTZER sent Christie’s a list of 31 artworks, including 16 works the Subcommittee linked to Rotenberg-related shell companies. The BALTZER employee indicated the 31 pieces belonged to the same collection and sought “any opportunities to promote these works or to make this collection more valuable.” That list included René Magritte’s La Poitrine and Lyonel Feininger’s Brucke II.
(16) In February 2019, Sotheby’s and Christie’s competed to sell Lyonel Feininger’s Brucke II; Sotheby’s was selected to sell the painting. Both Sotheby’s and Christie’s provided enhanced deal terms to sell the painting at auction. Sotheby’s planned to auction the painting at its February 26, 2019 Modern Art Evening Sale in London. The painting was estimated to sell for between £4 million and £6 million. Prior to the auction, however, Sotheby’s stated it pulled the painting due to a lack of interest.
(17) When questioned by Sotheby’s, Mr. Baltser declined to provide the February 2014 purchaser of Brucke II. Brucke II was purchased by Mr. Baltser on behalf of an undisclosed client at a Christie’s auction in February 2014. In April 2019, Sotheby’s asked Mr. Baltser to reveal the name of the February 2014 buyer. Mr. Baltser did not reveal the name, but asserted the February 2014 buyer no longer owned Brucke II. Instead, he stated the painting now belonged to a Marshall Islands company and provided a Russian passport for the UBO of the company.
(18) During the course of the Subcommittee’s investigation, Sotheby’s, Christie’s, and Phillips stopped transacting with Mr. Baltser and BALTZER. Rotenberg-linked companies continued to move at least $91 million through the U.S. financial system following the imposition of U.S. sanctions in March 2014. The Subcommittee determined that companies linked to the Rotenbergs continued to have access to the U.S. dollar and the U.S. financial system despite the imposition of sanctions against Arkady and Boris Rotenberg.
Recommendations
(1) Congress should amend the Bank Secrecy Act to add businesses handling transactions involving high-value art. The art industry is currently not subject to AML requirements under the BSA. The European Union recently required businesses handling art transactions valued at €10,000 or more to comply with AML laws, including verification of the identity of the seller, buyer, and UBO of the art.
(2) Congress should require the Treasury Department to collect beneficial ownership information for companies formed or registered to do business in the United States. This information should be available to law enforcement for investigatory purposes. Beneficial owner information maintained by the Treasury Department should include appropriate privacy and security protections.
(3) When imposing sanctions on an individual, the Treasury Department should consider routinely imposing sanctions on the individual’s immediate family members. While the U.S. sanctioned Arkady and Boris Rotenberg in March 2014, for example, it did not sanction the brothers’ children until later dates. The Treasury Department stated it imposed sanctions on Igor Rotenberg in 2018 because he “acquired significant assets from his father, Arkady Rotenberg, after OFAC designated [Arkady] in March 2014.” This allowed Arkady and Boris Rotenberg to evade U.S. sanctions by transferring their interests in companies to their children while maintaining operational control.
(4) The Treasury Department should implement and announce sanctions concurrently. While President Obama announced sanctions for Russia’s annexation of Crimea on March 16, 2014, the Treasury Department did not officially impose sanctions on specific individuals and entities until March 20, 2014. During this four-day window, millions of dollars were transferred through the United States and back to Russia. The Treasury Department should take necessary actions to both announce and implement sanctions to avoid creating a window of opportunity for individuals to evade sanctions.
(5) The Treasury Department should lower or remove the ownership threshold for blocking companies owned by sanctioned individuals. According to guidance by the Treasury Department, a company is blocked if it is majority owned by a sanctioned individual. If the sanctioned individual has a minority ownership in a company, that company is not blocked, even if the sanctioned individual owns 49 percent of the company.
(6) The Treasury Department should maximize its use of suspicious activity reports (“SARs”) filed by financial institutions. Under the BSA, financial institutions are required to file SARs with the Treasury Department’s Financial Crimes Enforcement Network. These reports document financial transactions that appear to involve money laundering or terrorist financing, among other illicit activities. The Treasury Department should more effectively mine SARs for information related to Specially Designated Nationals and add these entities to the Specially Designated Nationals and Blocked Persons List or alert other financial institutions of the risks of transacting with the entities. This would increase the effectiveness of imposing sanctions.
(7) OFAC 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. That guidance should clarify what steps auction houses and art dealers should take to determine whether a person is the principal seller or purchaser of art or is acting on behalf of an undisclosed client, and which person should be subject to a due diligence review.
(8) OFAC should issue guidance interpreting the informational exception to the International Emergency Economic Powers Act related to “artworks.” That guidance should interpret the artworks exception narrowly to encompass matters with informational content, while excluding typical works of art such as paintings, etchings, and sculpture.
