Tracking and Disrupting the Illicit Antiquities Trade with Open Source Data by Matthew Sargent, James V Marrone, Alexandra Evans, Bilyana Lilly, Erik Nemeth and Stephen Dalzell (Homeland Security Operational Analysis Center)
considers the following research questions
- 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 authors comment
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.
- 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.
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.
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.
