This month marks a year since major art market jurisdictions, including the United States, United Kingdom, European Union and Switzerland, began imposing sanctions on Russia in response to the invasion of Ukraine by this country.
Recent enforcement of sanctions and bans has been vigorous. Last month, Bloomberg reported that federal prosecutors in New York had subpoenaed several auction houses for years of sales records as part of ongoing efforts to identify Russian sanctions violators. Among the ultra-rich named are Russian tycoons Andrey Melnichenko, Viktor Vekselberg and Roman Abramovich, as well as Ukrainian billionaire Ihor Kolomoisky.
The auction houses linked to the investigation have not been identified, but the major firms all say they carry out extensive checks on their customers to strictly comply with all applicable laws and regulations.
Indeed, in order not to expose themselves to criminal liability and given the rapid changes and frequent updates of sanctions lists, it is crucial for art companies to closely monitor announcements and developments in government legislation. In fact, some art market participants apply a “belt and suspenders” approach to sanction checks by searching their listings twice: first at the time of the commitment to buy or sell and again just before send or accept payment.
Another twist on sanctions compliance is that one must comply with sanctions wherever one transacts, and this is particularly relevant for art advisors and dealers who travel from country to country to fairs or other events. Traveling often ends up forcing the art market participant to further expand the scope of controls: not only the sanctions list in their home country, but also the list in the jurisdiction in which the transaction takes place – and possibly where the client is based.
Ban on luxury goods
Luxury goods bans are another weapon in the government’s enforcement arsenal in response to the Russian invasion of Ukraine. These have also been implemented in the EU, UK, US and Switzerland. Like sanctions, prohibitions apply generally and not just to regulated entities. The bans prohibit the sale or supply of luxury goods to parties in Russia or Belarus, priced above 300 euros, francs in Switzerland, pounds in the United Kingdom and dollars in the United States.
The UK has an additional arc in its quiver to the standard ban in place in the EU, US and Switzerland: the UK also bans trade with anyone “connected” to Russia. Although the legislation does not precisely define “connected”, a likely interpretation is that “connected” includes people living, working and paying taxes in Russia, as well as those who spend a lot of time there. More troubling is the possibility that “connected” to Russia includes Russians who live and work in the UK, but pay tax in Russia. To reduce the risk of violating this prohibition, art market participants should ask clients rather personal questions before concluding a transaction.
Russian tycoon Viktor Vekselberg has been named by federal prosecutors in New York
Photo © Jürg Vollmer
One of the most unfortunate situations concerns works that were purchased by Russian clients before the start of the war; but had not been dispatched at the time the sanctions were imposed. Such transactions are likely to remain in limbo for a long time. Although in certain limited situations a person may be granted permission to act with or for a sanctioned party, art purchases are unlikely to fall within these exceptions. Licenses are generally granted for goods necessary for civilian use and diplomatic missions in Russia.
When Russia annexed Crimea in 2014, there was also a wave of sanctions against Russia. However, after discovering that the 2014 sanctions had been circumvented, governments expanded the scope of enforcement to include “enablers” or those who help individuals circumvent sanctions. In the past, lawyers and accountants were considered facilitators, but now art advisors are also mentioned alongside other professional advisors.
The traditional refrain of the art market is that it is the last unregulated market. This refrain was never quite accurate, but now it’s less and less accurate. Not only do various laws such as sanctions and prohibitions apply more broadly to the art market, but a large part of the art market is subject to anti-money laundering regulations. The United States has already enacted the Anti-Money Laundering Act, adding antique dealers to the U.S. regulated anti-money laundering sector, and legislation adding art and collectibles is under consideration. So, little by little, it seems that, in fact, the art market is effectively regulating itself.
• Paula Trommel is Deputy Director of Corinth Consulting, London
