Russian oligarchs will be able to exploit legal loopholes around Britain’s art market to evade sanctions and launder money, experts have said, despite Boris Johnson’s claim there will be “nowhere to hide” from a clampdown on Kremlin-linked wealth.
It comes as the Labour MP Chris Bryant said “valuable assets” were likely to be traded by supporters of Vladimir Putin, and called on Christie’s and Sotheby’s – the leading auction houses – to refuse to handle them.
However, experienced advisers said the ultimate “beneficial” owner of priceless art works could still be concealed, aided by the market’s global scale and increasing online presence.
Kremlin-linked cash could also be laundered through collectibles such as stamps, wine and the burgeoning market in non-fungible tokens (NFTs), which do not feature in UK money-laundering regulations dating back to 2017.
Meanwhile, there have been questions about whether Sotheby’s and Christie’s will keep their offices in Moscow, with calls for a boycott of Phillips, a major auctioneer owned by a Russian luxury goods company.
Tremors from the invasion of Ukraine have already rippled through the art market, with Christie’s citing “the current world’s situation” for the recent postponement of an auction of rare Russian avant garde art books, and an ex-CEO of the rival auction house Bonhams leading calls for the boycott of Phillips.
Phillips, which is owned by Russia’s Mercury group, told the Guardian it was “business as usual” and that its auctions were going ahead as planned. However, the company has faced criticism for proceeding last week with a £30m London sale of works by artists including David Hockney, Claude Monet and – a favourite among wealthy Russians – Francis Bacon.
While the company announced it was donating the full net proceeds of the auction – £5.8m – to the Ukrainian Red Cross Society – it continues to be challenged.
Phillips is listed by Companies House as having two owners “with significant control” – Leonid Fridlyand and Leonid Strunin – Russians who give their address as the company’s Mayfair headquarters and their countries of residence as Monaco and Cyprus respectively. Both men have yet to comment, but the company’s CEO, Stephen Brooks, said it unequivocally condemned the invasion of Ukraine and “called for an immediate cessation of all hostilities in the strongest possible terms”.
Sotheby’s, Phillips, Christie’s and other companies stress that they comply with all anti-money laundering and “know your client” obligations, carrying out due diligence to ensure individuals and institutions targeted by sanctions are unable to do business through their salesrooms.
In response to Bryant’s comments, Sotheby’s said it conducted business in strict compliance with all applicable laws and regulations, including global sanctions. It was “absolutely rigorous” about following the present sanctions, and was monitoring closely for any updates to the lists. Its Moscow office is currently closed to the public.
Christie’s, which said its Moscow office “currently” remained open, said it had immediately taken action through its client identification and screening processes. It said it was not permitting individuals or companies designated on applicable sanctions lists to transact with it. “Politically exposed persons” were also subject to enhanced due diligence.
However, Prof Louise Shelley, the director of the Terrorism, Transnational Crime and Corruption Center at George Mason University in the US – said the global nature of the market and “gaping holes” in US safeguards rendered London highly vulnerable.
“A lot of buyers in the UK market are in the US, a jurisdiction where we are simply not doing enough. You can have someone represent a corporation which can be shielded on numerous fronts and no one will have an idea who is behind it,” she said.
“There is clearly a lot of desperate movement of all kinds of commodities and resources through investment vehicles at the moment, but art markets are the ideal way of moving wealth and hiding the beneficial ownership. We have a gaping hole in our laws here in the US at the moment which ultimately means that it’s possible to buy art in other jurisdictions quite easily. Oligarchs and their nominees would be busy exploiting every gaping hole that they can find.”
London-based experts said larger auction houses had started to put more resources and time into due diligence since the money-laundering regulations were introduced in 2017, but smaller companies may struggle.
“It has become more difficult to hide the identity of the ultimate beneficial owner, but you can do a number of thing such as structure your affairs so you have nominees here and there. Or you can just lie,” said one. “If someone wants to find a way of hiding the ultimate beneficial owner, then they will always find a way.”
At the moment, sanctioned oligarchs and others connected to the Putin regime could be viewing the art market both as a means of monetising art that they are sitting on – albeit taking a hit on the price – or as a way of putting money into a highly mobile investment that can also be physically stored offshore in a discreet way.
Brexit, which rendered it more cumbersome to bring art into the UK, means the second scenario is likely to be more attractive.
Other experts highlighted more glaring loopholes in the 2017 legislation and shortcomings when it came to its limited definitions of what is art.
“Think of collectibles that are not caught by those regulations. If I was inclined to use art to move dirty money, I would be thinking of things like stamps, vehicles and other expensive kit out of that scope,” said one.
HMRC has been approached for comment.
