As news broke last month of a lawsuit over a multi-party Anna Weyant painting involving multiple companies, the risks of the market’s preference for complexity and opacity have become increasingly transparent. .
The dispute, brought by an anonymous collector represented by prominent art attorney Aaron Richard Golub, was brought against collector Andre Sakhai, also trading under Aiden Fine Arts and The Art Collection (collectively described as AFTAC). First filed in February, the claim alleges that although the purchase was split into three (approximately $200,000 each), proceeds from its subsequent sale months later (a disappointing hammer price of $240 £000) was only directed in one direction: that of Sakhai.
Judd Grossman, the attorney representing Sakhai, said: “As our response to the complaint makes clear, the parties jointly own multiple works, and when placed in that proper context, this lawsuit can be attributed to an unfortunate miscommunication, which hopefully will be resolved quickly.This matter is a lot to do for nothing.
Yet the situation still raises important questions about whether the market should reconsider the complexity of such transactions.
Emerging webs
At the heart of the argument is the level of transparency offered between the parties. The claim describes how defendants “failed and/or refused to provide full and complete accounting so as to conceal defendants’ wrongful acts in violation of plaintiffs’ rights.”
Similarly, Defendant’s denial of the allegations includes the assertion that Plaintiff “withholds possession and full status information of two additional works”, which they claim are also co-owners.
That the companies involved are run by Andre Sakhai, whose father Ely Sakhai was jailed for selling counterfeit art and who fell out with his former friend Inigo Philbrick, the notorious dealer jailed for duping art collectors out of $86 million (while Philbrick sold a work by Wayde Guyton unbeknownst to André Sakhai) adds to the feeling that such networks have become a bit, well, incestuous.
Besides the flow of information, the claim also takes into account the cash flow. He is pointing out that “[Sakhai] has abused and continues to abuse the corporate form by dominating and controlling the affairs and assets of AFTAC, freely transferring funds between AFTAC and [Sakhai]”. The complaint continues:[Sakhai] used and continues to use AFTAC as, among othersa front company in order to serve its personal interests and not the legitimate commercial interests of AFTAC”.
Of course, multiple owners and interconnected corporate structures are nothing new or illegal. However, there is a history of their appearance in criminal proceedings.
Indeed, the Sakhai affair emerged the same month when a financial adviser, known only as “Opel”, spoke with The Sunday Times about a “notorious” organized crime ring run by the Ireland-based Kinahan family. The anonymous source alleged that the network invested much of its money in art (as well as other assets, including wine and stocks) using complex “banking systems” and more than 200 companies . The interview included specific mention of a Banksy worth $16 million and a work by Yayoi Kusama, estimated to be around $3 million.
Attorney Eric Montalvo, who is in a separate dispute with Kinahan, describes how “the cartel’s focus was trying to be public-facing, hiding in plain sight. Whether it’s investing in art, boxing, or wine, it’s a very sophisticated way to get legit.
The publication of the Pandora Papers by the International Consortium of Investigative Journalists last year revealed that more than 1,600 works of art had been exchanged using front companies and tax havens, including accounts used in the sale of looted items by the late dealer Douglas Latchford, who was later charged (although he always maintained his innocence).
Change on the horizon?
Governments pay attention to the use of shell companies and limited transparency in the art trade. The 2020 US Senate report on money laundering in the art market examined claims that $18 million worth of art was purchased through front companies linked to Arkady and Boris Rotenburg, two Russian nationals sanctioned in 2014 (these transactions were not found to be illegal) . Meanwhile, a Financial Action Task Force report on the market for organized criminals in art and antiques, published earlier this year, specifically mentioned the risk posed by front companies.
Nonetheless, art attorney Nicholas O’Donnell of Sullivan & Worcester is clear that while equity holding structures could be used to hide illicit money, “I don’t see the high value art as a terribly clever way to try to launder money—which I would advise against of course!All payments will go through a bank, who will have issues knowing your customer who will inquire about the beneficial owner ultimate. And in the United States [this owner] must now be disclosed to a treasury registry that is not accessible to the public, but is accessible to law enforcement. The UK and EU have similar requirements.
